The Advanced Forex and Options Trading Guide E-Book

Neil Sharp

• Herausgeber: Neil Sharp
• Kategorie: Fachliteratur
• Sprache: Englisch

Veröffentlichungsjahr: 2020

Beschreibung

Do you want to learn how you can make more than a full-time job with trading forex and options? If so then keep reading…

Do you have problems with learning chart analysis? Predicting big price moves and knowing the right times to exit? Learning the Greek variables? Or overleveraging/ poor money management? If you do, within this book many of the top leaders in the field have shared their knowledge on how to overcome these problems and more, most of which have 10+ years worth of experience.

In The Advanced Forex and Options Trading Guide, you will discover:

• A simple trick you can do for making more money with forex and options trading!
• The best strategies for stopping emotional and revenge trading!
• The one method that helps to spot good trades earlier!
• Why trading with a plan can more than double your income when trading!
• Understanding why some people will fail to make money with forex and options!
• And much, much more.

The proven methods and pieces of knowledge are so easy to follow. Even if you’ve never tried trading forex and options before, you will still be able to get to a high level of success.

So, if you don’t just want to transform your bank account but instead revolutionize your life, then click “Buy Now” in the top right corner NOW!

Leseprobe

Neil Sharp

The Advanced Forex and Options Trading Guide

UUID: 946c07c5-a03b-4958-b0f5-08ff03fe05cd

This ebook was created with StreetLib Writehttp://write.streetlib.com

Table of contents

The Advanced Options Trading Guide

Introduction

Chapter 1: What are Options?

Chapter 2: Different Types of Options

Chapter 3: Technical Options Terminology

Chapter 4: Options Trading vs. Stock Trading

Chapter 5: Options Volatility and Greek Variables

Chapter 6: Getting Started with Options Trading

Chapter 7: Tips and Strategies for Options Trading

The Advanced Forex Trading Guide:

Introduction

Chapter 1: An Introduction to Forex Trading

Chapter 2: The Basics of Trading Forex

Chapter 3: Forex Trading Strategies

Chapter 4: Best Trade Entry and Exit Strategies

Chapter 5: Top Options Trading Tools

Chapter 6: Preparations Prior to Market Entry

Chapter 7: Forex Trading, Charts and Practice

Chapter 8: Essential Preparations for Live Trading

Conclusion

The Advanced Options Trading Guide

The Best Complete Guide for Earning Income with Options Trading, Learn Secret Investment Strategies for Investing in Stocks, Futures, ETF, Options, and Binaries.

By Neil Sharp

Introduction

Thank you for purchasing The Advanced Options Trading Guide. The Best Complete Guide for Earning Income with Options Trading, Learn Secret Investment Strategies for Investing in Stocks, Futures, ETF, Options, and Binaries. I am sure that this book will live up to your expectations.

If you have purchased this book, it is because you are interested in learning more about options trading and how this type of trading can help you make a profit as a result of your investment activities.

As you will see in the following pages, this book contains a wealth of information that you will not find readily available anywhere else. In fact, many of the concepts found in this book are not easily found in a single volume. Often, you would have to consult numerous sources in order to find all of this information in a single source.

You will also find that options trading is an extensive topic. But fear not, we will go step by step in such a way that grasping these concepts will not be as hard as you think. If you happen to have prior knowledge with some understanding of this topic, then I am sure that you will find a clear understanding of the options trading markets. If you are already familiar with this topic, then I hope that you will find new information that will help you expand your current knowledge and gain a fresh perspective on this matter.

Options trading differs somewhat from regular equities trading. With equities, you were dealing with publicly traded companies. Of course, the options market also deals with publicly traded companies but the difference lies in that options are considered part of the derivatives market. As such, the derivatives market is far larger and far more complicated than the traditional equities market.

Consequently, it will certainly help you to learn more about how the derivatives market works, especially since there are many opportunities available for investors in derivatives. So don't be intimidated by the vast amount of information available out there with reference to the derivatives market. In reading this book, I hope that you get a clear idea of how the derivatives market, through options trading, can open up newer opportunities for investors such as yourself.

For most professional investors, options are a common tool that is used to help protect themselves from volatile markets and sudden swings in the prices of equities and commodities. This is why it is important to also understand the nature of equities and commodities.

Since options are considered derivatives, you are not exactly trading an equity or commodity, that is, a specific security that is attached to the contract which you are negotiating. That's being said, it is vital to have a clear perspective on the dynamics of each market.

Each of the chapters in this book is dedicated to illustrating how each of these markets interacts in such a way that a broader structure is revealed as part of the global structure of financial markets.

The good thing about all of this is that highly technical knowledge is not required. All you need is some time and dedication in order for you to gain a considerable grasp of the concepts discussed throughout this book.

So buckle up because we are going to drill down into the concepts which make up the options trading markets and thereby broader financial markets, not just in the United States, but also around the world. Bear in mind the teas are global markets we are talking about. So keeping an open mind and the global perspective are fundamental tools in understanding how the dynamics of the options trading market works.

Chapter 1: What are Options?

In this chapter, we are going to drill down on the basics of options and how these types of investments work in the overall scheme of financial markets. It must be pointed out that options are not investment vehicles in themselves.

What does that mean?

For example, when you purchase a stock, you're purchasing a piece of a company. That is, you are purchasing partial ownership of a publicly traded company. And while stock is not a tangible asset which you can hold in your hands, it is proof that you own a hard asset, in this case, a company.

So, when dealing with options, you are dealing with a number of transactions which have an underlying asset supporting them. However, this type of investment fits the description and definition of a derivative. This is why the options trading market tends to be a bit more complex than the traditional equities market.

But before we dig any deeper into options themselves, let's get some important definitions out of the way.

First of all, this book does not deal in securities trading. As such, we are not talking about stocks and bonds. When you talk about securities in general, you are talking about ownership of real assets which you can then convert into cash in the regular markets.

For instance, if you purchase stock in a company, you can then turn around and sell that stock to another investor. Whether you make or lose money is dependent on market forces. Consequently, you must be clear on what price you are purchasing a security and at what price you are going to be selling it. Nevertheless, stocks are highly liquid assets because you can trade them virtually anytime you want, and you will always find a buyer for them.

Unless you have purchased stock into a company that has completely tanked, you will always find investors who are willing to take on stock even in a down market. This is what I mean when I say that stocks are highly liquid assets.

Another type of highly liquid assets contained under the securities umbrella is bonds. Bonds are also highly liquid assets that can be sold immediately when you need cash. Of course, if you have purchased bonds of a nation which is in default, then such bonds will essentially be worthless. So long as you invest in high-quality bonds, you will always have an asset which you can convert into cash at any moment.

With this definition, I hope to illustrate what a security is. Please feel free to check out any of the other books in this series which deal on the topic of equities markets and stock trading. I am sure these books will provide you with a wealth of information that you can put to use right away as you find your bearings as an investor.

One other thing before we move on to defining what an option is, trading in options is a speculative activity that yields good results but does not come without significant risk. That is why I would encourage you to do your homework at all times so that you are sure that the investments you are making will provide you with the opportunity to protect yourself against such risks.

Defining “Options”

An option, simply put, is a financial contract that locks in the right to buy or sell but not an obligation.

What this implies, is that an option is exactly as what its name suggests: it is a choice, not an obligation. As such, you as an investor can choose to lock in a given price for the contract, but you are not obligated to carry out with the transaction.

As a result, you have the option of backing out of the contract if, for some reason, you choose to do so. For instance, it could be that you have a cash flow problem and you run out of money. So, you can’t go through with the contract unless you find the money to make the deal happen.

Granted, most transactions in the derivatives market don’t necessarily involve cash, but you do need to have some type of liquidity in order to make the deal go through. In other cases, circumstances change, and you may no longer become interested in that particular asset which you took the option out on.

Now, the reason why we say that options are derivatives is because you are not actually trading the asset itself, but rather, you are entering a contract which is based on an underlying asset. Since an option is a contract in which you have the right to buy or sell—that is one contract, the actual purchase or sale is a separate contract.

I hope you can see that when an option goes through, it is actually two, separate contracts that kick in. The reason for this is because you could actually make the deal without enacting the options contract.

Allow me to illustrate.

Let’s assume that your company does a lot of business overseas. It is based in the US and the majority of its business is in Europe. So, your company is naturally worried about exchanged rates between the US Dollar and the Euro. Since there is a high degree of uncertainty surrounding the Euro at the moment due to the Brexit, you are concern about exchange rates affecting your business deals.

In two months, you will collect a sizeable sum of money which will come due as per the expiration of a contract. Your business partner will make the payment in Euros as per the agreement. But your company is concerned that if the Euro falls because of the Brexit, then you will actually be left with less money once you convert it back to US Dollars.

In other words, if the Euro tanks, you will receive less US dollars when you convert that payment from Euros back into US Dollars.

Therefore, this concern has led your company’s directors to consider taking out an options contract with a local financial institution that will underwrite the contract locking in a fixed exchange rate. What this does is protect your company’s income in case the Euro should tank.

Consequently, there are two possible outcomes: one, the Euro tanks, and the other, the Euro doesn’t tank.

Let’s assume the first: the Euro tanks.

On the day you took out the contract, the USD-EUR exchange rate was 1.30 – 1. That is, $1.30 for €1. Thus, if the company receives €1,000 this would equal $769.23. If the Euro tanks and the exchange rate levels off, then you might reach parity between the US Dollar and the Euro at a 1-for-1 exchange. In this case, the US-based company wins as they receive more Dollars for each Euro it receives. This would be a positive outcome for the company.

Let’s take a look at the second scenario: the Euro doesn’t tank, in fact, it gains in value.

Since we are discussing the possibility of Brexit, it could be that the Pound Sterling tanks and UK investor drop the Pound like hot coal and jump into the Euro. Under this scenario, the value of the Euro would skyrocket. This is the scenario your company was worried about.

So, your company took out the options contract hoping that it would be covered should the worst happen. For the sake of illustration, let’s assume that the USD-EUR exchange rate goes to $2 for €1. In this case, €1,000 suddenly becomes $500.

As you can see, this scenario is about a bad as it could get. It would not only represent a serious loss in terms of USD, but there is no guarantee that it could actually be the exchange; after all, it could jump to $2.50 for €1. With exchange rates, you never know how it could play out.

So, your company gets its local bank to underwrite the contract setting the exchange at $1.45 for €1 since you figure you can deal with the drop of 15 points on the Dollar, but not more. The bank is happy to underwrite at that rate because they figure they wouldn’t lose money on the deal. In the worst of cases, they dump a bunch of Dollars and keep the more valuable Euros.

In the event that the Euro tanks, you won’t need the contract. Your bank will thank you for your business and charge you a flat processing fee simply for underwriting the contract. Basically, it’s just to cover whatever was paid to the underwriters for drafting up the contract.

But, let’s assume that the Euro doesn’t tank and it shoots up to the moon. Let’s consider the Euro going to $2.50 for €1. In that case, you thank your lucky stars that you had that option. It kicks into gear, the bank pays out the exchange rate at $1.45 for €1 and you don’t take a serious hit. In addition, the bank will charge you 1% on the total of the transaction to cover its administrative expenses.

In this example, you engaged in a derivatives contract since the contract itself was only to agree on a price for the currency to be exchanged. You didn’t sign a contract for the currency itself. That is a separate transaction that is governed by a different contract.

At the end of the day, you are betting on something happening, or not. That is what derivatives are all about. Banks act like bookies in which they take in a bunch of bets, let things play out, and then collect when the bets are done.

It should also be said that this type of transaction is highly risky for all those involved as there could be any number of factors involved in the deal. So, if something should go wrong, it will go wrong for a lot of people… and really fast.

Options Basics

So now that we have a better understanding of what options are and how it essentially works, it should be noted that this currency transaction is only one example of the type of options contracts which you can become involved in.

Consequently, you need to be aware of the different types of transactions that may happen at any given time. It is up to the managers of a company to understand the risks the company is exposed to and how options can be used to hedge their position.

Often, you will hear the word “hedge” being used to refer to protecting your position against potential risks that may arise from uncertain conditions in the economy, political situations, or even disruptions in the supply of commodities such as oil and gas.

On the surface, there are different types of options such as Exchange Traded Funds (ETFs), which are very popular with commodities such as oil and gas, futures contracts, again very popular with commodities, equities, bonds, and currency, among others.

These types of contracts, as I have mentioned, do not represent the actual underlying asset in any way. You are not actually purchasing an asset unless you engage in a contract such as futures contracts in which you are locking in today’s price for tomorrow’s production of a specific commodity.

Although you need to be aware as not all futures contracts will specific physical delivery of the commodity. For instance, oil futures lock in a price today for the oil production that will be delivered three months from now. But I am not an oil refinery. So, I don’t have any need for the actual physical oil. So, what I can do is let the contract mature. When I am ready to take physical delivery, I can turn around and sell the same oil at a different price, hopefully higher, to a company which actually needs to the oil to produce their products.

This example underscores how you need to be aware if the contract actually stipulates physical delivery. As with most ETFs, you will not get physical delivery of the underlying asset. What you will get is a check for the price of that asset. It is debatable whether the asset itself is more valuable than the cash. However, there are many scenarios in which cash would be worthless and the commodities would be king.

While that’s a topic for another day, it’s worth noting that options can help you hedge against the worst case scenario situations you have identified as part of your forecasting. As an investor, it could be a chance to capitalize on potential market fluctuations.

The Mechanics of Options

In essence, options are underwritten by financial institutions that are duly registered and supervised by the Securities and Exchange Commission (SEC) and are subject to a series of financial and banking regulations. The SEC is in charge of making sure that no monkey business is going and that all financial institutions comply with the regulations set forth in applicable legislations.

That being said, options are contracts between two parties (though it is possible for multiple parties to become involved) which agree on the price, term, assets, and other conditions that will trigger the contract.

Since the essence of an option is that it is optional, and thereby not forcing the parties to follow through, there are ground rules that govern the actual process of the contract.

For instance, there may be force majeure clauses which would void the contract in case of a serious and unexpected event such as a terrorist attack, natural disaster, or some other unforeseen event. These clauses can be included as provisions to protect the parties involved.

Beyond that, there are standard clauses that stipulate that the parties may withdraw from the contract prior 48-hour notice, or the parties might have to pay a certain amount of money for withdrawing from the contract altogether.

The fact of the matter is that each contract is different and contemplates different circumstances as provided for in the text itself. Once the contract is approved and signed, it is notarized and registered with the SEC. This gives the contract public faith.

If, and when, the contract is enacted, the parties must follow through on what is agreed, and everyone goes home happy. If the contract is not enacted, then the deal is off the table and everyone walks away.

Call Options

The first of the two general types of options we are going to be talking about are the “call options”.

In short, a call gives the holder of the contract the right to buy the underlying asset but does not have the obligation to do so.

Now, let’s break down this definition further.

First of all, call options are put into place when an investor is looking to purchase at a specified price. In that case, you could be tracking the price of any security, derivative, or basically any type of financial instrument.

So, when an investor decides to put this option in, the stock broker will become aware of this intention and inform the investor that the asset has fallen to the desired price. When this happens, the call option can be enacted, and the purchase goes through.

In the days of manual trading in which most orders were phoned in, investors and brokers usually had standing agreements. They would execute the options by phone and then sign the paperwork after the fact just so they could have legal backing.

With the advent of electronic trading, brokers and investors don’t need to phone in their options. They can pre-program their electronic trading software and make the deal. This makes trading a lot faster and it allows for a greater number of transactions to be carried out in a single day.

But there’s a catch—when traders put in their call options, they will set them at a specific price. So, when that security falls to that price, the buy order is immediately generated, and the security is sold. No questions asked. This is done because the option had already been set up that way.

Of course, the trader could kill the option if they feel the price will rebound. But it’s important to note that if you are going to be exercising options, then you need to be at the wheel the whole time. If you do fall asleep at the wheel, then you might find yourself in a tough spot.

Put Options

Put options are the opposite of call options. These options give the holder the right to sell but not the obligation to do so.

Again, both investors and brokers will have standing agreements as part of the business they do. If an investor hires a professional portfolio manager, then the manager will have carte blanche to do as they see fit. This means that the need to call in orders is not needed.

Just like call options, put options can be programmed through electronic trading platforms, either run by individual investors or portfolio managers. The sell order is triggered when the underlying asset reaches a specific price. Of course, orders can be canceled, but the broker needs to be ready to do so.

Let’s look at a practical example that will illustrate how both types of options work.

Let’s assume that the underlying asset is a stock. The asset is “X” number of shares for ABC Company. The current share price for ABC Company is $10 per share. Since this is a solid company, investors are interested in purchasing more stock. However, the current sale price is a bit too high for their liking. So, a call option is placed for this stock. The buy order will be triggered when the asset reaches $9 per share.

So, let’s assume that it does. The buy order is triggered for 100 shares at $9 apiece. Voila! The trade has been made.

Conversely, those who are holding the shares of ABC Company have decided they are willing to share if the price jumps to $11 per share. When this happens, the sell order is automatically triggered, and the stock is sold.

As such, let’s say that it does happen. The share price of ABC jumps to $11. Consequently, the sell order is executed, and the sale goes through.

In this example, the investors who want to buy are waiting for the price of the stock to fall to a point where they feel comfortable. In contrast, the holders of the stock are willing to sell, if and when, the stock reaches a level they too feel comfortable with.

This example works with round figures for the sake of simplicity. In the real world, share prices often have a trading range of a few cents per share. However, when you multiply a few cents over a few thousand shares, then you are making sizeable income on every trade.

Options contracts

As I mentioned earlier, options are contracts. Despite the fact that they are legally binding, thus meaning you could get sued over breach of contract, you are not obligated to go through with the sale or purchase of the underlying asset.

The reason for this is that investors wanted to give themselves some leeway in case circumstance changed unexpectedly. And believe me, they do change in a hurry. So the best thing to keep in mind is that an option is there to protect you from any possible negative outcomes. However, you must be ready to act in case something goes wrong.

Valuation of Options

This is the tricky part.

Valuation of the derivatives market is largely a guessing game. Most statistical models used to value derivatives are mainly statistical models that factor in trading averages and other input factors such time, supply of the asset, inflation, exchange rates, and well, you can imagine that some of these models get pretty complex.

However, the basic element which determines the valuation of assets and options is supply and demand. When a security or commodity is under intense pressure from a lack of supply, prices will skyrocket as investors seek to lock in their prices before they reach the moon.

This usually triggers a healthy number of options, both call and put, since everyone is looking to get a good deal. Those that hold the security or commodity would like to sell when the price is at its highest point, while buyers will be looking to get in before the price of the security or commodity reaches its peak.

At this point, electronic trading can wreak havoc on the price of an asset since the market can be flooded in a matter of minutes with sell orders and kill the price of the asset, or become inundated with buy order and push the price up through the roof.

For most investors, valuing options is about making bets and having the cash and credit to cover them in case they lose. So, it pays to do your homework and make sure that whatever happens, you are ready to make the call, or kill the deal before it happens.

Please bear in mind that the valuation of derivatives is based largely on suppositions about what could, or could not happen. As such, it’s important to consider the circumstances which you might be facing ahead of making a decision.

Since there is really no way to predict how high, or how low, the price of an asset will go, then you must be aware to make deals happen at the right time. I encourage folks to sell when they feel they are comfortable with the profit they are going to make, and buy at a point where they feel they are going to make money on the upswing.

Your best bet is to become familiar with market averages. There is the two-day market average, 10-day, 50-day, and 200-day averages. Of course, there are others such as one-year, two-year, five-year, or even longer averages. But those types of averages serve better as historical data rather than data that will be used to base trading decisions.

Therefore, you must become familiar with these averages so that you can get a sense of where prices are tending (either upward or downward). Don’t be fooled by sudden spikes or drops. These fluctuations are a normal part of trading. Unless you are a day trader, short-term effects should have no bearing on the overall trend you are seeing in the data.

Now, if you are involved in highly-speculative short-term trading, then the two-day average is the one you want to look at. But if you are in it for the long haul, then longer data sets will help you improve your decision-making abilities.