Option trading has many advantages over other investment instruments. Trading using options can give an investor the flexibility to leverage their trades for specific market outcomes, while simultaneously limiting their risk.
Today we’ll discuss how you can trade smarter using options.
Options afford traders the opportunity to achieve their objectives and/or trades in the market in ways that might not otherwise be available to them, while limiting risks, particularly in volatile markets. Using options can also be a way to buy yourself time while deciding what you want to do with your stock position, as there may be dividend and capital gains tax considerations.
Option contracts provide traders with an enormous amount of leverage. In Australia, 1 option contract represents 100 underlying shares. Therefore, with a relatively small amount of money an option trader can control a very large underlying stock position.
Options are some of the most flexible instruments available to traders. However options trading can also be a risky venture for the inexperienced, because of the leverage involved. Of course, option trading can make you very large returns in a small amount of time, but can also turn into losses if you are not aware of the dynamics of options trading.
An option trader might take a view on a weekly, monthly or quarterly direction for a particular stock, whether that be a short or long position and can trade in either direction with the same ease.
Free Options Webinar, Tuesday 28 May
Next week D2MX Advisory will be providing a free webinar, Taking The Mystery Out Of Options!
This webinar is aimed at beginners and intermediate traders who would like to learn more about options and how they work. No previous knowledge of options is necessary.
Topics covered include:
» The market outlook for when simple options trading may be appropriate
» Potential profits and losses
» Follow-up action if required
» The effect on the strategy of time decay and changes in volatility
» Call and Put options
» Buying and selling options
» and some practical examples for traders and investors
Some of the trades we will explain include a couple of recent short positions and some bonus trades.
Newcrest Mining – Short Position
In the webinar we will show you how we turned a profit on a Newcrest option trade (a possible 500% in 10 days).
Newcrest has been sold off severely and the Gold price continues to fall
Westpac Bank – Hedge
Another trade that may be of interest to you is one we did in Westpac Bank, where we picked up the dividend and are currently running a hedged position with 250% profit on the option used for our hedge protection.
Westpac Bank had a fantastic run into going Ex-div, we opted for protection.
In the Taking The Mystery Out Of Options! Webinar we will show how these trades were placed and how we used options to trade our market view.
So join Jonathan Tacadena from D2MX Advisory as he explains options in simple terms and as a bonus we will give you a short-term and a medium-term trade that we believe has a high probability of turning a profit for you.
The ASX website also provides some good material for options traders and has produced a poster with a summary of the most widely used strategies for various different market conditions:
» ASX Options Strategies Poster
For more trade ideas and recommendations on how to trade in this market, sign up for a free trial of the D2MX Daily Trading Report, which provides a daily serving of insightful market analysis and trade recommendations from the D2MX Advisory team.
Investment Adviser – D2MX Advisory
See Also: Options Trading for All Types of Market Environments
Part 1: The Protective Put
Part 2: The Covered Call
Part 3: The Covered Call Collar
Part 4: The Stock Repair Strategy
Part 5: Limited Risk Short Selling Strategy
Part 7: Dividend Capture Covered Call Collar
Part 8: Hedging With a Bear Put Spread
Part 9: The Bull Call Strategy
Part 10: Dividend Capture Covered Call Collar
Part 11: Calendar Call Strategy
Part 12: Bull Call Spread Strategy
Part 13: Reverse Calendar Call Strategy
Part 14: Short Selling Strategy with a Hedge
Part 15: Alternate Profit Taking Strategy
Part 16: Bullish on the Cheap
This report was prepared by Michael Hevern. It represents the views and opinions of the author. It is not intended for use by any third party, without the approval of Michael Hevern. While this report is based on information from sources which are considered reliable, its accuracy and completeness cannot be guaranteed. Any opinions expressed reflect my judgment at this date and are subject to change. Contracting Hevern Pty Ltd is a Corporate Authorised Representative No. 408868 of D2MX Pty Limited ABN 98 113 959 596, AFSL No. 297950 (D2MX), and Michael Hevern has been appointed as an Authorised Representative of Contracting Hevern Pty Ltd. Opinions, conclusions and other information expressed in this report are not given or endorsed by D2MX, unless otherwise indicated. The information contained in this Report is General Advice only, as the information or advice given does not take into account your particular objectives, financial situation or needs.
Disclaimer: Using leverage to invest can be a two edged sword, as it can magnify your returns when the stock price rises, but will in turn magnify the losses if the trade does not perform as expected.