Stock option trading is a high levered market play. An option is a contract between a buyer and a seller that gives the buyer the right?but not the obligation'to buy or to sell a particular asset (the underlying asset) at a later date at an agreed upon price. In return for granting the option, the seller collects a premium from the buyer. The Wall Street Journal, Stock Option Trader, among others, analyze market conditions and trends.
There are put option and call options. The put option gives the buyer the option to sell the underlying asset. The call option gives the buyer the right to buy the underlying stock. An option trading tutorial or a good Wall Street stock trading book or free guide is necessary and extremely helpful for those interested in pursuing options trading.
The options buyer may choose not to exercise the right and let the option expire. The underlying asset has value however the option expires worthless under such circumstances.
Many models have been developed that accurately evaluate the value of an option through statistical models. This is an important consideration since risk needs to be quantified given the volatile nature of many markets and the great leverage inherent with options.
Over-the-counter options are traded between private parties, often well-capitalized institutions that have negotiated separate trading and clearing arrangements with each other.
Many statistical tools that predict price movement are available for technical timing. The main ideas should be based on direction and trend gleaned from news authorities and sources such as the Wall Street Journal or option trader news services.
Market behave in a cyclical manner and behave in a wave composed of individual data points. Leading and lagging indicators signal direction of the wave and helps positioning strategies.
Using a very broad stroke for categorizing indicators, there are oscillators, and momentum indicators. Oscillators are leading indicators, and momentum indicators are lagging indicators. While the two can be supportive of each other, they can frequently give conflicting signals. This is not to say that one or the other should be used exclusively, but you must understand the potential pitfalls of each.
More Information:
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