Forex Trading Money » short position http://virtualmakemoney.com Forex Trading Money Tutorial Mon, 13 Feb 2012 09:14:43 +0000 en hourly 1 http://wordpress.org/?v=3.2.1 Writing a Covered Call http://virtualmakemoney.com/writing-a-covered-call.html http://virtualmakemoney.com/writing-a-covered-call.html#comments Thu, 08 Sep 2011 01:46:28 +0000 randi http://virtualmakemoney.com/?p=1046 The senior traders will be familiar with the covered call screener. A covered call is defined as a conservative options strategy that, structured properly, generates double digit returns in your portfolio. As with all options, the risks have to be understood before positions are opened. For many traders, selling covered calls is probably the favorite strategy among traders who understand options, and for good reason. Then, it is a safe strategy that brings profits into your portfolio without adding to market risk. The only serious risk to this strategy is the risk of “lost opportunity”. If the stock price soars, shares are called away at the fixed strike price, so that those potential profits will be lost forever. Covered call writers know this happens on occasion. However, they accept that risk for the certainty of strong, consistent profits. So, the market risk, the risk of losing value, for owning shares is higher than writing covered calls, if only because earning premium income discounts your basis in the stock. For example, if you buy stock at $74 per share and sell a call for 1.32, then you discount your basis to $72.68 per share.

To summarize, when you write a covered call, you are putting 100 shares of the underlying stock at risk of exercise, in exchange for receiving the premium. So instead of the better-known long position (buy-hold-sell), selling calls is one short position (sell-hold-buy). Each call will relate to 100 shares of the underlying stock, so the safety in the covered call comes from having those 100 shares to deliver if and when the call is exercised.

These are few basics have to be remembered when writing a covered call :

First, do not pick high-volatility stocks just for covered call writing. A common mistake of new traders is to buy stocks just to write covered calls. If you seek the best option return, you are going to end up with shares of the more volatile stocks. So, this is a pitfall. You may pick the stock based on sound fundamental and technical tests, and then write covered calls.

Second, make sure the strike price is higher than your basis in the stock. There is also another mistake in writing calls with strikes below your basis in the stock. In the event of exercise, this can create a capital loss instead of a gain. For example, if you buy 100 shares at 38, do not sell calls with strikes of 35; focus on strikes at 40 or above.

Third, pay attention to dividends. The dividends are likely to represent an important portion of overall return. If you are looking at two companies and both are equally promising, go with the higher dividend yield.

Finally, you should compare expirations to make the best choice and look at a range of possible expirations. Moreover, the ideal expiration will occur within two months, because time decay accelerates toward the end of the option’s life. As a seller of the call, time decay works in your favor, and as value is lost, it becomes possible to close the position with a “buy to close” order and take a profit.

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]]> http://virtualmakemoney.com/writing-a-covered-call.html/feed 0 What is CFD (Contracts for Difference)? http://virtualmakemoney.com/what-is-cfd-contracts-for-difference.html http://virtualmakemoney.com/what-is-cfd-contracts-for-difference.html#comments Tue, 11 Aug 2009 21:32:11 +0000 admin http://virtualmakemoney.com/?p=136 Contracts for Difference or CFDs (derived from the English term “Contracts for Difference) are becoming more popular every day. The growing popularity of the service is explained as follows:

The possibility of taking a short position. Contracts for Difference suit bassists investors who prefer to take short positions. Previously, only professional investors could exploit. Appearing Service Contracts for Difference, the process of taking any short position is more comfortable and efficient for an investor. Contracts for the implementation gap is easier, compared to the same transaction for shares.

There is no commission and there are low demands on the sidelines. You can conduct a transaction, if not the total value of the contract at his disposal. You only need to deposit a corresponding percentage, only a fraction of the value of the contract, known as margin, which is normally between 5 and 10%. This way you can invest in the portfolio of shares, without having to deposit funds or immobilize large.

Market prices. You get quotes from competitive market with the spread and do their transactions for the same price as the stock market professionals.
Implementation quickly. Your transactions will be executed immediately, without delay.

Markets. You can now negotiate with shares listed on the Dow Jones, renowned and future. The selection of instruments can be changed by the Company, at its discretion.
Size of the Contract. The minimum size is 0.1 lot = 10 shares. In this case the margin is equivalent to USD10-150 (depends on the share price). The minimum margin for a contract in U.S. Stock Exchange (Bolsa de Valores in the U.S.) was about $ 35-70 (depending on the prices valid from February 2003).

Hedging (hedging strategies). If you are a holder of securities and does not want to sell their shares, even if the price falls to them, you can open a short position on CFD on any action (or the entire portfolio). As a result your losses on the underlying asset will be offset by profits in CFD relevant.

A Contract for Difference is an agreement to change the difference between the opening and closing price of the position under contract for various financial instruments.

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