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Options contract

With so little enthusiasm, this summer's "slow-motion" rally may be coming to an end. That begs the question about how investors can protect their gains - particularly in stocks that have been looking a bit "toppy" of late. Combining any of the 4 basic kinds of options contract trades (possibly with different exercise prices and maturities) and the two basic kinds of stock trades (long and short) allows a variety of options strategies. Simple strategies usually combine only a few trades, while more complicated strategies can combine several.

Strategies are often used to engineer a particular risk profile to movements in the underlying security. For example, buying a butterfly spread (long one X1 call, short two X2 calls, and long one X3 call) allows a trader to profit if the stock price on the expiration date is near the middle exercise price, X2, and does not expose the trader to a large loss.

An Iron condor is a strategy that is similar to a butterfly spread, but with different strikes for the short options contract – offering a larger likelihood of profit but with a lower net credit compared to the butterfly spread.

Selling a straddle (selling both a put and a call at the same exercise price) would give a trader a greater profit than a butterfly if the final stock price is near the exercise price, but might result in a large loss. Similar to the straddle is the strangle which is also constructed by a call and a put, but whose strikes are different, reducing the net debit of the trade, but also reducing the risk of loss in the trade.



Long call

Long call optionA trader who believes that a stock's price will increase might buy the right to purchase the stock (a call option) rather than just purchase the stock itself. He would have no obligation to buy the stock, only the right to do so until the expiration date. If the stock price at expiration is above the exercise price by more than the premium (price) paid, he will profit. If the stock price at expiration is lower than the exercise price, he will let the call contract expire worthless, and only lose the amount of the premium. A trader might buy the option instead of shares, because for the same amount of money, he can control (leverage) a much larger number of shares.

Long put

Long put optionA trader who believes that a stock's price will decrease can buy the right to sell the stock at a fixed price (a put options contract). He will be under no obligation to sell the stock, but has the right to do so until the expiration date. If the stock price at expiration is below the exercise price by more than the premium paid, he will profit. If the stock price at expiration is above the exercise price, he will let the put contract expire worthless and only lose the premium paid.
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Short put

Short put optionA trader who believes that a stock price will increase can buy the stock or instead sell, or "write", a put. The trader selling a put has an obligation to buy the stock from the put buyer at the put buyer's option. If the stock price at expiration is above the exercise price, the short put position will make a profit in the amount of the premium. If the stock price at expiration is below the exercise price by more than the amount of the premium, the trader will lose money, with the potential loss being up to the full value of the stock. A benchmark index for the performance of a cash-secured short put option position is the CBOE S&P 500 PutWrite Index (ticker PUT).

Short call

Short call optionA trader who believes that a stock price will decrease can sell the stock short or instead sell, or "write," a call. The trader selling a call has an obligation to sell the stock to the call buyer at the buyer's option. If the stock price decreases, the short call position will make a profit in the amount of the premium. If the stock price increases over the exercise price by more than the amount of the premium, the short will lose money, with the potential loss unlimited.
One well-known strategy is the covered call, in which a trader buys a stock (or holds a previously-purchased long stock position), and sells a call. If the stock price rises above the exercise price, the call will be exercised and the trader will get a fixed profit. If the stock price falls, the call will not be exercised, and any loss incurred to the trader will be partially offset by the premium received from selling the call. Overall, the payoffs match the payoffs from selling a put. This relationship is known as put-call parity and offers insights for financial theory. A benchmark index for the performance of a buy-write strategy is the CBOE S&P 500 BuyWrite Index (ticker symbol BXM).
  1. Options premiums

    : An option Premium is the price of the options contract. It is the price you pay to purchase the option. For example, an XYZ May 30 Call (thus it is an option to buy Company XYZ stock) may have an option premium of Rs.2.

    This means that this option costs Rs. 200.00. Why? Because most listed options are for 100 shares of stock, and all equity option prices are quoted on a per share basis, so they need to be multiplied times 100. More in-depth pricing concepts will be covered in detail in other section.
  2. Strike price

    : The Strike (or Exercise) Price is the price at which the underlying security (in this case, XYZ) can be bought or sold as specified in the options contract. For example, with the XYZ May 30 Call, the strike price of 30 means the stock can be bought for Rs. 30 per share. Were this the XYZ May 30 Put, it would allow the holder the right to sell the stock at Rs. 30 per share.
  3. Expiration date

    : The Expiration Date is the day on which the option is no longer valid and ceases to exist. The expiration date for all listed stock options in the U.S. is the third Friday of the month (except when it falls on a holiday, in which case it is on Thursday).

    For example, the XYZ May 30 Call option will expire on the third Friday of May.

The daytrader

Share prices charts

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Make money with MySpace

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Above 2 sections will take you through a detailed how-to article to explain how you can make money with MySpace. Sure, it's easy to get frustrated by the overblown bells and whistles that go along with a typical MySpace visit, but there are many reasons why it's still a useful tool for musicians looking for gigs, fans, and exposure.

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    - Sure, Facebook is a bit cleaner and has more buzz in the social media world, but MySpace does not require users to sign up in order to access the content. This makes for a quick and easy web presence that anyone can check out.

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    MySpace has a high value because of it's massive userbase, making it potentially rich source of advertising income. Given the audience is a young demographic it's a very lucrative market for advertisers.
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