Australian (ASX) Stock Market Forum

Query about options terminology

Jump to new
D

Domasanec

Joined
30 September 2008
Posts
11
Reactions
0
Hi,

I am trying to teach myself to quickly think in opposites and get used to all words in OPTION trading. So until I have all in my head and can quickly think I will not trade options yet. I am member of comsec and I trade shares.

I do understand options well by now in it independent way but when I start clicking on COMSEC trading OPTIONS the words are different and the list of options are not giving me information I want or I would expect there would be. So I am still learning.

I understand what is BUY or SELL a COMPANY at $ price paying PREMIUM(or receiving) and I understand CALL and PUT.

But COMSEC trading tools have BUY CLOSE/OPEN or SELL CLOSE/OPEN and when I search companies using COMSEC tools it only shows limited information on OPTIONS.

So what is equivalent in COMSEC to BUY 34.5BHP CALL @$1.12 premium?
And what is equivelant to COMSEC to BUY 34.5BHP PUT @$1.12 premium?
Same thing for SELL the same.

This is regardless if I own the stock or not but at level 1 & 2 you do need to have it.

Finaly is there a risk to try buying stock and lets say buy call option on same stock at the same time in terms of time difference between how quickly you aquarie options and stock? Or maybe you may not get lucky to get precisely what you intend.

Any comments appreciated.

The market is crazy at the moment but I find that using OPTIONS for insurance purposes (so yes BUYING and PAYING $$ TO THOSE WHO KNOW BETTER=WRITERS) is good idea for long term investments. Not right now but in stable market conditions...
 
Domasanec said:
...But COMSEC trading tools have BUY CLOSE/OPEN or SELL CLOSE/OPEN and when I search companies using COMSEC tools it only shows limited information on OPTIONS.

So what is equivalent in COMSEC to BUY 34.5BHP CALL @$1.12 premium?
And what is equivelant to COMSEC to BUY 34.5BHP PUT @$1.12 premium?
Same thing for SELL the same...
Click to expand...

If buying and opening the position then it's "Buy to Open".
If selling and closing the position, then it's "Sell to Close"

However, if one is an option writer, then one "Sells to open" the position and "Buy to close" the position.

Hope that helps!
 
sails said:
If buying and opening the position then it's "Buy to Open".
If selling and closing the position, then it's "Sell to Close"

However, if one is an option writer, then one "Sells to open" the position and "Buy to close" the position.

Hope that helps!
Click to expand...

Sails,

Can you tell me one thing. You know the system in casino where they show last 10 happenings at roulet on display at each table? You get $650 cash with you (OK to loose if unthinkable happens) and you look around and wait till at some table there are 4 same colors. Lets say 4 RED's. You place $5 on BLACK and if you loose you bet $10, If you loose you bet $20 and if you loose you bet $40, $80, $160 & $320. The probability that there will be 11 REDS one after otehr is extremely extremely small so you winning small money $5 after each cycle but after 2h of playing you get out of casino as winner!! with $100-200AUD depending how long you wait till 4 same color appears.

DO YOU THINK USING OPTIONS AND SHARES you can achieve the same level of very small risk in return to be happy with smaller $$ amounts but knowing it is coming? I mean not in speculative manner but example of casino is just to show it is possible to have small risk while you happy to get smaller reward portions...
 
Domasanec said:
Sails,

Can you tell me one thing. You know the system in casino where they show last 10 happenings at roulet on display at each table? You get $650 cash with you (OK to loose if unthinkable happens) and you look around and wait till at some table there are 4 same colors. Lets say 4 RED's. You place $5 on BLACK and if you loose you bet $10, If you loose you bet $20 and if you loose you bet $40, $80, $160 & $320. The probability that there will be 11 REDS one after otehr is extremely extremely small so you winning small money $5 after each cycle but after 2h of playing you get out of casino as winner!! with $100-200AUD depending how long you wait till 4 same color appears.

DO YOU THINK USING OPTIONS AND SHARES you can achieve the same level of very small risk in return to be happy with smaller $$ amounts but knowing it is coming? I mean not in speculative manner but example of casino is just to show it is possible to have small risk while you happy to get smaller reward portions...
Click to expand...

Sorry, never played roulette so can't help you there. Perhaps someone else can...
 
Domasanec said:
Sails,

Can you tell me one thing. You know the system in casino where they show last 10 happenings at roulet on display at each table? You get $650 cash with you (OK to loose if unthinkable happens) and you look around and wait till at some table there are 4 same colors. Lets say 4 RED's. You place $5 on BLACK and if you loose you bet $10, If you loose you bet $20 and if you loose you bet $40, $80, $160 & $320. The probability that there will be 11 REDS one after otehr is extremely extremely small so you winning small money $5 after each cycle but after 2h of playing you get out of casino as winner!! with $100-200AUD depending how long you wait till 4 same color appears.

DO YOU THINK USING OPTIONS AND SHARES you can achieve the same level of very small risk in return to be happy with smaller $$ amounts but knowing it is coming? I mean not in speculative manner but example of casino is just to show it is possible to have small risk while you happy to get smaller reward portions...
Click to expand...


The casino theory would work if you had:
1) ability to bet an unlimited amount of money
2) willingness to spend an unlimited amount of time
3) completely fair odds and no casino take.

All three aren't true at a casino.

Also whether you start betting after a number of reds in a row or not will have no effect on the outcome if you adhere mathematical probability theory. If you bet on black after a 1 in a billion chance occurence of 30 reds in a row the odds on another 30 more reds in a row coming out are the same as if you made the bet after 30 blacks in a row had come out.

With the stock market you can probably theoretically find a fair 'evens' bet and you can pretty much use unlimited money (though if you use larger amounts you have to work more to get the best price because of liquidity issues). You also have brokerage so the system has to have positive return over and above the cost of brokerage and you also need to consider the time spent and any black swan event risk that could wipe out all your profits.
 
cuttlefish said:
The casino theory would work if you had:
1) ability to bet an unlimited amount of money
2) willingness to spend an unlimited amount of time
3) completely fair odds and no casino take.

With the stock market you can probably theoretically find a fair 'evens' bet and you can pretty much use unlimited money (though if you use larger amounts you have to work more to get the best price because of liquidity issues). You also have brokerage so the system has to have positive return over and above the cost of brokerage and you also need to consider the time spent and any black swan event risk that could wipe out all your profits.
Click to expand...

1.) The maximum limit is $500. That is why $320 is last possible bet before you loose maximum $650 that you originaly take with you. But probalility of this happening is veru small - low risk.
2.) $650 that is it.

The big difference is that you can compare RED with UPTREND and BLACK with DOWNTREND. Many RED/BLACK is SIDEWAYS. But the entire nature of market is different. It is not based on 50/50 UP/DOWN. There is a logic behind.

QUESTION:
What happens if you WRITE a PUT OPTION and you receive $500 and you use the same $500 to limit your unlimited loss potential by using this money to BUY PUT OPTION. You do end up with zero money spent but you do own 2 options.

When I saw that COMSEC is allowing to do NAKED WRITE only to level 2 & 3 it seems to me that the REAL LAVERAGE comes from the fact that WRITER is receiving money and that helps if used correctly... So it seems that the CLEVER minority is cashing up writing OPTIONS to those who consider market too risky and BUY and use OPTIONS for insurance reasons...

There are 6 building blocks in options from I can gather in COMSEC explanation and on top of that it is NAKED or COVERED and you can choose SHARE PRICE as well so there are few combinations available but ONLY few do lead to low risk comfortable income without sweating much and praying.

I know it is there but I can not see it YET. Too new.
 
I don't understand what you are getting at,
Writing a put then buying that same put cancel each other out then you have to consider brokerage with is $35 per trade with comsec.
 
cutz said:
I don't understand what you are getting at,
Writing a put then buying that same put cancel each other out then you have to consider brokerage with is $35 per trade with comsec.
Click to expand...

Just trying to think how to combine option GRAPHS. Yes the fees are there.

So combining couple options together is just simply matter of summarising graphs together (ignoring fees for teh time being). In above case it would cancel each other unless you buy them at different price...

WRITING PUT OPTION is very risky on its own so you need to combine and limit that possibility somehow.

WRITING PUT OPTION is having costant profit at dowtrend (from brek even point) and unlimited losses uptrend. So I was trying to pick seconf option that would have unlimited profits downtrend and constant losses uptrend.

Hmm. I NEED TO EXPERIENCE THIS BUY PLAYING ON PAPER. It needs someone I think to show me. I am going for seminar so maybe this will help...
 
mazzatelli1000 said:
That is the only thing you have said on this thread that makes sense to me:eek:
Click to expand...

Comon guys. I am studying options for 4 days and you do it for who knows howlong. If in 5 years I become expert and I can not see reason why (I do have a master degree:) I will try to look after new green comer.

I have studied more in bed and this is what I need to know and it is more comsec site which gives me headache.

I want to BUY a CALL option on BHP at premium. Lets say BUY BHP CALL option at 34.5 exercise price at $1.12 premium expiry December 08. Than I will sit on it and lets say than I want to exercise my right to buy at 34.5 because market will be in my favor.

So I go to comsec and I try to see how you do it. All I can see is that I should go to BUY OPTIONS, than "BUY OPEN" and type BHP. Than if I do search there is list of ptions but because I buy not write I guess I only can choose from the list that is closest? So there is ONLY option for december 08 and I choose CALL option AT MONEY. But there is no $34.5 only 28,29,30,52... and no premium. The premium is something I can choose...

So lets say I struggle through correctly and than later on I want to exercise my right to BUY the share at 34.5 or 28,29...

How do you exercise your right? Is it by going to SELL to CLOSE and choose?

I am very new to it (4 days new to it)! and fundamentaly I understand what is BUY CALL, BUY PUT and SELL PUT and SELL CALL. And theory. Buy once trying to put it in practice using COMSEC site I struggle big time.

If you do not want to answer (it could be too long) what would be the best suggestion (apart of seminar you ALL do not like so much:) to get used to comsec and system... ?

OR IS IT THAT OPEN CLOSE RELATES TO EXERCISING YOUR RIGHTS AND CHOOSING CALL and PUT is happing all in search and filter on comsec so BHPIG for instance is CALL OPTION at $30.

uf uf
 
Domasanec the fact that you have no idea how to run the most simplest of trading platforms shows that you have no reason to be using it. The people that you are asking these questions of back TEST and then forward test their trading idea on months of data BEFORE ever placing a trade.

You have read a book or two over 4 day and think you should be ready to trade.

Enjoy your masters in hard knocks........ :rolleyes:
 
Trembling Hand said:
Domasanec the fact that you have no idea how to run the most simplest of trading platforms shows that you have no reason to be using it. The people that you are asking these questions of back TEST and then forward test their trading idea on months of data BEFORE ever placing a trade.

You have read a book or two over 4 day and think you should be ready to trade.

Enjoy your masters in hard knocks........ :rolleyes:
Click to expand...

Wrong. I am 4 days new to it yes. But I do not believe am ready for options and I think I will need to study for at least 1-2 years before I actualy press the real button. But the same way as you went through the begginings I need to do the same. The only reason I am looking at COMSEC site is for practical educational purpose.

Do you remember your day numer 4 in shares?
 
I would also suggest this book by Guy Bower "Options: A Complete Guide for Investors & Traders" - available through the ASF bookshop: http://www.moneybags.com.au/default.asp?d=0&t=1&id=4601&c=0&a=74

Guy Bower is an Australian author and so it is geared more to the Aussie market. I feel it's a bit easier to read than McMillan for a beginner.

The ASX website also has a fair bit of information and some free education - here are some links to check it out:

an audio presentation: http://www.asx.com.au/programs/vignettes/lesson4.html

general optons info: http://www.asx.com.au/products/options/getting_started/what_are_etos.htm

option strategy library: http://www.asx.com.au/products/options/how/library/index.htm

40 page PDF on "Understanding Options": http://www.asx.com.au/markets/pdf/UnderstandingOptions.pdf

General Trading Information: http://www.asx.com.au/products/options/trading_information/index.htm

FREE ONLINE COURSE: http://www.asx.com.au/resources/education/classes/online.htm#options

That will give you a bit more to read and hopefully help you understand Aussie options (there are some differences to US options).

While I have done an options course - it didn't teach me much more than the basic strategies that are all contained in the links from Wayne and the ones above. The course was a waste of money in my opinion.

I learned the best lessons in options trading from scouring free stuff on the web and then an exceptional amount of time back testing, forward testing and live testing with both paper trades and small positions.

Happy reading!
 

Similar threads

S
What could be safer than writing a covered call?
Replies
15
Views
2K
Santafe
S
wayneL
Can we get real about Options on ASF?
4 5 6
Replies
113
Views
10K
wayneL
wayneL
T
Intro and question
Replies
3
Views
1K
divs4ever
divs4ever
T
Reporting income and Tax on US Options trading from Australia
Replies
3
Views
3K
Santafe
S
rolly1
XJO, Gear, Spi, Overwrites & CC's (no not the chips)
2
Replies
21
Views
2K
Rosscoe62
Rosscoe62
Top