Playing Option at Bullish Market
If you have read my last blogs [thanks], you could see that some of my blog is talking about computer, internet, automotive, dream book, art and entertainment, now I will start to write about business and investment, this is my first article about “Playing option at bullish market”, this used by anyone who want stock investment.
Some analysts and market players said the market will rise next year and begin at the end of November. December is considered by various parties as the players and stock issuer doing window dressing because they want shows good performance.
Stock price at the end of December published on financial statements and the company always wanted a bull market when compared with previous years. If declined, the should have reason for the decline. Playing the options in this condition is necessary in order to make a profit.
Assumptions that used this time are the price will goes up in the next six months. Reasons as described earlier and also have January Effect possibility in which the stock price will rise because the fund manager changes the strategy with the stock exchange because changes in earnings estimate.
The first actions taken by investors, is to buy a call option, can be the American or European style. It is advisable to buy call options in American so the investors can be more freely to execute. Although the market is assumed to take hold, there is a possibility for down. If there decrease in the late period, then the call option buyer will not have much profit.
In the American call options, investors are free to execute during the option period to obtain optimal profit. The ability to see the exactly time is expected to execute to have optimal profit.
In buying call options, investors should also watch and analyze the call option period for optimum benefits. Period could be used six months or shorter, i.e. a month. However, short periods recommended for investors who have time to watch the market every day. Investors who do not have the time are advised to buy a long period.
Investors must watching strike price, a mistake for make a decision will cause miss and the profit is not optimal. The expected strike price is not much different from current prices, if necessary strike price equal with current prices.
The second action is protecting the value from the previous action. These actions have two strategies. If investors are buying stocks or known as the underlying asset investors can buy/write option. Otherwise, the first time investors take action and second action options is to buy stocks.
When the investor buying stocks first time they must protect his next stock by buying a put. That uses if the price suddenly fell sharply, the investors have a right to sell shares at certain prices. With that action investors will lose only a little.
That uses if the price suddenly fell sharply, the investors have a right to sell shares at certain prices
If the first investor has the act of writing call options, investors are required to submit items to the opponent. This choosing action is wrong because the investors will inform that the price will rises. Investors should protect the act of writing the option
Buying shares will give benefit for investors in the future because the market is rising. However, writing the option make a profit loss so the investors profit will stable (the same) as the portfolio’s stock price rise.
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The position of the option
Actions follow, taking positions on two or more options with the same option. It is means, the investors took a position two or more call options and thus also with a put option which is called spread. For example, investors buy call options and write call options.
Strike price from purchased call options is lower than strike price writing call option. The difference strike price is spreads for investors. Investors also must pay these premium call options differently. Premium call options purchased is higher than the premium writing call options. Premium value of this difference also states spread over the option. Both these options actions must have the same maturity that does not occur in the literature miss maturity option.
Position for the actions of these two call options or call options is called a portfolio, investors profit will be stable after write option strike price. But investors are also stable losses when the price drop since the strike price of call options purchased. Writing call options with strike prices higher than the strike price of the purchase of call options to make the price increase is still far occurred obligations underlying asset transfer.
Which can also be done when the price rises is to take the position put two options. The first position is to buy a put option and the second position is to sell / write a put option. Investors must make a buying strike price of a put option lower than the written put option so that the investor has a base STRIKE price spread.
Investors also makes premium of buying a put option is lower than the put option written premium. The difference of the two option premium, the put is an advantage of investors. Investors should have the same period a put option that the same maturity. In this portfolio, the investor has the advantage of stable if prices continue to rise throughout the period in which prices rose from a strike price of the put option written. However, the investor will lose money if the price falls continue the strike price of buying a put option
Investors must make a buying strike price of a put option lower than the written put option so that the investor has a base STRIKE price spread
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