One of the questions (understandably) more applicants from you is: "what" Options should buy? ".
's not that I want to pull back, but answering this question is an extremely complicated, but today I will give you some information on the general guidelines that should guide your choice.
occasion to brush up with a fundamental theoretical concept: the factors that contribute to determining the price of an option.
say that they are essentially three:
1) The distance from the base;
2) The remaining time;
3) The volatility of the market;
Let's see in detail.
1) The distance from the base is the number of points that must be added (in the case of Call) or disconnect (in the case of Put) in the S & PMib to reach the value of the base. That is if the S & PMib has a value of "net" of 16,500 points, then that is a 15,000 Put a call we will put 18,000 to 1,500 points and distance will be considered "out of the money", in fact, of 1,500 points, as the value at maturity of the Put correspond to the number of points (multiplied by € 2.5) below 15,000, and conversely, will equal that of the Call points above 18,000. In one way or another, therefore, the options will vest opposing an actual value at the end after the threshold of 1,500 points. Beware, though: the fact that currently does not have a value of "owner" does not mean you do not have a value - in many cases even higher - in the market. Options, in fact, may be resold at any time, and it is clear that, other things being equal, an option that comes close to the base that is more to what has been paid, but one that moves away from the base is less valuable. One option that comes close to the base at a distance less than 500 points is defined as "at the money" option that "exceeds" the basis (under the Put or Call 15,000 over 18,000 in the example) becomes "in the money" and, as we shall see later, it ceases to be strictly an option and should, preferably, sold (and maybe replaced with other options as far as bases, but this argument is premature at the time).
2) The remaining time is clearly an element of great importance if we consider "eternal" options, we should also put in mind that "sooner or later will all in the money. " The fact is that this condition shall instead vest "" within the deadlines set (the Options expire on a monthly basis, namely the 3rd Friday of each month, and this does not mean that you can buy options on a quarterly, half yearly, annual
... Here, clearly, that the discourse of "probability" in determining the price: other things being equal (basic and volatility) the price goes up with increasing the time available. A few days (or even a few hours, minutes) after the expiry Option aims to show an exponential increase of the speed at which it depreciates.
3) The volatility Finally, impact significantly on the "probability" (and therefore value) of an option. Summing up (improperly, but enough to make the idea) we define volatility as the rate at which the market moves in that time. There are in fact phases of "static" in which the rhythms are soporific (and thus the ability to make big business simply by purchasing options decreases) and others in which you determine frequent accelerations and sudden: in the latter situation it is clear that the value Options (also on other factors being equal) increases significantly in relation to the increased likelihood of a very favorable price hikes those who have bought. bE I try now to explain why.
imagine that the market moves suddenly to 1,000 points, what can happen? There are two possible scenarios: the 1,000 points have been covered in the direction favorable to our Option (upward if it is a Call, downward if it is a put), or in the opposite direction (if it is a downward or upward if Call is a put). Well, what would happen in each of the two opposing possibilities? In the first case, our option - always without prejudice to other factors - could increase in value even flagrantly, producing very high percentage profits, otherwise they would fall in value, but more and more limited, in the worst until you clear the value of the cases, but never beyond.
short, if in a situation of high volatility we might seek simply to play "heads or tails" you would know in advance that the loss of the damage would be small, while in case of gain profits stratospheric proportions. That is why the increase in volatility leads to a substantial increase in the price of the Options.
For what I pay when you buy an option is the "probability" that the same goes, as they say, "in price," before the deadline. And this "probability" is closely related to the other two factors: the base (the more closely the situation in the money, increased is the possibility that the option will be successful) and time (the longer the "life" of the Options, the more likely it becomes possible to obtain a gain).
Moa do not worry: you do not have to be to perform the complicated calculations which determines the price of various options on the basis of these three components: long as you have the foresight to avoid situations in which the difference between the demand (in the jargon "money") and supply (called "letter") is significant, the right price makes the market directly. But, you have to do the rest ... and I'm here to try to help you assimilate the basics of good trading with Options.
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