Many of us already know someone who is successfully Options

Trading for a living right now. Those who continue to trade for

a living earn money steadily, not freakishly over night. Options

trading should not be viewed as a get rich quick scheme. In

fact nothing should. Keep in mind always that it is a case of

higher gains mean higher risks.

One of the keys to success in trading and wealth creation in general is adherence to strong money management rules.

STOCK OPTIONS

Trading Stock Options gives you control over shares.

These options are contracts to buy or sell shares.

• CALL OPTIONS are contracts to buy shares.

• PUT OPTIONS are contracts to sell shares.

When you buy a Put option, you have...........

The right (but not the obligation)

To sell a fixed number of shares at a fixed price (Strike Price)

On or before a fixed date (Expiry Date)

You would buy Put options when the market is falling as they

give you the right to SELL shares. When the share price goes up,

Call options go up in value. Interestingly, when the share price goes down, Put options go up in value.

The strike price is a fixed, pre determined price at which you

can sell the shares if you wish to exercise your right to do

so. The strike price cannot change for the life of the option.

As the buyer of an option, you can exercise your right at any

time up until and including the expiry date.

Depending on where the strike price is in relation to the

current share price, influences the amount, or the premium

you pay for the option.

Why Trend is Your Friend

Share prices follow any of three directions:

They trend....

UP, DOWN, or SIDEWAYS (staying basically within a narrow sideways band, showing no definite up or down trend).

An increase in the number of buyers causes an Up trend; a decrease in the number of buyers causes a Down trend. More motivational force is needed for an up trend than for a down trend. A down trend needs only a moment of fear or panic, whereas for people to participate in an up trend, not only is sufficient good reason a requirement, but also money is needed.

The secret to trading success is...............

NEVER TRADE AGAINST THE TREND.

It's a simple rule, but worth repeating: Never trade against the trend!

Question: How do you make a small fortune?

Answer: Start with a large fortune and ignore the trend.

So, how often should you trade against the trend... NEVER! Okay?

Insurance comes in the form of Put Options. Buying Puts for insurance is called hedging. Just as you would insure your house or car, by insuring your shares you are protecting your investment should the market fall, or suddenly crash.

Let's say in this example, we want to buy a share, currently priced at $11.30.

We buy 12 month Puts at $11 strike price. This is our insurance against a fall in the share price. Our expiry time is a year away, during which our strike price of $11 gives us the right to sell (exercise the Put option). For these Puts, we pay a Premium of say $1.50.

In this example, our worst case scenario is if the sharemarket crashed. However, because of the Put option we've purchased we can sell our shares for $11 regardless of how little the market is prepared to pay for them. This means we lose only 30c per share. We also need to factor in the cost of our insurance - the cost of the hedge ($1.50 Premium)... an all-up loss of $1.80 per share. However, this is the most that we can lose on the fall of our share.

Let me ask you...which would you prefer...

1) An exposure (risk) of $11.30 (without a Put Option) or

2) An exposure of only $1.80 (with a Put Option)?

This is only one of countless strategies involving put options.

Short-Term Trading

This is a high leverage, high return trading strategy where we Buy Calls in an Up trend and Buy Puts in a Down trend. Profits from this strategy can be extremely high. Beware! High leverage and high returns also mean high risk! Short Term Trading calls for disciplined application of strict rules, including confirmation and re-confirmation of trends, and appropriate defensive actions.

It demands much practice ("paper trading") until you are truly ready to enter the market with real money. Then proceed slowly and carefully, starting small and working your way up. Always allocate to this strategy only a small proportion of your trading capital.

Only use money you can afford to lose!

There are 2 reasons why people lose money when investing:

• 1. Inadequate knowledge.

• 2. Doing too much, too quickly, with too little skill.

You can avoid these potential dangers by first investing in your education of these strategies prior to investing in the strategies themselves. Through proper research and understanding of the strategies you will become aware of the tools and skills required to be successful in these techniques.

Once you've been educated, practice before committing large sums of money into the market. During your practice you want to ensure that you are trading successfully on a small scale and only then should you consider increasing the size of your trading bank. It is not unusual to allow yourself at least 6 to 12 months of practice before proceeding further.

Rushing into these strategies is like driving a car without understanding the road rules - extremely dangerous! Even after learning the road rules, you need sufficient practice behind the wheel of a car before proceeding to drive at higher speeds. The same principles apply to trading.

Invest in your personal education and knowledge of the strategies first!

Once you are comfortable with your understanding of the concepts, start paper trading for the experience. This is where you use an imaginary amount of money and practice your trading on paper without any real money committed in the market.

Once you are comfortable in your understanding of trading concepts and paper trading practices, consider proceeding to the next level of using only a small bank of real money in the market.

After at least 6 to 12 months of consistent, proven positive results in the market, you may then consider increasing your trading bank. Please do this only after careful consideration of your overall financial objectives and personal circumstances.

It is wise to obtain qualified professional financial advice before committing heavily to these strategies.

If you'd like more information please contact Jules Dawson at Jule Corporation on:

Tel: 1300 557 881 (within Australia)

International : 61 2 6626 6881

Email: info@julecorp.com or visit our website at: http://www.julecorp.com/