Day trading options
Day Trading is the term used to define the practice of buying and selling financial instruments like stocks, options and futures within the day so that all trading positions are closed before the closing bell for the day?s trading. This means that the trader does not hold any position overnight. Those who practice this type of trade are called day traders. The day trading cost is less than the cost of trading in shares held in overnight positions as an additional charge is levied on the purchase of shares that are held in the trader?s account. Usually stocks, stock options, currencies and some other futures like equity index futures, interest rate futures and commodity futures are day traded.
Origin of day trading:
Day trading used to be the sole domain of the large financial organizations and investment professionals and speculators with risk tolerance. Banks and investment managers with the specialized knowledge in the stock markets form the major junk of traders of this category. The advancement in computer technology and the spread of Internet have made it possible to do transactions online. This convenience combined with some changes in the rules and regulations of day trading and the new legislations have paved the way for more people participating in day trading. The day trading allows the investor the comfort of trading in the stock market sitting in front of his computer screen with the trading screen and the trading software. Day trading is considered as gambling by other investors, as the risks involved in day trading are high. The potential profit or loss is also high. Traders with the right knowledge, expertise, and experience can make huge profits by day trading.
What is an Option?
Option is the name of the legal agreement made between the buyer and seller of a security at a specified price for a specified period of time. This is like the practice of the insurance firm protects the property of the insurer against payment of a certain amount of money. But the insurance policy cannot be traded whereas the option can be traded. The two types of trades in options are called call options and put options. When the price of a stock is expected to rise, the trader buys a call option of a certain number of that stock. Similarly, when the price of the stock is expected to go down, the put option is bought for a certain number of stocks at a specific rate. Selling call option when the price will go down and vice versa. The options are generally traded in 100 unit options and one contract takes care of 100 units of the stock. The investor cannot buy tocks in quantities other than these. The positions are closed when the expected level of price is reached on a future date making it a profitable trade. Trading in options involves a number of strategies, which the traders use for day trading. A few examples are naked call or put, Call or put spread, Straddle, Strangle, Covered call, Collar, Condor, Combo, Butterfly spread and Calendar spread.
Why choose option trading?
The cost of buying an option is usually only a fraction of the actual price of the stock whose option is bought. When there is a price fluctuation in the stock price, the relative difference in the option is much larger, amounting to ten to a hundred times. So trading in options gives huge profits by buying the options at a fraction of the cost of buying the same number of the shares. This advantage which is called leverage makes options trading more appealing than any other strategy or investment to multiply the money. But it should be borne in mind that if loss is incurred, that may also be of high proportions. The investor needs to have the right knowledge, information and a solid strategy to be able to day trade successfully in the options market.
OEX Options:
The OEX deals with the stocks listed in the S&P 500 index. The top 100 blue chip stocks are part of its diverse groups. This diversified nature reflects the market?s overall trend and momentum. The OEX options are one of the most popular choices of day traders due to the following reasons: It eliminates the hard work of analyzing the individual shares and the performance of the index causes the difference in the price of the options. The money put in is less but the reward is big. But the risk involved is also high. Buying the S&P 100 is still less risky than buying and selling a number of stocks. The capital requirement for options trading is far less than that required for stock trading. The leverage is comparatively much higher.
The OEX advantage:
OEX options offer the trader the advice and the opportunity to earn a daily profit of 20 to 40 per cent. They also teach the tradition stock option trading and stock day trading to a maximum of three days positions holdings. They guide the traders by email any time of the day and during market hours. They also give insights into investing carefully and how to use stop losses and controlling the position size. The risk involved is minimized through these steps which are devised after experience and research. The trader is able to concentrate on his trading without having to worry about the technical analysis or market study when he takes this professional guidance which is full of proven techniques. The cost of this service is reasonable and worth its while as the trader is able to use them for making consistently higher profits on a daily basis.
Selling covered calls:
One of the simplest and safest strategies in options trading is selling covered calls. The natural tendency of the traders is to burn their fingers by following aggressive trading strategies. They are highly speculative and laden with huge risk though the potential for making profit is huge. Therefore the comparatively conservative strategies are the safe routes as the premium earned by trading in them always provide the cushioning effect when the shares concerned dip in value.
Option trading is an ideal financial strategy which can be included in the investment basket for significant rewards with minimal risk.
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