To not be afraid of difficulties in working with the options, read the basic principles of working with them.
Despite the fact that options are very sophisticated tools, you now can begin to play the trading operations of the tool on the sheet of paper. Your success in the theoretical understanding of it will be possible to take the first step to a profitable work at the real market. While there are many kinds of options, and terminology used by those who work with them, like a foreign language, the professional traders have a good at-grades in order to carry out transactions in options. It is these reasons, we and the behavior of our conversation.
Be aware of the fact that initially you may lose all their investment in options. While in theory this is possible and the purchase of shares, in reality this is not happening. Even if your choice when buying the shares would be very unfortunate, you will not lose all the money within one to two months. However, buy now option, which next week will not cost a penny broken - easy as pie. And yet. Options can be very reliable, if they operate in conjunction with the shares that you own.
Myriad of options
A set of options has its own special name, but mostly have to deal with two types: call (call) and put (put). "Colli" called contracts for the right to acquire certain fixed number of shares at a fixed price and with a certain time frame, or a fixed date (Fig. 1), while "putami" called contracts for sale of certain fixed number of shares at a fixed price with certain period of the contract. . Execution option is called the process to obtain or transfer certain stock option holder, in accordance with the terms of the contract (see Figure 2 and figure 3.). Fixed in the contract price of shares can be above or below the current market price and is called the price of performance. A fixed date, which we mentioned is called the date of execution, it is always the third Friday of each month.
If you own a May 120 call on a certain action, it means that you can buy 100 shares at a price of U.S. $ 120 on the third Friday of May or earlier. If the current price of the shares well above 120, then this option is worth more money. In this situation, you do not have to execute a contract (and to buy those shares), you can sell a call contract. Conversely, if the current stock price is well below 120, the option will cost very little. You can sell to help out even the little that is proposed, or to hold up to the end of the contract, and when it expires, the contract will not cost anything.
But that's not all. Your position in relation to the option may be long or short. If you start to work with him, buying the call, then it is a "long" positions. You "bought to open" your position. If you continue to sell the same option (rather than to execute it), you "sell to close your position. If you work with the option begins with the sale thereof, then your position in relation to the option "short": the "sale means the opening of" position. Then you must "buy to close your position.
The investor, whose "long" position on the contract, called the holder, and is the only person who can decide to execute or not execute the contract. Person selling the contract holder, the option seller is called, it must comply with the terms of the contract if the holder decides to execute it.
Terms of transactions with options
So much of the "alphabet" that we learned. There is some terminology you need to know to start with options.
To begin with, however, go back to what you should already know. If you have to call "long" position, then keeping it, you have the right to buy 100 shares at a fixed price at a specified date or before it. As you will recall, call gives you the right to ask the seller the option to transfer your shares. Conversely, if you have a "long" position on the putu, you are a holder of confusion and have the right to sell 100 shares at a fixed price at a specified date or before a seller of confusion. To help you remember it easier, simpler explanation: the put gives you the right to hold the seller's solution to the problem of confusion as to deal with the shares, forcing him to buy them from you.
Terms holder and the writer of the option used to be discerned, one "long" and one "short" position on the option. If you are the holder of the option, then you bought the contract and may decide to execute him or not. If you are the holder of the option, you do not have to execute a contract for your money: You can sell the contract if it is profitable, or allow it to expire, if he did not (Fig. 4).
In-the-money, Out-ofthe-money, At-the-money
With the help of these terms expresses the ratio between the execution of the option price and the market price at the date of execution (Fig. 5). If prices are equal, they say that option at-the-money. If you are the holder of the call and to demand execution of the call, you can get shares at a cheap price because the price of performance, you pay much less than the current stock price, then the option will be called in-the-money. It goes without saying that you do not want to execute the option, which will be out-of-the-money, because it is cheaper to buy or sell these shares on the market. However, the price out-of-the-money stock can have a significant temporal component of the value which can be realized in the sale of such option.
Value
To calculate the fair price of the option price is widely used mathematical model, known as Black Scholes. This model takes into account the stock price, its volatility, the price performance and other factors. Complexity is the mathematical formula represents the model, while the underlying concept of two rather simple.
Concept 1: The option price consists of two parts: internal and temporary. Inner named the price that would have an option to date - an option in-the-money. Temporary price - this is the price at which the option to change the date of execution. Reducing the value of the latter in proportion to reduce the value of the square root of the number of days remaining until the date of execution. If during the 8 weeks prior to the date of execution of the option price is a temporary $ 10, then, when the duration of the stay 4 weeks, the temporary price will be equal to about 7 dollars (square root of 4 / 8 is 0.7). The value of temporary price also depends largely on the volatility of equities. The higher the volatility of equities, the more time the option price.
Concept 2: The point is that the most likely future price of an instrument - it is today, ie last price. The probability of the minimum change in price is always higher probability of large fluctuations. In addition, the probability that the price will double twice, equal to the probability that it will decrease likewise. The distribution of future prices is a normal distribution (for those who are familiar with higher mathematics - we are at a peak (Gaussian curve). Future fluctuations in prices are likely to be similar to last.
You may not agree with the concept of 2, but it is the basis of pricing models. According to these two concepts, the option price will increase depending on the increase in the amount received from the option. In addition, if the market there are few options for any shares on the same date of execution of the option, which is closer to the at-the-money positions (price equals the market price performance of shares), has the greatest time value. Options quickly lose its time value as we approach the date of their execution (note to the square root?). Options on shares with a relatively stable price of Noah, such as Cigna [CI], will have less value than the options on shares of Ebay [EBAY], with the equality of all other conditions (Fig. 7).
Now we propose to revert to the two concepts, and once again read them. The information in the article - the most important.
Volatility
This indicator measures the extent of changing the borders of the share price over a specified period. Typically, volatility is expressed as a percentage of annual interest. To get its value for the corresponding period of time, you must calculate how many times interesting period of time within the year (only working days), to extract the square root of this value and an annual volatility of share in the result.
For example, in the year 244 working days. If the instrument is traded with 16% volatility, a 1-day volatility is approximately equal to 1% ~ 16% / 15.6, where 15.6 - the square root of 244.
In addition to the historical, there is the so-called implied volatility, or current. Recall that the mathematical model, knowing the price of shares to calculate the price of the option. But in this case, we do not know a single parameter - the current volatility. To do this, we take the last price of the option and make the reverse conversion. The resulting figure is the current volatility can now be substituted into the formula for calculating the next option prices. If the reverse translated from the current value of volatility above historical fact to consider that option price is considered excessive.
Symbolic marking options
Symbolic designation options more complex than might appear at first glance. It is important to remember that you are not young zhete, or at least should not be to invent a character option, you should choose the appropriate existing. In addition, if you use a character in the transaction documents (instead of, for example, links "January 250 call"), you should make sure that you work with a view option, which is chosen. Most of the special computer program that generates and processes symbols, however, another check will not be superfluous. See column "Symbolic marking options.
Symbolic marking options
The symbolic designation of the option may be different depending on where it is used. For example, the May 200 call option on shares of IBM might be marked as IBMET (Discover Brokerage), IBM ET (my Track), IBMET (Fidelity Brokerage), etc. Especially important is the fact that the last two months of the symbol mark and the option price, one, two or three preceding symbol, the base of the symbolic symbol representing a specific action.
If the action is listed on the New York Stock Exchange (NYSE), the base of the symbolic designation of the option may differ from single-, two-or trehsimvolnym the stock ticker. But perhaps not. If the shares are traded in the NASDAQ (National Association of securities dealers), the title of the action more than three characters, and therefore a basic part of the symbolic marking option differs from the symbolic designation of the action. Further complicates the situation, the fact that the same action can have different base of symbolic labels.
For January, there are two characters in "A" and "M" means the first call, the second one - put. Subsequent months are indicated by the letters "B", "C", etc. to call, but for the confusion - of "N", "O", etc. Symbol prices has many meanings, as "A" could mean 5, 105 or 205 U.S. dollars. However, shares worth $ 150,
the market price of the option may be 105 or 205 dollars per share, and they differ only basic options (the first three characters).
In short, to understand that наворотили Exchange, and the creators of data bases, the easiest way to apply to the program of Welfare.
Month of the date of execution
As mentioned above, the date of execution of the option is the third Friday of the month. Among the options taken share options and long-term.
The only difference between long-term options (LEAPS), the term of which can reach two and a half years, and other options that have LEAPS time for the performance of the foundations of Mr. expires in January next year.
Experience is experience
To learn the mechanism of the options, take some time, while the money to do so little. There are good, but expensive programs that will help you thoroughly examine the shares of the stock market, and choose, and then view the options, they offer a dozen option strategies for using this situation to your advantage. Free and inexpensive programs can be found on the Internet. Please refer to www.cboe.com / toolbox and download Options toolbox to obtain educational information on using options. In www.BigCharts.com symbols and provides a daily list of available options on the market. Refer to www.myTrack.com and download (free) program that will provide you with much useful information on shares and options (also free). In addition, you can get information about a specific stock, price and date, trading volume, price volatility indicator, the latest data and charts. Program myTrack, moreover, will allow you to compile a portfolio that you can train and learn how to use options. Refer to www.theonlineinvestor.com, and you can learn about upcoming splitting shares, successful and unsuccessful operations, brokerage, and plans for new purchases of the same shares. This will help you select stocks for option transactions.
Getting Started
You have done their homework, and now look at a simple example. Suppose that you own shares, which is currently sold at 101, and their rate of variation is 35. To earn this position, you will want to sell (ie, receive money) secured (covered) call (that means that you must convey the action, if the call is to be executed) for two fixed prices that are above the current price from the date of execution of approximately one 2 months. Special payment options calculator shows that for 52 days before the expiry date of the option plus the likelihood of obtaining a result equal to 25% and that the option price is approximately 2.64 dollar purchase and sale of 2.16.
The broker said that in fact the option is 2.20 per dollar, which makes the implied volatility is equal to 33.5. For a fairly cheap option buyer, the seller, this news will not cause enthusiasm. 2.20 dollar, you can get the option, look quite attractive. The probability that this option at the date of execution will плюсовым and will have to part with equity, not high. But even if that happens, you will receive 110 dollars per share and 2.20 dollar per call. And if at the date of execution of the option will be worthless, you can repeat the operation for two months.
If the price per share will fall in the next two months, you are partially protected against loss. Of course, you will have losses, given that at the time of the operation option with stock price was 101 dollars per share, but the damage will be reduced from U.S. $ 2.20 (minus commissions) that you received for selling the call. If the price drops below 101-2.20 = 98.80, your case is not too bad (Fig.9).
You see, not everything is so terrible! You carried out an operation on the option and stayed alive. Selling to another person the right to own shares at a price exceeding the current U.S. $ 9 seems the simplest way to fix its financial situation by means of an option. You still think that the option for pros? This is true. And for you? The next time we tell the other positions that you may realize, gently using auction options and other option strategies.
Options on shares are traded on stock exchanges:
American Stock Exchange (AMEX)
Chicago Board Options Exchange (CBOE)
Pacific Stock Exchange (PSE)
Philadelphia Stock Exchange (PHLX)
Transactions in options on indices are held at:
American Stock Exchange (AMEX)
Chicago Board Options Exchange (CBOE)
Pacific Stock Exchange (PSE)
Philadelphia Stock Exchange (PHLX)
Currency options traded on:
Philadelphia Stock Exchange (PHLX)
With the help of these terms expresses the ratio between the execution of the option price and the market price at the date of execution (Fig. 5). If prices are equal, they say that option at-the-money. If you are the holder of the call and to demand execution of the call, you can get shares at a cheap price because the price of performance, you pay much less than the current stock price, then the option will be called in-the-money. It goes without saying that you do not want to execute the option, which will be out-of-the-money, because it is cheaper to buy or sell these shares on the market. However, the price out-of-the-money stock can have a significant temporal component of the value which can be realized in the sale of such option.
Value
To calculate the fair price of the option price is widely used mathematical model, known as Black Scholes. This model takes into account the stock price, its volatility, the price performance and other factors. Complexity is the mathematical formula represents the model, while the underlying concept of two rather simple.
Concept 1: The option price consists of two parts: internal and temporary. Inner named the price that would have an option to date - an option in-the-money. Temporary price - this is the price at which the option to change the date of execution. Reducing the value of the latter in proportion to reduce the value of the square root of the number of days remaining until the date of execution. If during the 8 weeks prior to the date of execution of the option price is a temporary $ 10, then, when the duration of the stay 4 weeks, the temporary price will be equal to about 7 dollars (square root of 4 / 8 is 0.7). The value of temporary price also depends largely on the volatility of equities. The higher the volatility of equities, the more time the option price.
Concept 2: The point is that the most likely future price of an instrument - it is today, ie last price. The probability of the minimum change in price is always higher probability of large fluctuations. In addition, the probability that the price will double twice, equal to the probability that it will decrease likewise. The distribution of future prices is a normal distribution (for those who are familiar with higher mathematics - we are at a peak (Gaussian curve). Future fluctuations in prices are likely to be similar to last.
You may not agree with the concept of 2, but it is the basis of pricing models. According to these two concepts, the option price will increase depending on the increase in the amount received from the option. In addition, if the market there are few options for any shares on the same date of execution of the option, which is closer to the at-the-money positions (price equals the market price performance of shares), has the greatest time value. Options quickly lose its time value as we approach the date of their execution (note to the square root?). Options on shares with a relatively stable price of Noah, such as Cigna [CI], will have less value than the options on shares of Ebay [EBAY], with the equality of all other conditions (Fig. 7).
Now we propose to revert to the two concepts, and once again read them. The information in the article - the most important.
Volatility
This indicator measures the extent of changing the borders of the share price over a specified period. Typically, volatility is expressed as a percentage of annual interest. To get its value for the corresponding period of time, you must calculate how many times interesting period of time within the year (only working days), to extract the square root of this value and an annual volatility of share in the result.
For example, in the year 244 working days. If the instrument is traded with 16% volatility, a 1-day volatility is approximately equal to 1% ~ 16% / 15.6, where 15.6 - the square root of 244.
In addition to the historical, there is the so-called implied volatility, or current. Recall that the mathematical model, knowing the price of shares to calculate the price of the option. But in this case, we do not know a single parameter - the current volatility. To do this, we take the last price of the option and make the reverse conversion. The resulting figure is the current volatility can now be substituted into the formula for calculating the next option prices. If the reverse translated from the current value of volatility above historical fact to consider that option price is considered excessive.
Symbolic marking options
Symbolic designation options more complex than might appear at first glance. It is important to remember that you are not young zhete, or at least should not be to invent a character option, you should choose the appropriate existing. In addition, if you use a character in the transaction documents (instead of, for example, links "January 250 call"), you should make sure that you work with a view option, which is chosen. Most of the special computer program that generates and processes symbols, however, another check will not be superfluous. See column "Symbolic marking options.
Symbolic marking options
The symbolic designation of the option may be different depending on where it is used. For example, the May 200 call option on shares of IBM might be marked as IBMET (Discover Brokerage), IBM ET (my Track), IBMET (Fidelity Brokerage), etc. Especially important is the fact that the last two months of the symbol mark and the option price, one, two or three preceding symbol, the base of the symbolic symbol representing a specific action.
If the action is listed on the New York Stock Exchange (NYSE), the base of the symbolic designation of the option may differ from single-, two-or trehsimvolnym the stock ticker. But perhaps not. If the shares are traded in the NASDAQ (National Association of securities dealers), the title of the action more than three characters, and therefore a basic part of the symbolic marking option differs from the symbolic designation of the action. Further complicates the situation, the fact that the same action can have different base of symbolic labels.
For January, there are two characters in "A" and "M" means the first call, the second one - put. Subsequent months are indicated by the letters "B", "C", etc. to call, but for the confusion - of "N", "O", etc. Symbol prices has many meanings, as "A" could mean 5, 105 or 205 U.S. dollars. However, shares worth $ 150,
the market price of the option may be 105 or 205 dollars per share, and they differ only basic options (the first three characters).
In short, to understand that наворотили Exchange, and the creators of data bases, the easiest way to apply to the program of Welfare.
Month of the date of execution
As mentioned above, the date of execution of the option is the third Friday of the month. Among the options taken share options and long-term.
The only difference between long-term options (LEAPS), the term of which can reach two and a half years, and other options that have LEAPS time for the performance of the foundations of Mr. expires in January next year.
Experience is experience
To learn the mechanism of the options, take some time, while the money to do so little. There are good, but expensive programs that will help you thoroughly examine the shares of the stock market, and choose, and then view the options, they offer a dozen option strategies for using this situation to your advantage. Free and inexpensive programs can be found on the Internet. Please refer to www.cboe.com / toolbox and download Options toolbox to obtain educational information on using options. In www.BigCharts.com symbols and provides a daily list of available options on the market. Refer to www.myTrack.com and download (free) program that will provide you with much useful information on shares and options (also free). In addition, you can get information about a specific stock, price and date, trading volume, price volatility indicator, the latest data and charts. Program myTrack, moreover, will allow you to compile a portfolio that you can train and learn how to use options. Refer to www.theonlineinvestor.com, and you can learn about upcoming splitting shares, successful and unsuccessful operations, brokerage, and plans for new purchases of the same shares. This will help you select stocks for option transactions.
Getting StartedYou have done their homework, and now look at a simple example. Suppose that you own shares, which is currently sold at 101, and their rate of variation is 35. To earn this position, you will want to sell (ie, receive money) secured (covered) call (that means that you must convey the action, if the call is to be executed) for two fixed prices that are above the current price from the date of execution of approximately one 2 months. Special payment options calculator shows that for 52 days before the expiry date of the option plus the likelihood of obtaining a result equal to 25% and that the option price is approximately 2.64 dollar purchase and sale of 2.16.
The broker said that in fact the option is 2.20 per dollar, which makes the implied volatility is equal to 33.5. For a fairly cheap option buyer, the seller, this news will not cause enthusiasm. 2.20 dollar, you can get the option, look quite attractive. The probability that this option at the date of execution will плюсовым and will have to part with equity, not high. But even if that happens, you will receive 110 dollars per share and 2.20 dollar per call. And if at the date of execution of the option will be worthless, you can repeat the operation for two months.
If the price per share will fall in the next two months, you are partially protected against loss. Of course, you will have losses, given that at the time of the operation option with stock price was 101 dollars per share, but the damage will be reduced from U.S. $ 2.20 (minus commissions) that you received for selling the call. If the price drops below 101-2.20 = 98.80, your case is not too bad (Fig.9).You see, not everything is so terrible! You carried out an operation on the option and stayed alive. Selling to another person the right to own shares at a price exceeding the current U.S. $ 9 seems the simplest way to fix its financial situation by means of an option. You still think that the option for pros? This is true. And for you? The next time we tell the other positions that you may realize, gently using auction options and other option strategies.
Options on shares are traded on stock exchanges:
American Stock Exchange (AMEX)
Chicago Board Options Exchange (CBOE)
Pacific Stock Exchange (PSE)
Philadelphia Stock Exchange (PHLX)
Transactions in options on indices are held at:
American Stock Exchange (AMEX)
Chicago Board Options Exchange (CBOE)
Pacific Stock Exchange (PSE)
Philadelphia Stock Exchange (PHLX)
Currency options traded on:
Philadelphia Stock Exchange (PHLX)
Vladimir Minaev.
From Technical Analysis of
Stocks & Commodities
From Technical Analysis of
Stocks & Commodities
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