Options

Welcome to the mysmp.com options trading education center. Now, more than ever, is an extremely important time for traders to learn what option trading is all about and also to understand how they can use options to help control risk during times of heightened volatility. While many traders use option contracts to help mitigate risk, others will use them to speculate on volatility and direction. Whatever type of trader you may be, it is important to understand your risk profile and investment objectives before selecting a strategy.

Options Basics

• Puts and Calls
• Options Risk Characteristics
• Implied Volatility - Definition & Equation
• Option Greeks
• VIX - Volatility Index Definition & Trading Strategies
• Stock Options

Options Glossary

• Underlying Security
• Strike Price
• Put Option
• Options Moneyness
• Intrinsic Value
• LEAPS
• Alligator Spread
• Call Options
• Options Expiration Week

Options Strategies

• Synthetic Calls
• Collar Option Strategy
• Bull Calendar Spread
• Married Puts
• Condor Spread
• Short Strangle
• Bear Put Spread
• Strangle
• Long Straddle
• Butterfly Spread
• Vertical Spread
• Short Straddle
• Call Ratio Spread
• Bull Call Spread
• Long Guts
• Covered Call
• Bull Put Spread
• Naked Puts
• Call Ratio Backspread

For the newbie’s to option trading, you can get started with a quick primer on calls and puts with our stock options introduction article above. Here you will be given an overview of calls & puts and also be provided with descriptions of the various components which go into the pricing of an option such as expiration date, strike price and moneyness. Be sure to review our glossary to get a more detailed explanation on these subjects.

Above, you will find options strategies for every type of investor and every type of market. You will find a broad array of strategies that can be used in bull markets, bear markets, or flat markets. For example, bull call spreads can be used in bull markets to take advantage of upward prices while bear put spreads can do the same in bear markets. In those times where there is no volatility at all, you want to be short options to take advantage of their time decay; the short straddle is a great example of this. Be sure to understand the potential risk and reward scenario as well as the breakeven points before establishing a position. Remember, a net buyer of options (debit spread) will have a defined risk while a net seller (credit spread) will have an unlimited risk profile.

Take your time and learn how to trade these option strategies at your own pace. It is advisable to start with the more basic strategies which only consist of a single leg such as the covered call, married put, naked put, or synthetic call. Once you have these strategies mastered, you can move on to double leg strategies such as the straddle and strangle. For the more advanced options traders, triple and quadruple leg option strategies may be reviewed such as the butterfly and condor spreads.

via - http://www.mysmp.com/options.html

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Welcome to PANGUVANIHAN

Dear friends,

Welcome to Panguvanihan. Panguvanihan..that is Stock Trader, is a new addition in line with my existing Tamil Blog http://panguvaniham.wordpress.com/ and English blog http://paisapower.blogspot.com/ . Panguvaniham closely follows the daily market movement in which I try to give my views in easy Tamil, whereas Paisapower is purely an educational platform for both the traders and investors.

From today...here in Panguvanihan I will be sharing my views and ideas about potential scripes, which is meant for short term and long term investment. All the suggestions given in this blog are purely for educational purpose and hence you are requested to do your own analysis, homework before taking any trade decisions.

I Wish you good luck and Happy trading.

-Saravanakumar

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How is the SENSEX Calculated !

For the premier Bombay Stock Exchange that pioneered the stock broking activity in India, 128 years of experience seems to be a proud milestone. A lot has changed since 1875 when 318 persons became members of what today is called The Stock Exchange, Mumbai by paying a princely amount of Re 1.

Since then, the country’s capital markets have passed through both good and bad periods. The journey in the 20th century has not been an easy one. Till the decade of eighties, there was no scale to measure the ups and downs in the Indian stock market. The Stock Exchange, Mumbai in 1986 came out with a stock index that subsequently became the barometer of the Indian stock market.

Sensex is not only scientifically designed but also based on globally accepted construction and review methodology. First compiled in 1986, Sensex is a basket of 30 constituent stocks representing a sample of large, liquid and representative companies.

The base year of Sensex is 1978-79 and the base value is 100. The index is widely reported in both domestic and international markets through print as well as electronic media.

The Index was initially calculated based on the “Full Market Capitalization” methodology but was shifted to the free-float methodology with effect from September 1, 2003. The “Free-float Market Capitalization” methodology of index construction is regarded as an industry best practice globally. All major index providers like MSCI, FTSE, STOXX, S&P and Dow Jones use the Free-float methodology.

Due to is wide acceptance amongst the Indian investors; Sensex is regarded to be the pulse of the Indian stock market. As the oldest index in the country, it provides the time series data over a fairly long period of time (From 1979 onwards). Small wonder, the Sensex has over the years become one of the most prominent brands in the country.

The growth of equity markets in India has been phenomenal in the decade gone by. Right from early nineties the stock market witnessed heightened activity in terms of various bull and bear runs. The Sensex captured all these events in the most judicial manner. One can identify the booms and busts of the Indian stock market through Sensex.

Sensex Calculation Methodology

Sensex is calculated using the “Free-float Market Capitalization” methodology. As per this methodology, the level of index at any point of time reflects the Free-float market value of 30 component stocks relative to a base period. The market capitalization of a company is determined by multiplying the price of its stock by the number of shares issued by the company. This market capitalization is further multiplied by the free-float factor to determine the free-float market capitalization.

The base period of Sensex is 1978-79 and the base value is 100 index points. This is often indicated by the notation 1978-79=100. The calculation of Sensex involves dividing the Free-float market capitalization of 30 companies in the Index by a number called the Index Divisor.

The Divisor is the only link to the original base period value of the Sensex. It keeps the Index comparable over time and is the adjustment point for all Index adjustments arising out of corporate actions, replacement of scrips etc. During market hours, prices of the index scrips, at which latest trades are executed, are used by the trading system to calculate Sensex every 15 seconds and disseminated in real time.

Dollex-30

BSE also calculates a dollar-linked version of Sensex and historical values of this index are available since its inception.

Understanding Free-float Methodology

Free-float Methodology refers to an index construction methodology that takes into consideration only the free-float market capitalisation of a company for the purpose of index calculation and assigning weight to stocks in Index. Free-float market capitalization is defined as that proportion of total shares issued by the company that are readily available for trading in the market.

It generally excludes promoters’ holding, government holding, strategic holding and other locked-in shares that will not come to the market for trading in the normal course. In other words, the market capitalization of each company in a Free-float index is reduced to the extent of its readily available shares in the market.

In India, BSE pioneered the concept of Free-float by launching BSE TECk in July 2001 and Bankex in June 2003. While BSE TECk Index is a TMT benchmark, Bankex is positioned as a benchmark for the banking sector stocks. Sensex becomes the third index in India to be based on the globally accepted Free-float Methodology.

via- tips4trade

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OptionsORACLE - Options TRADING Analysis Tool

OptionsOracle is free tool for stock options trading strategy analysis, built for options traders.

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Measuring Reward: Risk

Why do great trade setups fail, while lousy ones move in our favor? The answer is quite simple, yet frustrating. Trading is an odds game, in which anything can happen at any time. Price will go where price wants to go, no matter how hard we hit the books, study the charts or pray to the deities. So rather than searching for the perfect trade, we're better off learning to control risk first.

You've forgotten the nature of risk if you can answer "yes" to any of the following questions. Do you still buy "how-to" books, even though you've traded for years? Do you sit in bad losses because you hate to be wrong? Do you reject market wisdom because you lost money trading it?

Measure reward:risk before taking a trade, and let it guide your open position. Price close to good support identifies a low-risk long setup. Price close to substantial resistance identifies a low-risk short sale. The distance between your trade entry and the next obstacle within your holding period measures the reward, and intended exit. The distance between the entry and the price that breaks the trade points to the risk, and unintended exit. Put the odds firmly in your favor by only taking trades with high reward, and low risk.

The best swing trades exit in wild times, just as advancing price approaches a strong barrier. Reward planning seeks discovery of this price before trade entry. This profit target sits at a level where risk will increase dramatically when price reaches it. Traders should exit immediately once this profit target is struck, or at least place a stop that locks in profit, in case of a reversal.

Every setup has a price that busts the trade. The safest trades need only a small move to signal a bad outcome, and the need to jump ship. This loss target changes dynamically after entry. Consider the impact of the last price bar on evolving reward:risk, and adjust the plan accordingly. Many traders find it difficult to absorb new information quickly. So they're better off sticking with the original plan, and using trailing stops to protect the position.

How do you know the price that kills the trade? You'll find it at the convergence of support-resistance boundaries on your setup. These usually turn up through combinations of violated moving averages, broken patterns and filled gaps. Every situation is different, so finding the loss target may require all of your trading skills.

Exit swing trades to book profits, take losses or close mediocre positions. A good exit is more valuable than a great entry. Emotions usually run high at both reward and risk targets. So take a deep breath and clear the mind before closing out a position.

Tips on Reward:Risk Management

- Watch the clock and become a market survivor. Market cycles affect price movement in many ways.

- Exploit market quirks in your entries and exits. Events like overnight gaps and options expiration can benefit positions, rather than hurt them.

- Enter smaller trades when signals don't line up well.
Good timing on bad stocks makes more money than bad timing on good stocks.

- The best signals converge through many different types of technical analysis.

- Use common sense and good mathematics in your profit and loss projections.

- The most profitable entries and exits come when the crowd is leaning the wrong way.

via - www.tradingday.com

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