http://www.options-trading-education.com/7043/execution-of-options-trades/
Execution of Options Trades
Although an options contract may not expire for months, its value can vary significantly from day to day and even hour to hour. Thus the execution of options trades in a professional and timely fashion is what leads to profits. A profitable option trade is based on a good knowledge of the fundamentals of the stock, commodity or currency that underlies the options contract. It is based on a sound analysis of market sentiment. But optimal profits come from execution of options trades at the very best time and manner.
Overview and Sense of the Market
Let us say that you purchased a call of XYZ Company. You paid $3 a share or $300 for the contract. The stock was selling at $78 a share when you purchased the option. You did so because you believed that the stock would rise in price and you were right. The stock is now selling for $91 a share and your call option is now worth $16 a share. If you sell right now you can make a nice profit. But, will the stock go higher? Or, might it correct and fall? The same analysis that gave you the insight to buy a call on XYZ in the first place is useful in deciding whether to say in the call contract or sell. If you believe that the fundamentals of XYZ warrant a higher rise in the stock you probably want to stay. If you think that market sentiment will continue to drive the stock higher you will want to stay with the contract and not sell. And, if you would like to sleep at night without worrying that the stock will gap down upon opening tomorrow morning, you may simply decide to sell and take your profits.
2. Although an options
contract may not expire
for months, its value can
vary significantly from
day to day and even hour
to hour.
http://www.options-trading-education.com/7043/execution-of-options-trades/
3. Thus the execution of
options trades in a
professional and timely
fashion is what leads to
profits.
http://www.options-trading-education.com/7043/execution-of-options-trades/
4. A profitable option trade is
based on a good
knowledge of the
fundamentals of the
stock, commodity or
currency that underlies
the options contract.
http://www.options-trading-education.com/7043/execution-of-options-trades/
5. It is based on a sound
analysis of market
sentiment.
http://www.options-trading-education.com/7043/execution-of-options-trades/
6. But optimal profits come
from execution of options
trades at the very best
time and manner.
http://www.options-trading-education.com/7043/execution-of-options-trades/
7. Overview and Sense of the
Market
http://www.options-trading-education.com/7043/execution-of-options-trades/
8. Let us say that you
purchased a call of XYZ
Company.
http://www.options-trading-education.com/7043/execution-of-options-trades/
9. You paid $3 a share or
$300 for the contract.
http://www.options-trading-education.com/7043/execution-of-options-trades/
10. The stock was selling at
$78 a share when you
purchased the option.
http://www.options-trading-education.com/7043/execution-of-options-trades/
11. You did so because you
believed that the stock
would rise in price and
you were right.
http://www.options-trading-education.com/7043/execution-of-options-trades/
12. The stock is now selling for
$91 a share and your call
option is now worth $16
a share.
http://www.options-trading-education.com/7043/execution-of-options-trades/
13. If you sell right now you
can make a nice profit.
http://www.options-trading-education.com/7043/execution-of-options-trades/
14. But, will the stock go
higher? Or, might it
correct and fall?
http://www.options-trading-education.com/7043/execution-of-options-trades/
15. The same analysis that
gave you the insight to
buy a call on XYZ in the
first place is useful in
deciding whether to say
in the call contract or sell.
http://www.options-trading-education.com/7043/execution-of-options-trades/
16. If you believe that the
fundamentals of XYZ
warrant a higher rise in
the stock you probably
want to stay.
http://www.options-trading-education.com/7043/execution-of-options-trades/
17. If you think that market
sentiment will continue
to drive the stock higher
you will want to stay with
the contract and not sell.
http://www.options-trading-education.com/7043/execution-of-options-trades/
18. And, if you would like to sleep
at night without worrying
that the stock will gap down
upon opening tomorrow
morning, you may simply
decide to sell and take your
profits.
http://www.options-trading-education.com/7043/execution-of-options-trades/
20. In a volatile market a
trader can make a lot of
money in commodity,
currency, or stock option
trading.
http://www.options-trading-education.com/7043/execution-of-options-trades/
21. He or she can also see
profits evaporate in a
heartbeat with the
execution of options
trades as the market
corrects.
http://www.options-trading-education.com/7043/execution-of-options-trades/
22. A good trading habit when
trading online is to
always set trading stops
along with entering an
order.
http://www.options-trading-education.com/7043/execution-of-options-trades/
23. For those trading over a
longer time frame limit
orders are also useful.
http://www.options-trading-education.com/7043/execution-of-options-trades/
24. However, in trading online
a trader will continually
reset the stops as the
option in question rises
or falls in price.
http://www.options-trading-education.com/7043/execution-of-options-trades/
25. This is because of the
extreme volatility that
sometimes drives prices
in a saw tooth pattern up
and down.
http://www.options-trading-education.com/7043/execution-of-options-trades/
26. When a trader expects the
value of his options
contract to continue to
rise he will want to stay
in the position.
http://www.options-trading-education.com/7043/execution-of-options-trades/
27. However, as nothing in life
or trading is certain, he
will also set a stop to sell
the stock if it falls.
http://www.options-trading-education.com/7043/execution-of-options-trades/
28. However, the normal up
and down variation of a
rising stock can be such
that at trader will lose
http://www.options-trading-education.com/7043/execution-of-options-trades/
29. his position immediate
before another big rise if
his lower trading stop is
set too close to the
current price.
http://www.options-trading-education.com/7043/execution-of-options-trades/
30. The precise setting of
trading stops is perhaps a
much art as science and
typically improves with
the continual execution
of options trades.
http://www.options-trading-education.com/7043/execution-of-options-trades/
