Option Trading Tips - How To Get Paid For A 'Promise!'

Written by James Thomas

Writing Naked Puts is simply selling a put option on a stock that you would be happy to own shouldrepparttar price come down to your desired buy price.

When we write a naked put we are effectively 'promising' to buy someone else's shares inrepparttar 150404 future shouldrepparttar 150405 stock price fall below a certain level.

For doing this we are instantly paid spendable cash for each share that we 'promise' to buy. Ifrepparttar 150406 stock does not fall below this level (the strike price), then we simply keeprepparttar 150407 cash without having to buyrepparttar 150408 stock.


Just like covered calls, only write naked puts on stocks that you would be happy to own and if you want to be more conservative, only sellrepparttar 150409 contract equivalent ofrepparttar 150410 amount of shares you wish to buy, shouldrepparttar 150411 stock fall belowrepparttar 150412 strike price.

As each option contract represents 100 shares ofrepparttar 150413 underlying stock, you can work out how many contracts you can afford to write simply by dividingrepparttar 150414 amount of capital you want to invest in that trade byrepparttar 150415 strike price ofrepparttar 150416 option you want to sell and then divide that number by 100.

Here'srepparttar 150417 formula:

Capital/Strike Price/100 = Number of Contracts

So if you have 20,000 to invest in one trade and let's say thatrepparttar 150418 strike price of option is $10, then you can safely write 20 contracts.

By 'safely' I mean that you can afford to buyrepparttar 150419 stock should you be assigned.

Another thing to remember is that should you be assigned, you would effectively be buying your shares at a discount.

Let's say for writingrepparttar 150420 $10 put option, you received $0.50 cents per share (5% yield).

Day Trading the Index Futures - How to Judge Good Entries

Written by Mike Reed

QUESTION: Ifrepparttar SP futures fall through support and go straight down for another two points, and I want to get short, should I a.)enter immediately, b.) two points below support, or c.)should I wait for a pullback and then try to get short?

You've got to be patient enough to wait for entries that have two things: first - a high probability of immediate gain, and second - a small potential for loss ifrepparttar 150344 worst happens and your hard stop gets hit. This principle applies to all entries, and it's useful to think about it when you're trying to decide whether to enter on a pullback or a continuation of a move.

Entering on a pullback offers less dollar risk than chasingrepparttar 150345 market because you can place your hard stop onrepparttar 150346 other side of support or resistance and risk only a point or two. (Of course, this doesn't mean you're going to hang around and letrepparttar 150347 market hit your hard stop if things go wrong.)

Entering on a pullback also gives you a better chance of gaining a point or so inrepparttar 150348 first 30 to 60 seconds ofrepparttar 150349 trade. This is important, though very few people seem to be talking about it. perhaps it's a well kept secret.

I rarely (almost never) chase

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