Stock Market Timing - The Secret Market
You may have wondered why some people seem to know the secret of making money in the stock market. Their secret relies on low cost high yielding stock options that are readily available and can be bought with pennies. And yes, I mean those stock options that will fluctuate at lightening speeds like propane and naked flame. Everybody seems to fear options, and with a good reason. The Mathematics involved in the dynamics of options is advanced Mathematics and that coupled with the Market Timing of the underlying stock makes it a mystery for everyone to tell you to keep off options. And yes, if you try to play a game you do not understand, then it will not take you long before you become the hunted and you will lose very fast.
Getting an accurate Market Timing is a very difficulty thing regardless of what you may have been made to believe. To neutralize the effects of inaccurate Market Timing is the so called neutral options trades biased in favour of what you think is the trend of the underlying stock. Contrary to the belief that determining the security's trend is easy, in real time this is very difficulty. That being the case, it would be fair if I mention a few things you need to know about options for you to trade neutral trades. There is a way to go about trading options that will eliminate all those fears. I am going to start by assuming that you have the basics of options and that you know what stock options are, and the details of puts and calls, strike-prices and expiration dates, in-the-money, at-the-money, out-of-the-money, short and long positions. If you do not have the basics, read a book on options.
To beat inaccurate Stock Market Timing, the secret to this neutral options game plan is to use other people's money in that the options you sell pays for the better part of what you buy, with your money paying just for the difference or the gap. If you do this, it will not take long before you realize that you are ahead of the game. Unfortunately many of us place a lot of weight on trying to predict the difficulty Stock Market Timing and hardly use this strategy.
This style of options trading is a sedative strategy and you should not expect your money to multiply rampantly overnight but rather slow and consistence profits throughout the year - its waiting is like watching water in a cup dry. A 35% profit within a period of two to three weeks is normal but bigger gains in less time are not unusual. So, what Happens? The sold options and the bought options are confined in a channel such that the sold options decays or lose value faster than the bought options and the spread between their prices widen with time. When the situations warrant the appropriate adjustments and or rollovers are made to ensure all options are within the profit-yielding channel without reversing their roles.
90 percent of all options expire worthless. Time for logic: Does this mean that 90 percent of all those buying options lose their monies and that 90 percent of those who sell options make money from those options? Do not try any of these because either way you will most likely lose your money. But combine both and you see the difference. It's no wonder covered call writing is so popular. If you think the market is going up you can do the following: (a) buy long stock and sell a call, (b) buy deep in-the-money call/leap and sell at-the-money call, or (c) buy long stock. If you think the market is going down you can do the following: (a) short the stock and sell a put, (b) buy deep in-the-money put/leap and sell at-the-money put, or (c) short the stock. You will have to consider the issue of margin or collateral where applicable. These really are neutral positions but still the issue of combined delta, wear, volatility, price direction and so forth and so on has to be well understood.
Facts about Neutral Positions: Why is it then that Neutral Positions have high chances of making a profit? Two factors come into play here. (a) The short options nearer the expiration month wear or decay faster in time value in favor of the options writer and against the options buyer. (b) The stocks spend a lot of time fluctuating in neutral sideway ranges and during which options issued against them are losing time value. By twisting call and put options in certain ways, we can reduce the money we put at risk and still stand good chances of making nice profits.
Options are highly affected by implied volatility. The implied volatility is the monster that has to be contained at all cost. This implied volatility measures the cheapness and expensiveness of options premiums. Its impact to an option price is indeed very significant and cannot be ignored. Fortunately, the mere fact that you are buying an option and simultaneously selling another one tends to cancel this effect.
The Author’s page is designed to help beginners and average readers make some money as an extra income to supplement what they may be earning elsewhere - details of which you can find in My Page, if you will.
More by this Author
Nikola Tesla was a top scientist who originated from Croatia. Tesla invented the modern alternating current electric power systems and the distribution of electricity using poly-phase. Tesla was a scientist who...
QQQ is an exchange traded fund (ETF) in the fund family of PowerShares QQQ Trust. The fund was incepted on March 10th 1999 and has net assets of $18.7 billion in the large growth category. Some investors appear to...
Here below are the steps on how to build a greenhouse with PVC. The choice of PVC piping material as used in electrical conduits and water pipes is specifically targeted to low income people in developing countries...