|
|
"WORRY-FREE
OPTION TRADING SYSTEM".
A simple, but amazinglypowerful
technique. CLICK
HERE for the full details.
|
1.
Our range of picks is broad enough
for you to select the best ones –
those that fit your portfolio, option
strategy, risk averseness, industry
focus, etc. Our track record shows that
we make rational decisions based on
rational models. If you stay with us
and make frequent trades, the average
trade will be a success. However, according
to the rules of statistics, there is
always room for risk and each individual
trade can be either a success or a failure.
2. Options involve risk, and
are not suitable for all investors.
Every investor who uses options should
read and understand the publication
"Characteristics
and Risks of Standardized Options"
published by CBOE.
About
Options
Q.
What is the theoretical option price
compared to the actual option
price?
A.
Theoretical option prices are computed
with the help of Black-Scholes model.
You can learn more about option pricing
models here.
You can also check our glossary.
Theoretical
prices primarily reflect the stock price
volatility and do not take into consideration
technical signals. However, it is dangerous
to ignore these technical signals. Keep
in mind that the underlying stock price
movement is the key factor which determines
the option price. That is why we run
technical analysis when preselecting
our picks. Please pay attention to green
and red arrows in our resumes.
Actual
option prices can differ significantly
from theoretical ones for the following
reason: although many traders take theoretical
prices as a starting point, they use technical
signals to further adjust these prices.
For example, if the underlying stock price
is expected to increase, the actual call
option prices will be higher than theoretical
ones. According to the supply and demand
theory, demand for the call options will
rise as many market players would like
to catch the upward stock price movement.
Vice versa, if the market anticipates
a price decline, the actual put option
prices would normally exceed their
theoretical levels. Demand for put options
will go up as many market players would
like to get a protective hedge for their
stocks.
Q.
Does this mean that the option is
overpriced if theoretical price is $0.46
and actual price is $1.35? A.
Not necessarily. Every market situation
needs to be analyzed separately.
It
holds true only if the stock price won't
change significantly and actual option
prices will start to tend to their theoretical
levels. But if the stock price drops
or surges as anticipated by the market,
then theoretical prices are the ones
far from reality. There is a special
class of option strategies when the
trader bets on volatility change and
the corresponding change of disparity
between theoretical and actual option
prices. Learn more about these strategies
here.
You
can also find our short-term picks for
"volatility" strategies on our site on
a daily basis. Also please take into consideration
the general market volatility trend that
we compute and publish on our main
page. It would be more risky to bet on
a particular stock volatility drop if
the market volatility is on rise.
Q.
It seems to me that since 80% of options
expire worthless, purchasing options with
a net credit makes more sense to me.
Is that sound judgment or am I thinking
wrong?
A. It is a "myth" you should not
rely on! In fact, nobody cares for numerous
options with different strikes and expiration
dates. Every trader is focused on certain
option strikes and expiration months,
for which general rules of that kind should
not be applied. It all depends on a particular
situation, underlying stock price movement,
volatility changes, etc. Mathematically
there is no significant difference between
net credit and net debit strategies (except
the small interest that you earn on your
credit balance). The difference is purely
psychological and is not so important.
In the real situation there is no simple
solutions like that. Our mission is to
help you put together all factors that
determine your success.
Q.
Could you please explain the "average
1 day buy-call return"?
A. You can find all entries and
exits in our Track Records.
One-day return for a "buy call" option
pick is calculated in the following way:
Profit=actual sell price -actual buy price
Return = (profit/buy price)*100%
One-day return = return/(number of days
this option was held)
Q.
Do you send out exit alerts
on your previous picks?
A. Exit signals are not included
in our Basic
Service. All other services
include exit alerts and auto-trading.
Q.
How long are options normally held
for?
A. As you can see from our Track
Records, the majority of our short-term
"buy call" positions are kept open for
1-2 weeks, sometimes even for a few days.
This is because we base our picks not
on blind belief or other emotions (please
open our "18
Trading Rules" page) but on mathematical
calculations, namely, on probability estimates
derived from our numerous back tests.
Our
findings show that reliable forecasts
based on technical signals can be made
for a period of up to two weeks. Beyond
this time horizon the statistical reliability
declines. Of course, you can keep believing
that the trend will last but
the back tests show that it becomes
too questionable to bet on.
Let
us take an example. A bullish technical
signal takes place. We already know
from our back tests that after this
signal there is a 95% probability that
the stock price will drop, let's say,
no more than 5% during the next 10 days.
We can consider the possibility to sell
a front-month "out-the-money"
put option betting that the option would
expire worthless. Is it reasonable?
It also depends on its actual price.
This price can be too low compared to
the risk we take.
We
are probably the only Internet site to
publish option picks based on reliable
technical signals. Our system is almost
"mechanical" - no emotions, no attitude,
nothing personal. Only strong mathematical
computations. However, it is important
to keep in mind that the room for risk
remains anyway.
Q.
Your service seems very impressive in
its level of detail. I am primarily interested
in the most aggressive and frequent options
trading service you have. How long
has this service been in operation?
A. We offered paid services in
late 2000 but free reports appeared in
early 1999. |
