Why Buying Options Works

368 views

Published on

http://www.candlestickforums.com/

Why Buying Options Works

Buying options can be profitable, can reduce investment risk, and can provide a welcome degree of leverage in stock trading. Why buying options works is highlighted in the recent travails of LinkedIn, the online professional networking company that just went public and began options trading. LinkedIn rose quickly from its $45 a share opening to over $90 a share on its opening day a month ago. The fact that LinkedIn employees hold stock options worth a fifth of the value of the company did not deter first day investors and traders from bidding the stock price up. Traders doing technical analysis of LinkedIn with Candlestick analysis were able to see the stock market indecision at the top of the LinkedIn price curve and could commonly predict the subsequent and continuing fall of LinkedIn to progressively lower stock prices. Those who were buying puts on LinkedIn over the last weeks have demonstrated why buying options works.

Why buying options works is not limited to buying puts before a stock price falls or buying calls in anticipation of a rise in stock price. Traders profited by buying puts on LinkedIn before the stock price fell. Given what happened to LinkedIn stock, stock traders could also have profited by selling short on LinkedIn. Why buying options works in this sort of situation is that even with the best fundamental and technical analysis a stock price may move contrary to expectations. Why buying options works is that the trader can buy options and practice trading risk management as compared to buying stock directly or short selling in which case the trader can incur substantial losses when there is an unexpected and dramatic price move. In all cases of stock and options trading the trader or investor is well advised to use technical analysis tools such as Candlestick patterns to assist him in profitably anticipating price changes. In doing so he limits his risk of being caught in a market reversal or whipsawed by heavy market volatility. The point of using options trading is that the trader limits his risk while using Candlestick pattern formations as a tool for increasing profits though prediction of price direction.

Published in: News & Politics
0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total views
368
On SlideShare
0
From Embeds
0
Number of Embeds
2
Actions
Shares
0
Downloads
8
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

Why Buying Options Works

  1. 1. Why Buying Options Works www.CandlestickForums.com
  2. 2. Buying options can be profitable, can reduce investment risk, and can provide a welcome degree of leverage in stock trading. www.CandlestickForums.com
  3. 3. Why buying options works is highlighted in the recent travails of LinkedIn, the online professional networking company that just went public and began options trading. www.CandlestickForums.com
  4. 4. Before We Continue… Click the links below to get your FREE training materials. Free Weekly Investing Webinars Don’t miss these free training events! http://www.profitableinvestingtips.com/free-webinar Forex Conspiracy Report Read every word of this report! http://www.forexconspiracyreport.com
  5. 5. LinkedIn rose quickly from its $45 a share opening to over $90 a share on its opening day a month ago. www.CandlestickForums.com
  6. 6. The fact that LinkedIn employees hold stock options worth a fifth of the value of the company did not deter first day investors and traders from bidding the stock price up. www.CandlestickForums.com
  7. 7. Traders doing technical analysis of LinkedIn with Candlestick analysis were able to see the stock market indecision at the top of the LinkedIn price curve and could commonly predict the subsequent and continuing fall of LinkedIn to progressively lower stock prices. www.CandlestickForums.com
  8. 8. Traders doing technical analysis of LinkedIn with Candlestick analysis were able to see the stock market indecision at the top of the LinkedIn price curve and could commonly predict the subsequent and continuing fall of LinkedIn to progressively lower stock prices. www.CandlestickForums.com
  9. 9. Traders doing technical analysis of LinkedIn with Candlestick analysis were able to see the stock market indecision at the top of the LinkedIn price curve and could commonly predict the subsequent and continuing fall of LinkedIn to progressively lower stock prices. www.CandlestickForums.com
  10. 10. Traders profited by buying puts on LinkedIn before the stock price fell. www.CandlestickForums.com
  11. 11. Given what happened to LinkedIn stock, stock traders could also have profited by selling short on LinkedIn. www.CandlestickForums.com
  12. 12. Why buying options works in this sort of situation is that even with the best fundamental and technical analysis a stock price may move contrary to expectations. www.CandlestickForums.com
  13. 13. Why buying options works is that the trader can buy options and practice trading risk management as compared to buying stock directly or short selling in which case the trader can incur substantial losses when there is an unexpected and dramatic price move. www.CandlestickForums.com
  14. 14. In all cases of stock and options trading the trader or investor is well advised to use technical analysis tools such as Candlestick patterns to assist him in profitably anticipating price changes. www.CandlestickForums.com
  15. 15. In doing so he limits his risk of being caught in a market reversal or whipsawed by heavy market volatility. www.CandlestickForums.com
  16. 16. The point of using options trading is that the trader limits his risk while using Candlestick pattern formations as a tool for increasing profits though prediction of price direction. www.CandlestickForums.com
  17. 17. Why options trading works for profits is also because of the trading leverage it offers. www.CandlestickForums.com
  18. 18. Let’s look at the case of a stock like LinkedIn. www.CandlestickForums.com
  19. 19. Its IPO gets everyone excited and the psychology of trading takes over for many traders and investors. www.CandlestickForums.com
  20. 20. They drive the stock price up and then, in despair, sell for progressively greater losses as the price falls. www.CandlestickForums.com
  21. 21. Traders using Candlestick trading tactics take a dispassionate view and avoid paying too much for a stock. www.CandlestickForums.com
  22. 22. When they see the stock peaking they buy puts on the stock. www.CandlestickForums.com
  23. 23. Why buying options works so well in this situation has to do with the trader’s return on investment. www.CandlestickForums.com
  24. 24. Trading an American option style the options buyer pays for the right to execute the options contract at any point up until expiration. www.CandlestickForums.com
  25. 25. Thus the trader can wait until the stock price falls, buy stock at the new spot price and then sell at the strike price, then contract price. www.CandlestickForums.com
  26. 26. However, he does not need to buy or sell stock. www.CandlestickForums.com
  27. 27. options trading works well for return on investment is that the options trader can simply exit his contract by executing the opposite trade. www.CandlestickForums.com
  28. 28. His profit is virtually the same and his investment is limited to the options premium, not the price of the stock. www.CandlestickForums.com

×