Is Put Trading More Profitable Than Stock Trading?

Put trading doesn’t cost as much per share as regular stock trading but can be far riskier if you don’t know what you’re doing. A put option is basically the opposite of a call option. When you trade puts, you’re trading contracts that offer the purchaser the right to sell an amount of stock at a specified price.

Those that write puts are wagering that the stock price will increase or remain relatively stable, thereby not giving the purchaser any reason to exercise the put. The writer makes money from the sale of the put and never has to buy any stock as long as the put option’s strike price is above the stock price when the option expires.

Although there is risk involved in put trading, sometimes puts are purchased as a means to protect profit and reduce loss. If you make a profit on a stock and want to make certain you keep that profit but aren’t ready to sell the stock, you might purchase a put. If the stock increases in price, you will not exercise the put. However, if it drops in price, the put guarantees that you’ll be able keep the profit you wished to protect by exercising your option to sell your stock to the contract writer for the put’s strike price.

A put can be sold for a profit when the price of the stock falls below the strike by an amount greater than the premium paid for the put before the option expires. The option to sell the owner’s stock holdings for the strike price of the option contract can be exercised if that is preferred.

Some use this information to trade puts profitably. They may never own the underlying stock but understand that the price of the put varies based on the stock’s price. Take a stock that costs $60 a share. You may purchase a put with a strike price of $59 for $2. You would make 100% profit on your investment if the price of the stock went to $55. Incontestably, there is risk involved. The purchaser loses his entire investment if the contract runs out and the stock’s price is still above the strike.

You’ll find puts and calls on other financial instruments. They aren’t just stock market instruments. Other markets, such as the commodities market and the forex market use puts and calls. Puts are used by farmers to protect the sale price of their crops. If they have a bumper crop, the odds are good that others will too. This causes the price of the crop per bushel to drop. To protect their profit, farmers will purchase a put contract so they have an automatic buyer at a specified price, making the put a valuable tool.

Regardless of the market, if prices increase and decrease, there are normally options such as puts and calls. Puts can be used to protect your profits or to increase your profits. Understanding put trading can be valuable knowledge indeed.

Options Trading Now has been Put trading for some time and is currently holding Qqqq puts and SPY puts.

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Credit Spread – How To Make Consistent Monthly Option Income

The Credit Spreadis one of the more popular strategies among option traders. Along with being one of the easier option trading strategies to understand, another reason newer option traders in particular gravitate to this strategy is that it can require very little time to manage it while it is on. Another way to put it, is that credit spread sellers don’t need to be glued to their computer screens all day watching every tick of the market in order to generate consistent income with this trade.

The credit spread trade is a basic building block of many if not most other more complex option trading strategies such as the iron condor spread, the butterfly, and the double diagonal trade. For example, the butterfly is created using one credit spread and one debit spread, while the iron condor is made up from two credit spreads, one on either side of where the underlying is currently trading at.

Traders like to sell these vertical spreads because when invested correctly the trades have a good probability of success and can allow the investor to still profit and ‘win’ without having to be exactly right with priced direction and movement. When sold correctly, credit spreads can bring the trader a good monthly return while the individual actually placing the trade could be incorrect with their belief and ‘prediction’ of where the stock market would be heading next.

To demonstrate let’s invent a trade where the option trader feels as if the stock being traded is about to tank. Because he believes that this specific stock will not advance any higher from it’s current position a bear call vertical spread is sold, bringing in a nice credit.

The only way this spread trade can lose money is if the stock winds up doing 1 out of 4 possible scenarios – giving our trader a three out of four likelihood of winning. If the stock moves down as our trader predicts he wins. If the stock stays stagnant and goes nowhere, he wins. In fact, even if the stock moves against our trader and heads upward he wins just so long as the underlying doesn’t move so far as to breach the spread sold. The only our trader loses is if the underlying moves far enough upwards passing the option strike price that was sold – which if it does, our trader could still salvage the position through appropriate management and adjustment methods

While credit spread trading can be a great way to generate passive income, of course like any investment method there are potential pitfalls one should be aware of before jumping in. To learn more about how to properly trade this option strategy, including how to correctly place, manage, and most importantly how to ADJUST them, visit our free video training website at Credit Spreads

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Before Short Selling-Know These Shocking Facts

Many brokerage firms make it easy to sell short. When you place the order to sell a stock, the brokerage asks you whether you are selling shares you own or selling short. In case of short selling, the brokerage firm goes about borrowing the shares for you to sell. It loans the shares to your account and executes the sell order.

In some cases, the brokerage firm cannot borrow the shares as so many people have sold the stock short that there are no more shares to borrow. In that case, you will have to find another stock or use another strategy.

Now, day traders are not fundamental traders. Day traders are simply interested in the daily volatility in the stock. Most even don’t do any financial or fundamental analysis of the companies whose stocks they are trading. Almost all are technicians or what you call technical analysis experts. Now, shorting is one of the favorite strategies employed by day traders. A day trader may short stock on the mundane reason like its price had been going up for three days and it’s time to come down!

Now, you cannot straight away short a stock as there are mechanisms in place employed by msot of the stock exchanges that don’t want a massive shorting attack on a stock. There is the famous Uptick Rule that has been put in place to prevent that from happening. What the Uptick Rule means is that you cannot short a stock unless it moves up on the last trade. This rule has been placed to prevent a stock from being driven down to almost zero by short sellers. In simple words, once the stock starts to move down, you cannot short it. You will have to wait for its price to move up on the last trade, before your short selling order can be executed by the broker.

If you are wrong in your short selling decision, your loss can be catastrophic.How much risky short selling can be? Well, in theory there is no stopping a stock price to reach the sky. But don’t worry, short sellers also use stop loss so if the price starts to move up, your position will get closed automatically by the stop loss order.

Know something known as Short Squeeze. Once that happens, almost all short sellers get desperate to dump their stocks and exit but when they try to buy back the stock, they get more hurt as the prices go even higher and higher on rising demand for the stock in the market. Now, don’t get caught in the market with short selling when good news spreads about the stock that you had shorted driving its price up.

As said before, companies, investors and many brokers hate short sellers. They think that short sellers had intentionally driven down the stock prices. So sometimes, they will spread rumors of good news to create a momentary short squeeze. Sometimes, a campaign will be started by the owners of a particular stock instructing their brokers not to loan out their stocks to short sellers. So if you have already shorted that stock, you might get a call from your broker to return that stock immediately. In such a case, you will have to immediately return the stock even if it doesn’t make any sense to you!

Mr. Ahmad Hassam has done Masters from Harvard University. Get your FREE COPIES of the HVMM Ultimate Day Trading System and the Universal Risk & Money Management Tool just now!Read this 49 page Quantum Swing Trading FREE Report plus the shocking Profit Button Report that applies no matter what you trade-stocks,forex, futures or options!

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Candlestick Charting Patterns- The Hammer, the Hanging Man and the Spinning Top!

Hanging Man and the Hammer are two different candlestick patterns. The patterns are not identical. Hanging Man is considered to be bearish and the Hammer is considered to be bullish.

How to spot the Hanging Man and the Hammer? These candlestick patterns are easy to spot on the chart. When you spot a very small candle body accompanied by a pretty long wick on the bottom, it is a Hanging Man if it appears at the top of the uptrend and it is a Hammer if it appears at the bottom of the downtrend.

In less than ideal cases, you might also find a small wick at the top of the candlestick. When the Hanging Man or the Hammer appears, you need to look for the confirmation on the next day.

If you think that you have spotted a Hanging Man appear on the top of an uptrend, wait for the next day’s opening price. If the opening day is lower than the last day’s close, you have spotted a true Hanging Man.

Similarly, if you spot a Hammer at the bottom of a downtrend, you need to confirm it with the opening price on the following day. If the opening price on the next day is higher than the closing price on the last day, the Hammer formed was a true Hammer.

Whenever, you trade candlestick patterns, first spot them correctly than wait for the confirmation on the following day. The best chart for these candlestick patterns is the daily chart. Once, you get the confirmation, trade these patterns. They can be highly profitable. But in case, you don’t get the confirmation the next day with the price action, simply ignore the pattern as not true.

A Spinning Top is another candlestick pattern that reveals a tight battle between the bulls and the bears. Whenever, the battle between the bulls and the bears ends in a draw on a trading day, the following day, one side has to give in. When this happens an explosive move in one direction is highly likely.

How to identify a SPINNING TOP? A Spinning Top has a very small candle body in the middle with two equal wicks on the top and the bottom. This pattern appears very frequently in the daily charts and can be highly profitable if spotted correctly.

Mr. Ahmad Hassam has done Masters from Harvard University. Master Candlestick Charting with this 82 page PDF FREE Candlestick Guide! Get this 49 page Quantum Swing Trading Report FREE.

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Harami And The Harami Cross Candlestick Patterns Can Be Highly Profitable!

Harami is a two stick candlestick pattern or what you may call a two day candlestick pattern observed on the daily charts. The first day candle is longer than the second day candle. Harami candlestick pattern can be bullish as well as bearish.

This is an important signal that bulls are now active and trying to take hold of the market. This means that the downtrend will be soon over and an uptrend is about to start.A bullish Harami is formed in a downtrend when the first day candle is very bearish. But on the second day, the bulls come into play and beat the bears out of the market by taking the prices higher. However, the bulls are not completely successful and the second day is still lower than the first day open and the first day high is not crossed.

The second day is still a down day that follows a bearish trend. On the second day, the open is higher than the close of the first day. The bulls ruled the second day as the close is higher than the open.

The bulls are still cautious after the downtrend thinking that the bears are going to come back again and push the prices still lower. The confidence the bulls gain when this does not happens encourages more buying and the culmination of the downtrend and the start of an uptrend.

Now, like most of the candlestick patterns, a Harami can fail. What this means is that you need to confirm it with the price action on the following day. Always place the stop loss first when you trade. When you spot a Harami, place the stop loss near the open of the second day.

Harami pattern has got few variations. On of them is the Bullish Harami Cross Pattern. The first day in case of a Bullish Harami Cross is a bearish candle. The signal day or the second day is a Bullish Doji with an open higher than the close of the first day and the close lower than the open of the first day. Now,a Bullish Harami Cross is not formed very frequently. But when it does form, it means an sudden trend reversal. So you should act immediatetly when you spot it.

When a bearish Harami is formed what this indicates is that bears have taken hold of the market now and are about to push the prices down signalling a downtrend is about to start! The bearish Harami is similar to a bullish Harami. It is formed in an uptrend. The first day is a usual bullish candle that forms in an uptrend. The second day candle is a bearish candle. It’s open is lower than the close of the first day. And it’s close is higher than the open of the first day.

Mr. Ahmad Hassam has done Masters from Harvard University. Read this shocking 40 page FRWC Brutal Truth Report on trading robots and how to test and optimize them FREE. Downlaod this 82 page PDF Candlestick Guide FREE!

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