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A new type of option idea


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  #1 (permalink)
Strato
Houston, TX/USA
 
Posts: 11 since Jul 2013
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On the one hand option trading is interesting and presents a intellectual challenge. On the other hand, the risk management side of the equation kind of freaks me out. You get a good gain on a long call, sell it but then you may be subject to assignment.

I know there are simpler and more straight-forward trading instruments like binary options but they seem less reputable.

What if there were something more like ForEx where the underlying security is stock but you control the buying and selling on margin as in ForEx. And there is no expiration date.

Would that work or fail miserably?

Marlin

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  #3 (permalink)
 mongoose 
Chicago, IL
 
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I would suggest maybe a little more research on options and how they work. If you where long a call and then sell it you are flat and there is no risk of assignment, it does not matter if you have a profit in the call or not.

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  #4 (permalink)
Strato
Houston, TX/USA
 
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Maybe this idea is not a new one after all. Maybe the idea is simply the same idea as buying stocks on margin, more or less.

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  #5 (permalink)
 
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 Bermudan Option 
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Option trading is basically buying stock on margin. Each contract of an American option is the equivalent to buying 100 shares of the stock.

If you buy an option on a stock, that means you have the right but not the obligation to exercise the stock. That means, if you buy an August Call on Ford for example, and you are profitable, you have until August 17th to decide whether you want just the profit, or the stock with the profit (getting assigned). If you do nothing, then on August 17th they give you the stock.

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  #6 (permalink)
ForeverTrading
Brooklyn, NY / USA
 
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Strato View Post
On the one hand option trading is interesting and presents a intellectual challenge. On the other hand, the risk management side of the equation kind of freaks me out. You get a good gain on a long call, sell it but then you may be subject to assignment.

I know there are simpler and more straight-forward trading instruments like binary options but they seem less reputable.

What if there were something more like ForEx where the underlying security is stock but you control the buying and selling on margin as in ForEx. And there is no expiration date.

Would that work or fail miserably?

Marlin

You will never be assigned on an option that you sold already..let alone on a long position.

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  #7 (permalink)
Greg Loehr
Portsmouth, NH
 
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Marlin,

Start with your broker or the CBOE as sources for good, free options knowledge and start learning the basics. Options are not like trading stock on margin because the dollar risk of one option can be a fraction of the risk of stock.

You always have the ability to close your option trade at any time (unless the option has dropped to zero and you can't sell it), thus giving you the ability to manage the trade.

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Last Updated on July 23, 2013


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