"The Secret Blue Print of Options Trading": Stock Up, Buy Calls! Stock Down, Buy Puts!

The Secret Blue Print of Options Trading
Tang 2009 www.OptionsLearn.com

All Rights Reserved

1

Stock Up, Buy Calls!
Stock Down, Buy Puts!

All Rights Reserved

2

From: Tang

Congratulations for Taking Action!

In this report, we will be covering the topic of How to Make Money by Trading
Options in Up or Down Markets!.

The information that is disclosed here are fundamental knowledge of all
professional option traders. This information is taken from Chapter 10 of The
Secret Blue Print of Options Trading.

The philosophy here is to know your instruments that you are trading with.

My goal is that when you do own The Secret Blue Print of Options Trading, you
will have the complete roadmap to show you how you can achieve success by
trading options in a simple and conservative manner.

For now, here is the chapter on option basics so that you can see what an easy
read this would be for you, meaning that you will be able to take clear action to
get results very quickly.

Warmest Regards

Tang

PS: A List of Very Important References is at page 18
All Rights Reserved

3

You may use this report as you wish as long as it
remains unaltered and all links are left intact resell,
distribution, bonus, giveaway rights are all included

Copyright Tang 2009 www.OptionsLearn.com

IDSCLAIMER AND/OR LEGAL NOTICES:
The information presented herein represents the view of the author as of the date of publication.
Because of the rate at which conditions change, the author reserves the right to alter and update his
opinion based on the new conditions. This report is for informational purposes only. While every
attempt has been made to verify the information provided in this report, neither the author nor his
affiliates/partners assume any responsibility for errors, inaccuracies or omissions.

Any slights of people or organizations are unintentional. If advice concerning legal, financial or
related matters is needed in any way connected with this publication, the services of a fully qualified
professional should be sought. This report is not intended for use as a source of legal, financial or
accounting advice in any way. You should be aware of any laws which govern business transactions
in your country and/or state. Any reference to any person or business whether living or dead is
purely coincidental.

U.S. Government Required Disclaimer - Options trading has large potential rewards,
but also large potential risk. You must be aware of the risks and be willing to accept
them in order to invest in the options markets. Don't trade with money you can't afford to
lose. This article and/or website is neither a solicitation nor an offer to Buy/Sell options.
No representation is being made that any account will or is likely to achieve profits or
losses similar to those discussed on this article / website. The past performance of any
trading system or methodology is not necessarily indicative of future results.

All Rights Reserved

4

10. OPTIONS BASICS

To date, we have covered the most important details in their proper sequence.

In the first few chapters, we covered the most important item: money
management. Without proper money management, we are just gambling in the
stock options market.

We also introduced the road map to our first million, the Secret Blue Print.

Next, we elaborated on how options are merely derivative instruments whose
value were subset to the underlying stock price.

To this end, we went into detail on how to evaluate stock price movement using
technical analysis.

Then we saw an example of how for the same stock price movement, trading
options could have given us a better return on investment than trading stocks.

Now, there are options contracts on many products, for example, options on
composite index and options on forex.

Here, we will be limiting our study to stock options.

All Rights Reserved

5

10.1 Stock Options

Stock Options are:
1. Standardized Contracts based on
2. An Underlying Stock. It is
3. A Derivative Product with
4. a Limited Life (all stock options have an expiration date)

Holding stock options is not the same as holding shares.

Stocks represent an investment in a real corporate entity. The value of the
shares is backed up by the assets of a real company. These shares have and
indefinite lifespan and they exist as long as the company exists.

Stock options are merely contracts. The value of these stock options depends on
the price of the underlying stock. As such, we can say that stock options are
derivative products.

Stock options have a limited life. This makes them depreciating assets. They
have to be exercised before a specific date (called the expiration date) after
which they cease to exist.

Options are also standardized contracts. Every stock option is standardized to
control 100 shares of stock. This gives the stock option a leveraging effect.

Thus, when we buy four option contracts at $10.00 each, we have to invest a
sum of $4,000 (4 contracts x $10 per share x 100 shares per contract) due to this
leveraging effect.

All Rights Reserved

6

In usual everyday business practice, every contract usually involves a buyer and
a seller. This is not the case in an options standardized contract.

In an options standardized contract, a third party called the O.C.C. (Options
Clearing Corporation) steps in:
The buyer buys from the OCC, while ...
The seller sells to the OCC:
The buyer and the seller does not deal directly with one another since
the OCC is their point of contact and contract.

The OCC is also the regulatory body which manages the options expiration date
(the expiration date is usually set to expire on the third Friday of the month).

10.2 Call Options and Put Options

There are only two types of options:
(a) The Call Option
(b) The Put Option

As a trader, we can only do two things with these options:
(a) Buy an Option, or
(b) Sell an Option.

As such, for every option contract, there are only 4 basic combinations:
(a) Buy a Call Option
(b) Sell a Call Option
(c) Buy a Put Option
(d) Sell a Put Option

All Rights Reserved

7

Sample Option Table for Apple (nc (AAPL)
Source: Optionsxpress
All Rights Reserved

8

10.3 Call Options

We Can:
1. Buy a call option (long the call) or
2. Sell a call option (short the call).

When we buy a call option:
The buyer pays a premium to own the call option.
The buyer of the call has the right, but not the obligation, to buy the stock at
the agreed strike price
The buyer has only got this right until the expiration date
The buyer loses this right after the expiration date

When we sell a call option:
The writer (seller) of the call option collects the buyers premium.
The writer (seller) of the call option has an obligation to sell the shares of the
underlying stock at the agreed price
The writer (seller) owes this obligation to the buyer only until the expiration
date
After this expiration date, the writer does not have this obligation anymore.

Exercise and Assignment:
The buyer of the call has the right to buy the stock at the agreed price.
When the call buyer exercises his right to buy the stock, we say that the call
writher (seller) has been assigned.
Upon assignment, the call writer (seller) has to sell the stock to the call buyer
at the agreed-upon strike price.
All Rights Reserved

9

Buy Call Options Only

In the context of this manual,
we would only be buying call options
We will NOT sell call options (as selling calls incur obligations and our
brokerages have more stringent rule when it comes to taking on obligations)

Limiting ourselves to buying call options also makes our trading practice simpler.

When we buy call options:
If the underlying stock price goes up, we make money.
If the underlying stock price goes down, we lose money.

Say AAPL is trading at $99.27. We buy 90 Strike Call Option at $12. In the next
few days:

If AAPL stock goes up to $120, the 90 Strike Call Option increase in value to
about $32 ($12 initial price +$20 price increase)

But if AAPL goes down to $80, the 90 Strike Call Option will reduce in value
to about $4 (approximate price)

This concept is illustrated below.

All Rights Reserved

10

Call Option
increases in
Value
(Make $$$)
X
X
Price
Time
O
Call Option
Initial Value
O
X =Share Price
O =90 Strike Call Option
90
99.27
120
Buy Call Options

When Stock Price Up, Call Options Make Money
Buy 90 Strike Call Option
110 Share Price

All Rights Reserved

11

Call Option
Lose Value
(Lose $$$)
X
X
Time
O

Call Option
Initial Value
O
X =Share Price
O =90 Strike Call Option
90
99.27
120
Buy Calls Options

When Stock Price Goes Down, Call Options Lose Money
Buy 90 Strike
Call Option
Price
110
80
Share Price

All Rights Reserved

12

10.4 Put Options

We Can:
3. Buy a put option (long the put) or
4. Sell a put option (short the put).

When we buy a put option:
The buyer pays a premium to own the put option.
The buyer of the put has the right, but not the obligation, to sell the stock at
the agreed strike price
The buyer has only got this right until the expiration date
The buyer loses this right after the expiration date

When we sell a put option:
The writer (seller) of the put option collects the buyers premium.
The writer (seller) of the put option has an obligation to buy the shares of the
underlying stock at the agreed price
The writer (seller) owes this obligation to the buyer only until the expiration
date
After this expiration date, the writer does not have this obligation anymore.

Exercise and Assignment:
The buyer of the put has the right to sell the stock at the agreed price.
When the put buyer exercises his right to sell the stock, we say that the put
writher (seller) has been assigned.
Upon assignment, the putl writer (seller) has to buy the stock from the call
buyer at the agreed-upon strike price.
All Rights Reserved

13

Buy Put Options Only

In the context of this manual,
we would only be buying put options
We will NOT sell put options (as selling puts incur obligations and our
brokerages have more stringent rule when it comes to taking on obligations)

Limiting ourselves to buying put options also makes our trading practice simpler.

When we buy put options:
If the underlying stock price goes down, we make money.
If the underlying stock price goes up, we lose money.

Say AAPL is trading at $99.27. We buy 110 Strike Put Option at $10. In the next
few days:

If AAPL stock goes down to $80, the 110 Strike Put Option increase in value
to about $30 ($10 initial price +$20 price decrease)

But if AAPL goes up to $120, the 110 Strike Put Option will reduce in value to
about $4 (approximate price)

This concept is illustrated below.
All Rights Reserved

14

X
X
Time
Put Option
Initial Value
X =Share Price
=110 Strike Put Option (option always has a strike price)
90
99.27
120
Buy Put Options

When Stock Price Goes Down, Puts Make Money
Buy 110 Strike
Put Option
Price
110
Put Option
increases in
Value
(Make $$$)
80
Share Price
All Rights Reserved

15

Put Option
Lose Value
(Lose $$$)
X
X
Time
Share Price
Put Option
Initial Value
X =Share Price
=110 Strike Put Option (option always has a strike price)
90
99.27
120
Buy Puts Options

When Stock Price Goes Up, Put Lose Money
Buy 110 Strike
Put Option
Price
110
All Rights Reserved

16
10.5 Conclusion

Wow. You have just covered Chapter 10 of The Secret Blue Print of Options
Trading. I hope that you got tremendous value from it!

Heres what you can expect from The Secret Blue Print of Options Trading:
PART 1: TAKE ACTION FIRST
Chapter 1: Lets Do It!
Chapter 2: Trading Rules
Chapter 3: Setting Goals
PART 2: THE TRADER
Chapter 4: The Core: Return on Investment (ROI)
Chapter 5: The Game Plan
Chapter 6: The Trading Mindset
PART 3: STOCK TRADING
Chapter 7: Trading Basics
Chapter 8: Trading Systems
Chapter 9: Entries and Exits
PART 4: SELECT OPTIONS
Chapter 10: Option Basics
Chapter 11: Option Mechanics
Chapter 12: Option Pricing
Chapter 13: Option Strategies
PART 5: GET READY
Chapter 14: Trading Plan
Chapter 15: Lets Do It Again!

Warmest Regards.
Tang.
All Rights Reserved

17

Get Your Copy of The Secret Blue Print of Options Trading
Today from www.OptionsLearn.com

As this manual is Downloadable, you can be reading it as fast as
5 minutes from now! Act Fast!
Tang 2009 www.OptionsLearn.com 18
All Rights Reserved

LIST OF IMPORTANT REFERENCES
Roboform
Trading Trainer
Trading Trainer Education Center
Trading Trainer Intensive Seminar
Trading Trainer Apprentice Program
Market Mastery
Profits Run
TeleCharts
Options University: Options Mastery Program
Options University -Options 101 Program
www.interactivebrokers.com
www.thinkorswim.com
www.optionsxpress.com
https://us.etrade.com
www.trading-plan.com
www.iitm.com
www.equis.com
www.meta-formula.com
www.optionsclearing.com
www.cboe.com
http://www.optionsxpress.com/tool_center/virtual_trade.aspx
https://www.thinkorswim.com/tos/displayPage.tos?webpage=paperMoney

"The Secret Blue Print of Options Trading": Stock Up, Buy Calls! Stock Down, Buy Puts!

Enviado por

Dados do documento

Título original

Direitos autorais

Formatos disponíveis

Compartilhar este documento

Compartilhar ou incorporar documento

Opções de compartilhamento

Você considera este documento útil?

Este conteúdo é inapropriado?

Direitos autorais:

Formatos disponíveis

"The Secret Blue Print of Options Trading": Stock Up, Buy Calls! Stock Down, Buy Puts!

Enviado por

Direitos autorais:

Formatos disponíveis

The Secret Blue Print of Options Trading

Tang 2009 www.OptionsLearn.com

Você também pode gostar