The Strike PriceThe strike price is the price of a stock or other equity specified in options contracts . The strike price is the price at which a contract in options trading will be delivered should the buyer choose to execute it. The strike price will be the price of satisfaction of the options contract no matter what the market price, also called the spot price , is at the time. Specifically, it is the price at which owner of options can buy stock in case of a call option or sell stock in the case of a put option. The strike price of an options contract is also referred to as the exercise price. When trading options on stocks the trader carries out the same types of fundamental and technical analysis that he would when buying stocks or selling stocks directly. He will use Candlestick analysis to gauge market sentiment and assess a stock’s margin of safety and intrinsic stock value in order to have a clear view of the stock’s eventual value.
Using Candlestick patterns as a guide, traders in the options markets seek to anticipate if stocks are likely rise above the strike price of available options contracts or are likely to fall below the strike price. If the trader anticipates a rise in stock price above the strike price he will seek to profit by buying calls on the stock at given strike price. If he expects the stock price to fall he will seek to profit by buying puts. Buying calls gives the trader the right to buy stock and buying puts gives the trader the right to sell stock, in each case at the strike price specified in the contract. In neither case of buying options does the buyer have an obligation to buy or sell. It is the seller of puts or calls who gains premiums for taking on the risk of unanticipated, by him, changes in stock prices .
Options contracts vary length. As the contract runs its course the contract will have intrinsic value and time value. The intrinsic value of the stock is the difference between the current market price or spot price and the strike price of the contract. The time value is what the market consensus assigns a stock based upon expected price movement between the current date and the contract expiration date. As the time to contract expiration becomes less so does the time value of the contract. Finding profitable investments in the options markets takes the same sort of attention to fundamental analysis and technical analysis as does buying or selling stocks directly. To the degree that an options contract has less time to run the fundamentals become less important. Technical analysis tools such as Candlestick pattern formations , however, are always useful as they can spot short term changes in market sentiment. They always have the potential when coupled with Candlestick trading tactics to lead to short term profits in trading options on stocks or other equities.
Today the NASDAQ gap down on the open, revealing that the pennant formation had now been breached to the downside. Although the Dow and the S&P 500 held up reasonably well during the day, the question became whether the Dow and the S&P 500 would start selling off to match the selling of the NASDAQ or with the NASDAQ start showing strength because the Dow and the S&P 500 were not selling off. The first scenario had to be watched more diligently due to the gap down in the NASDAQ. That indicated there was some strong selling forces occurring in the markets.
Mark your calendars – Tina Logan will be the guest speaker for Thursday night May 19 and John Bollinger will be guest speaker on June 9.
June 11 and 12th are scheduled for a two day candlestick training. This will be a follow-up to the 12 major signals training two weeks ago. Get more details on the website. Private training session is now being scheduled for Keuka Lake, New York in August. Serious traders should plan on spending three days on the beautiful waters of one of the beautiful New York State finger Lakes, Keuka Lake. These private training sessions allow investors to get the rural answers and training on flaws they may be concurring in their own investments. More details will be posted later this week on our events and trainings.
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