Useful information for novice traders in the US stock market. Reviews, articles and videos about the leading American stock exchanges
Potential increase in collateral for a position In one of the first lessons, we introduced the concept of collateral. We already know, that the GO for a futures position is equal to the difference between the upper and lower price limits. Ie.
Selling uncovered options involves three main risks: 1. Ba Movement Against Our Position (price risk) 2. Increased market volatility 3. Possible increase in the margin for the position
When selling a Put option, our maximum profit is limited by the option premium., and our risk is not limited in the event of a decrease in the price of the underlying asset<
When selling a Call option, our maximum profit is limited by the option premium., and our risk is not limited in the event of an increase in the price of the underlying asset<
Covered and uncovered sale Any option sale can be: 1. Covered - we have sold the option and have a long position in the underlying asset if we sell Call or short position in the underlying asset if we sell Put. The position in the underlying asset covers your risks on the sold option.
The second important rule of option trading: If time affects our position negatively, means, minimum time should be in position! (time is working against us). Decrease or increase can happen, Or maybe not, but time flows in one direction anyway, every day bringing us closer to expiration.
Time to expiration When buying a longer-term option, we have less risk, but this position will be less profitable if the market moves in our direction. The fact, that the reduction in the cost of an option under the influence of time is maximized as the expiration date approaches. Ie.
Obviously, buy options and wait, when will the BA trend start, in a situation, when time is running against your position, not optimal solution. It is more logical to buy options after, how an upward or downward movement in a futures has already begun, and not before the start of this movement<
Risks of buying options (Long Call и Long Put) In one of the past lessons, we briefly touched on, so-called, three-dimensionality of option trading. Three factors affect the option position: BA price dynamics, time to expiration and volatility.
Let's take a look at the price chart of a “blue chip” stock such as Sberbank.. Let's admit, current share price 138,44 ruble. Seems, that after such a strong growth of the stock, a correctional movement is possible. To capitalize on a possible decline, we buy a Put option on a futures on Sberbank ATM shares with a strike 14 000 by price 349 rubles.