Equodity

If you are long a call, that means that you own the call or the right to buy the underlying stock at a predetermined price. When you are long a position that simply means that you have bought that position and want that position to increase in value. Being long a call means that you are bullish on the underlying stock and expect that stock to increase in value before your expiration date. Being long a call can be better then simply owning the underlying stock because you can using leverage to better your outcome in the event that you are right. Each call option that you own is equal to 100 shares of stock.

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Naked options writing can be the most risky type of options strategy that exists. You can write a naked option for both puts and calls. In fact it is so risky, you have to have good credit with your broker or a large account and be approved for their highest level of options trading before you can begin using this strategy.

However, it is not uncommon to use this strategy and the reason is because most options that are written expire worthless. So when you sell an option for the premium, the chances of that option expiring and you keeping the premium are pretty good.
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Covered calls allow you to generate additional income on the stocks that you already own. If you want to hold on to the security the stocks that you currently own and generate additional income a covered call is a way to do it. There is a risk associated with this strategy, like there is with all strategies, but I will cover that. To start a covered call is selling a call option for every 100 shares you own of that particular company. The reason the ratio is 1:100 is because every one option represents 100 shares.

So if you own 150 shares of stock, you can cover 100 of them with one option, it is not advisable to sell two options in this situation though, because if your stock grows faster then expected and you get assigned you will have to buy an additional fifty shares at the market price to cover the full obligation of the second call. In other words you sold half a contract naked, please look what selling naked means naked means.

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A credit spread is very similar to a debit spread. You are using two options to create a max profit and a max loss. The difference is you are taking in money on this trade and not paying for the trade. So your risk is the opposite of the same side debit spread.A debit call spread is bullish where a credit call spread is bearish. In this type of spread you will sell the lower call strike price and buy the higher call strike price for the same month. Keeping the spreads vertical for debit and credit spreads to begin with keeps the math simple and the strategy easy to understand. If you try to combine this with a horizontal spread you will change your risk graph and possible expose yourself to a naked position.
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Calendar spreads are also known as time or horizontal spreads because they involve options with different expiration months. In this case, “horizontal” refers to the fact that option months were originally listed on the board at the exchange from left to right. At the same time, strike prices were listed from top to bottom. For this reason, options with different strike prices and the same expiration are often referred to as vertical spreads.

Typically you want to look for a company who’s share price doesn’t change much over time. This spread takes advantage of time erosion and not stock movement. So as long as the volatility doesn’t play a roll in an options price when approaching expiration the time value should deteriorate nicely and you lock in your profit.
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Some easy to understand and implement strategies are debit spreads. Debit spreads, while easy can be very powerful strategies to use. First lets talk about what a debit spread is. A debit spread can be used with both calls and puts. The debit part means that you have to pay for the trade out of your account. The type, call or put would indicate the direction you want the underlying stock to move.
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Leverage and calculated risk are probably about the best two categories to use to describe equity options trading. Options can be a great way to supplement your return on investment when the stock market has had a flat year or even negative year. When done right options trading can be a fun experience and not to mention profitable. I would not put a large percent of my money into options trading because it is not a very liquid position to be in and it can be VERY volatile. I do view my options account as a wealth building vehicle for the future. Continued »

So the other day we saw Apple rise above $200. That’s exciting, and I’m really happy about it. Of course, I have my reserves too. I look now and they’re around $194. Still pretty good.

What I’d like to talk about, though, is the overwhelming buzz the over $200 stock caused. You had a lot of excited people. You had a lot of pissed off people and naysayers.

In the end, all that really matters is how much the stock is worth and that only matters if you own the stock.

Where will it go from here? Who knows, but I’ll be keeping an eye on the Big Apple.

What are your thoughts on this? Comment here or go post on the Equodity Forums.

(AAPL: 80.49 0.00%, vol: 0, avg vol: 47,398,200)

The Mortgage industry generates liquidity for the housing market by originating loans, pooling them into securities and selling them to investors to recoup their original lent cash.  Mortgage backed securities are rated based on historical default rates (which do not include sub-prime default rates as sub-prime loans are a relatively new invention).  

Companies like Freddie Mac, Fannie Mae, Bear Stearns etc., would pool them and also carry a basic kind of insurance called a credit enhancement.  A credit enhancement is very simply insurance up to a certain dollar value of default on the loans. 

Rating agencies used their historical models with historic default rates and rated many of the Sub-prime Mortgage backed securities as investment grade or better because the credit enhancements covered the expected default rate.  In other words the insurance adequately covered the default risk (based on historic data) according the ratings agencies (Moody’s, Fitch, and S&P).   Continued »

In this article we will examine the difference between Land based Drillers and Off-shore Drillers.  We will use BJ Services (BJS) as the Land driller example and Transocean Drilling (RIG) as the Off-shore example.    Continued »