A Discussion of Options Exchanges
An important part of formulating a stock trading plan is provisions for options trading as well. In the options exchange, options orders are agreements between two investors where one party agrees to deliver something in the stock market to another party within a specific time period and for a specific price. Ownership, as normally defined, does not exist because you don’t need to possess a particular stock in order to implement a position.
In the options exchange, a stock order, whether it is a “call” (an agreement to purchase) or a “put” (an agreement to sell), gives the holder the right to purchase the designated options; in addition, the holder is entitled to simply let the options order expire without investing further.
When formulating a trading plan for options, your investment philosophy will be unaffected by the options exchange and their locations. With the use of the Internet and options trading advisors, location is not much of an issue. Some of the better known options exchanges are:
- Philadelphia Stock Exchange (Philadelphia, PA)
- Chicago Stock Exchange (Chicago, IL)
- American Stock Exchange (New York, NY)
- Chicago Board Options Exchange (Chicago, IL)
- Pacific Stock Exchange (San Francisco, CA)
- Cincinnati Stock Exchange (Chicago, IL)
- International Securities Exchange (New York, NY)
- New York Board of Trade (New York, NY)
- New York Stock Exchange (New York, NY)
- NASDAQ Stock Market (New York, NY)
- Boston Stock Exchange (Boston, MA)
- Kansas City Board of Trade (Kansas City, MO)
- Philadelphia Board of Trade (Philadelphia, PA)
Types of Options Orders
Options orders cover in a number of different scenarios, offering the investor the ability to buy or sell and setting conditions for the transactions. The following are some of the options orders that are available:
- Buying Calls - Buying a Call in the options exchange is a bullish options order on an underlying stock value. The investor has the opportunity to speculate on the rise of the stock’s value for the term of the contract with a predetermined risk. Most investors will look to sell their contract at a profit, while others may intend to exercise their right and purchase the underlying shares.
- Buying Puts – Buying Puts in the options exchange is a bearish, somewhat speculative options order in which the investor anticipates that a stock will decrease in price during a set period of time. The trader realizes a profit when the stock and its underlying put option decrease in price during a set amount of time.
- Selling Puts – When you sell puts in the options exchange, you are selling someone the right to sell you the underlying asset at a fixed price, on or before the expiration date of the option order. You can use this options order when you are bullish on the market and feel that it isn't likely to go down in the short term, you can sell puts on a quality asset that you would like to own at a discount.
- Selling Covered Calls – Selling a covered call is an order in the options exchange where investors are willing to pay for the right to take a stock if it reaches a much higher price. It is an excellent strategy to implement while waiting for a stock to reach your identified sell point.
- Buying Strangle – A strangle buy in the options exchange is implemented by purchasing a call option and a put option on the same asset with the same strike price and expiration date.
- Buying Straddle – A buy straddle is implemented by purchasing a call option and a put option on the same asset with the same strike price and expiration date. In the options exchange this is a desirable move because the risk is limited to losing the premium paid but its reward is unlimited.
- Buying Calls – Buying a Call is a decidedly Bullish position on an underlying stock value. The investor has the opportunity to participate in the rise of the stock’s value for the term of the contract with a predetermined risk. Most investors will look to sell their contract at a profit, while others may intend to exercise their right and purchase the underlying shares.
Improving Your Odds In The Options ExchangeIs there anything else you can do to increase your chances of success in the options exchange? Yes there is; using a trading system like Japanese Candlesticks adds a powerful charting system, especially in the options exchange. Candlesticks was invented over 300 years ago as a method for trading in the rice markets of ancient Japan. The success of the system has grown and developed and it is an amazing tool for today’s options exchange. With the charting abilities you will gain from Japanese Candlesticks you could literally have a view inside the directions of options before they even move. Added to your trading plan, Candlesticks can put you in the right company for successful trading in the options exchange.