Track 'n Trade Futures End of Day Options
Introduction to Options
In this Track 'n Trade Pro Options trading training video, I want to cover with you, just the basics of Options. Trading Options is not a whole lot different than trading Futures.
Many people ask me, "Do I need to know how to trade Futures if I'm only going to be trading Options?" The answer to this question is, (in my opinion) is an emphatic YES! You can't trade Options without knowing how to trade Futures contracts, first. They go hand in hand, just like coffee and cream, and pen and paper. You simply can't have one without the other. Well, okay, maybe in extreme cases.
If you've picked up this Options trading training video, and you haven't already gone through the Futures trading training video, first, stop right here! Go back to our website: www.geckosoftware.com and pick up the Futures trading trading videos, first.
This first section is an introduction to Options, where I simply explain the basics. It's very important that you understand the basic concepts and the terminology; so when you call your broker, he or she understands your request and your order is executed properly. You'll also need to read through the material that comes with the CD-ROM and through this section, so you'll understand the concepts, as we get further down the path of executing simulated trades.
Why buy Options? Two reasons: Limited risk, and leverage.
When you buy an Option, your risk is limited to the price you pay for the Option. From a leverage standpoint, it allows you to control inexpensive assets. Such as Futures contracts, for a fraction of the cost, to purchase a contract outright. So, if you think that the price of the commodity is going to increase, you can buy a Call Option, instead of buying the Futures contract itself. Or if you feel the price is going to decrease, you can buy a Put Option, instead of selling the Futures.
Now, before you start buying Options, a word of caution: Most people who buy Options, lose money. Why? Because they buy Options and that's all they do. They don't take advantage of any of the Option strategies. When you finish with this version of Track 'n Trade Pro, you will know how to actually take advantage of the factors that cause most people to lose money.
We're going to teach you about 10 of the most safe and powerful Option strategies, that can pull profits out of the market under almost any conditions.
First, very simply, there are only two kinds of Options: Call Options, and Put Options. The one concept that most people have problems with understanding, is that you can both purchase a Call and Sell a Call.
The same goes for Puts; you can purchase a Put and you can sell a Put. Therefore, when you want to get rid of an Option, you must tell your broker to liquidate your Option. Because if you tell them to sell an Option, that's what he'll do. You still owe him the Option you wanted to liquidate.
Now, of course if you're with a good full service broker, this won't really be a problem. But if you ever get into a situation, where you don't have someone holding your hand through the process, this could pose some trouble. So, it's a good idea to always get in the habit of using the correct term liquidate, rather than saying Sell.
Call Options: Buying a Call Option gives you the right, but not the obligation to buy one contract of the underlying commodity at that given price, as long as you make the purchase before the Option expires. The given price is known as the strike price. The cost of the Option is known as the premium.
The person who created the Option, which you purchased, is known as the Option Writer. The Option Writer has the legal obligation to sell one contract of the underlying commodity at the strike price you specified. If you should decide to exercise your Options rights.
Put Options: A Put Option is just the opposite. When you buy a Put Option, it gives you the right to sell or become the writer of any given underlying Futures at the given strike price before the expiration date. The Option writer has the legal obligation to buy the Futures commodity from you, at the strike price. If you exercise the Option before it expires.
Option strike prices and expiration dates. Options have standard strike prices and expiration dates. What is a strike price? This is the fixed price at which the
Option can be exercised. It is also known as the exercise price. Options are available for lots of different strike prices. Your broker will have a strike price table, or you can find them listed on the internet. Of course, Track 'n Trade Pro helps you with that as well.
Expiration Date: This is the date on which the Option expires. Each Futures Option has it's own expiration date. Again, your broker will give you a list, or you can find it on the internet, or of course, it's listed in Track 'n Trade Pro. But keep in mind that an Option on Futures usually expires a whole month before the contract itself expires.
Options Writer: An Options Rider is any person who writes or creates an Option. When you sell an Option that you don't already own, you have just created a new Option. This makes you an Option writer.
In the money Option: Call Options that have a strike price below the current market price of the underlying commodity, are said to be in the money. Likewise, Put Options that have a strike price, which is above the current market price of the underlying commodity, is in the money.
For example: when pork bellies are trading at 70, a pork belly 60 Call Option, 60 strike price, would be 10 points in the money. An 80 Put Option would be 10 points in the money.
Out of the Money: This of course, is just the opposite of in the money. Call Options that have a strike price....