Thursday, August 16, 2018

What You Should Know About Stock Split and its Effect on Option Prices

A stock split is the action a company takes that increases the number of its outstanding shares by dividing each share, which in turn diminishes its price. The stock's market capitalization, however, remains the same. For example, if a company had 1 million outstanding shares and each share is trading at $70 then after 2-for-1 stock split it will have 2 million outstanding shares and on the date of the split, stock will trade at $35. The market capitalization before split was $70 million (1 million shares multiply by $70), after the stock split the market capitalization will remain $70 million (2 million shares multiply by $35). The true value of the company has not changed one bit.

If an investor bought 1000 shares at $70 just the day before the stock split, then on the stock split day he will have 2000 shares. The value of his investment will remain the same which is $70,000 as on the day of the split stock will trade at $35 (after stock split the price of the stock will of course fluctuate up or down).

The most common stock splits are 2-for-1, 3-for-1, 3-for-2 and 4-for-1.

Phases of Stock Split
There are five phases of stock split:

1 - Before the Announcement
A short-term increase in stock price before the expected announcement date.

2 - Announcement
Within seconds of the announcement the stock price jumps up, and then falls back down.

3 - After the Announcement
After the announcement the stock price falls because of profit taking. Depending on the length of time between the announcement and the actual split, the stock may move and down more than once.

4 - Split Date
About three days before the split the stock price runs up. Usually the stock runs up the most just the day before the split.

5 - After the Split
Few days after the split the stock pulls back due to profit taking. It consolidates, moves sideways and then on new catalyst stock starts to move up.

Reason for Stock Split
There are various reasons for company to stock split. One reason is the psychology. As the price of a stock moves higher and higher, some investors feel the price is too high for them to buy, or small investors may feel it is unaffordable. Splitting the stock brings the share price down to a more "attractive" level. Since the stock split does not effect the actual value of the stock but the lower stock price may affect the way the stock is perceived and therefore, attracts new investors.

Another reason for splitting a stock is to increase a stock's liquidity, which increases with the stock's number of outstanding shares. Theoretically, stock split does not have any fundamental value of the stock and therefore, no advantage to investors. However, stock split is perceived positively by investors community and is considered as a good buying indicator. One studies suggest a good solid growth company reaches its pre stock split price in few years and then it split again.

How Stock Split Effects Options
Lets take the example of CRM. On March 21st, 2013 the board of directors of CRM announced 4-for-1 stock split. CRM outstanding shares are at 400 million. After stock split its outstanding shares will be 1.6 billion. Trading of CRM on stock split basis will begin on April 18th. If on April 17th CRM closes at $170 then on April 18th it will resume its trading at $42.50. In few years down the road CRM may trade again at $170. It is this perception which is perceived as buying indicator when company announces stock split.

If you trade options then you should have a working knowledge of how stock split affects options. If the stock is splitting 2-for-1 or 4-for-1 then it is simple to understand the effect of stock split on option. For example, If you hold one contract of May 170 Calls of CRM before stock split, then after the stock split you will have four contracts of May 42.5 calls.

However, there are certain stock splits which are complicated and are done via adjustment.

The difference between a "split" and "an adjustment" depends on whether the stock can be split an integral number of times. In a 4-for-1 stock split such as the case of CRM, you will have four times as many options contracts for one-fourth the strike price. 

However, if stock is splitting 3-for-2 then mathematics behind the stock split is complicated. For example, if an investor owns 100 shares and stock is trading at $60 per share before stock split then after the stock split the investor would own 150 shares (100 divided by 2 then multiply by 3) and it will trade at $40 per share.

Lets take the same example to understand the effect of stock split on options. 

Lets assume you own XYZ June 60 Call. Since one call contract holds 100 shares therefore, the nominal value of June 60 Call is calculated as follows:

1 contract * $60 per share * 100 shares = $6,000.

After the split, you will hold one June 40 Call covering 150 shares of XYZ. The calculation is as follows: 

1 contract * $40 per share * 150 shares = $6,000

In other words before stock split trader had one contract of 60 strike which controlled 100 shares, after stock split the trader would still hold one contract but of 40 strike and this one contract would control 150 shares. 

Yahoo finance maintains stock splits calendar which can be found at the following link.

http://biz.yahoo.com/c/s.html

I hope the above information on stock split helps you in putting on the profitable trades in future.Hi Drake,

A stock split is the action a company takes that increases the number of its outstanding shares by dividing each share, which in turn diminishes its price. The stock's market capitalization, however, remains the same. For example, if a company had 1 million outstanding shares and each share is trading at $70 then after 2-for-1 stock split it will have 2 million outstanding shares and on the date of the split, stock will trade at $35. The market capitalization before split was $70 million (1 million shares multiply by $70), after the stock split the market capitalization will remain $70 million (2 million shares multiply by $35). The true value of the company has not changed one bit. 

If an investor bought 1000 shares at $70 just the day before the stock split, then on the stock split day he will have 2000 shares. The value of his investment will remain the same which is $70,000 as on the day of the split stock will trade at $35 (after stock split the price of the stock will of course fluctuate up or down).

The most common stock splits are 2-for-1, 3-for-1, 3-for-2 and 4-for-1.

Phases of Stock Split
There are five phases of stock split:

1 - Before the Announcement
A short-term increase in stock price before the expected announcement date.

2 - Announcement
Within seconds of the announcement the stock price jumps up, and then falls back down.

3 - After the Announcement
After the announcement the stock price falls because of profit taking. Depending on the length of time between the announcement and the actual split, the stock may move and down more than once.

4 - Split Date
About three days before the split the stock price runs up. Usually the stock runs up the most just the day before the split.

5 - After the Split
Few days after the split the stock pulls back due to profit taking. It consolidates, moves sideways and then on new catalyst stock starts to move up.

Reason for Stock Split
There are various reasons for company to stock split. One reason is the psychology. As the price of a stock moves higher and higher, some investors feel the price is too high for them to buy, or small investors may feel it is unaffordable. Splitting the stock brings the share price down to a more "attractive" level. Since the stock split does not effect the actual value of the stock but the lower stock price may affect the way the stock is perceived and therefore, attracts new investors.

Another reason for splitting a stock is to increase a stock's liquidity, which increases with the stock's number of outstanding shares. Theoretically, stock split does not have any fundamental value of the stock and therefore, no advantage to investors. However, stock split is perceived positively by investors community and is considered as a good buying indicator. One studies suggest a good solid growth company reaches its pre stock split price in few years and then it split again.

How Stock Split Effects Options
Lets take the example of CRM. On March 21st, 2013 the board of directors of CRM announced 4-for-1 stock split. CRM outstanding shares are at 400 million. After stock split its outstanding shares will be 1.6 billion. Trading of CRM on stock split basis will begin on April 18th. If on April 17th CRM closes at $170 then on April 18th it will resume its trading at $42.50. In few years down the road CRM may trade again at $170. It is this perception which is perceived as buying indicator when company announces stock split.

If you trade options then you should have a working knowledge of how stock split affects options. If the stock is splitting 2-for-1 or 4-for-1 then it is simple to understand the effect of stock split on option. For example, If you hold one contract of May 170 Calls of CRM before stock split, then after the stock split you will have four contracts of May 42.5 calls.

However, there are certain stock splits which are complicated and are done via adjustment.

The difference between a "split" and "an adjustment" depends on whether the stock can be split an integral number of times. In a 4-for-1 stock split such as the case of CRM, you will have four times as many options contracts for one-fourth the strike price. 

However, if stock is splitting 3-for-2 then mathematics behind the stock split is complicated. For example, if an investor owns 100 shares and stock is trading at $60 per share before stock split then after the stock split the investor would own 150 shares (100 divided by 2 then multiply by 3) and it will trade at $40 per share.

Lets take the same example to understand the effect of stock split on options. 

Lets assume you own XYZ June 60 Call. Since one call contract holds 100 shares therefore, the nominal value of June 60 Call is calculated as follows:

1 contract * $60 per share * 100 shares = $6,000.

After the split, you will hold one June 40 Call covering 150 shares of XYZ. The calculation is as follows: 

1 contract * $40 per share * 150 shares = $6,000

In other words before stock split trader had one contract of 60 strike which controlled 100 shares, after stock split the trader would still hold one contract but of 40 strike and this one contract would control 150 shares. 

Yahoo finance maintains stock splits calendar which can be found at the following link.

http://biz.yahoo.com/c/s.html

I hope the above information on stock split helps you in putting on the profitable trades in future.


Kindest Regards


Jay Johnson
UISMarketing.com




Don't Buy Any Trading Program Or Meet With A Financial Planner Till You Here This Free Recorded Message >>> Call 888-657-8466"




Wednesday, August 15, 2018

Past FREE Trades On Option Sell Strategy

Covered Call Ideal Result

Ideally, calls are in the money at expiration. The sold calls are assigned, you deliver the stock and earn the full profit. If the stock pays a dividend, you also collect those payments while the position is open.





Covered Call Strategy

Simply buy a stock, sell a call, collect premium (and dividend when applicable) then let it expire. You can do covered calls on stocks you already own too.  
Analysts target annualized returns of 15% – 20%. Each trade has built-in downside protection. 


" Don't Buy Any Trading Program Or Meet With A Financial Planner Till You Here This Free Recorded Message >>> Call 888-657-8466" 



PAST RESULTS

PORTFOLIO                       STOCK               ENTRY            EXIT           INVESTMENT      PROFIT


Covered Calls PortfolioGOOS2018-07-182018-08-08$61.00-$5.50-9.02%0.5
Covered Calls PortfolioTGT2018-07-182018-07-27$76.00$1.001.32%0.5
Covered Calls PortfolioTRIP2018-06-222018-07-02$54.88$1.683.06%0.5
Covered Calls PortfolioDFS2018-06-132018-07-25$74.08-$1.17-1.58%1.5
Covered Calls PortfolioTWLO2018-06-132018-07-13$58.40$1.001.71%1
Covered Calls PortfolioMU2018-05-312018-06-18$59.39$0.360.61%0.5
Covered Calls PortfolioPYPL2018-05-312018-06-22$82.25$1.251.52%0.5
Covered Calls PortfolioSTLD2018-05-232018-07-23$48.67-$0.48-0.99%2
Covered Calls PortfolioWTW2018-05-092018-05-25$67.04$1.962.92%0.5
Covered Calls PortfolioETFC2018-05-092018-06-01$61.33$1.672.72%1
Covered Calls PortfolioCSX2018-04-192018-06-01$58.76$1.242.11%1.5
Covered Calls PortfolioBBY2018-04-192018-05-18$71.10$1.401.97%1
Covered Calls PortfolioSKX2018-04-052018-07-13$37.67-$5.67-15.05%3.5

How To Sell A Covered Call Option...

What is a Covered Call?


You are entitled to several rights as a stock or futures contract owner, including the right to sell the security at any time for the market price. Covered call writing sells this right to someone else in exchange for cash, meaning the buyer of the option gets the right to own your security on or before the expiration date at a predetermined price called the strike price.

call option is a contract that gives the buyer the legal right (but not the obligation) to buy 100 shares of the underlying stock or 1 futures contract at the strike price any time on or before expiration. If the seller of the call option also owns the underlying security, the option is considered "covered" because he or she can deliver the instrument without purchasing it on the open market at possibly unfavorable pricing.

Profiting from Covered Calls

The buyer pays the seller of the call option a premium to obtain the right to buy shares or contracts at a predetermined future price. The premium is a cash fee paid on the day the option is sold and is the seller's money to keep, regardless of whether the option is exercised or not.

When to Sell a Covered Call

When you sell a covered call, you get paid in exchange for giving up a portion of future upside. For example, let's assume you buy XYZ stock for $50 per share, believing it will rise to $60 within one year. You're also willing to sell at $55 within six months, giving up further upside while taking a  short-term profit. In this scenario, selling a covered call on the position might be an attractive strategy.

The stock's option chain indicates that selling a $55 six-month call option will cost the buyer a $4 per share premium. You could sell that option against your shares, which you purchased at $50 and hope to sell at $60 within a year. Writing this covered call creates an obligation to sell the shares at $55 within six months if the underlying price reaches that level. You get to keep the $4 in premium plus the $55 from the share sale, for the grand total of $59, or an 18% return over six months.

On the other hand, you'll incur a $10 loss on the original position if the stock falls to $40.. However, you get to keep the $4 premium from the sale of the call option, lowering the total loss from $10 to $6 per share


Advantages of Covered Calls

Selling covered call options can help offset downside risk or add to upside return, taking the cash premium in exchange for future upside beyond the strike price plus premium. during the contract period. In other words, if XYZ stock in the example closes above $59, the seller makes less money than if he or she simply held the stock. However, if the stock ends the six-month period below $59 per share, the seller makes more money or loses less money than if the options sale hadn't taken place.

Risks of Covered Calls

Call sellers have to hold onto underlying shares or contracts or they'll be holding naked calls, which have theoretically unlimited loss potential if the underlying security rises. Therefore, sellers need to buy back options positions before expiration if they want to sell shares or contracts, increasing transaction costs while lowering net gains or increasing net losses.

The Bottom Line

Use covered calls to decrease the cost basis or to gain income from shares or futures contracts. adding a profit generator to stock or contract ownership. 

" Don't Buy Any Trading Program Or Meet With A Financial Planner Till You Here This Free Recorded Message >>> Call 888-657-8466" 

Read more: The Basics Of Covered 
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Monday, August 13, 2018

Another *Big Win* 122% GAIN Stock AA - Alcoa Corp!



We are an Elite Options Mentoring and Trading Strategist Firm for retail traders. Our mission is to take any trader, from any skill level, and maximize their ability to generate returns in any market, with the least downside risk possible.


With our 1-on-1 personal touch, we have a very high success rate with traders of all skill level, age, and profession, and have for many years!

You will not find a negative comment about our company anywhere online because we produce results.

Check out this alert:

Date: August 8, 2018 at 11:21:04 AM PDT 
To: alerts@universalinvestmentstrategies.com 
Subject: Options Alert! 

*AA - Alcoa Corporation Calls 
*6,200 August 44.50 calls 
*Bought for 0.35 to 0.60 
*Above open interest of 165 contracts. 
*Stock 43.32.


______________________________

Our Execution

Entry Price: 0.35
Number of contracts: 8
Total Investment: $280.00
Exit Price: 0.78
Exit Date: 08/13

Days in trade: 4
Total Profit: $624.00
Percentage Gain: 122.85%

If you would like to see 122% Gains like this in your account
give your account executive a call today at 855-564-4425 x 2

Then check out our coaching program details here: >>>Click Here<<<



Talk to you soon!


Jay Johnson
UniversalInvestmentStrategies.org




" Don't Buy Any Trading Program Or Meet With A Financial Planner Till You Here This Free Recorded Message >>> Call 888-657-8466" 










All investments involve risk, and the past performance of a security, industry, sector, market, financial product, trading strategy, or individual's trading does not guarantee future results or returns. Investors are fully responsible for any investment decisions they make. Such decisions should be based solely on an evaluation of their financial circumstances, investment objectives, risk tolerance, and liquidity needs.

 Specific securities are mentioned for informational purposes only and should not be construed as a recommendation to buy or sell the security.

Copyright © 2017 Universal Investment Strategies. All rights reserved.

This email was sent by: Universal Investment Strategies

Friday, August 10, 2018

1 of about 100 Another *Big Win* 266% GAIN Stock ROKU!


We are an Elite Options Mentoring and Trading Strategist Firm for retail traders. Our mission is to take any trader, from any skill level, and maximize their ability to generate returns in any market, with the least downside risk possible.


With our 1-on-1 personal touch, we have a very high success rate with traders of all skill level, age, and profession, and have for many years!

You will not find a negative comment about our company anywhere online because we produce results.

Check out this alert:

Date: July 31, 2018 at 9:27:13 AM PDT
To: alerts@universalinvestmentstrategies.com
Subject: 2 Options Alerts!

*ROKU - Roku, Inc Calls
*2,000 10 August 45 Calls
*Bought for 2.54 to 2.58 above 
*Open interest of 68 contracts. 
*Stock 44.07 to 44.13.

______________________________

Our Execution

Sent: Thursday, August 09, 2018 6:55 AM 
To: Bruce Anthony Subject: 

*Entry Price: 2.54 
*Number of Contracts: 1 
* Entry Date: 07/31 
* Total: $254.00 
* Exit Price: 9.30 
* Exit Date: 08/09 

* Gross Profit: $930.00 
* Percentage Gain: 266%


If you would like to see 266% Gains like this in your account
give your account executive a call today at 855-564-4425 x 2

Then check out our coaching program details here: >>>Click Here<<<



Talk to you soon!


Jay Johnson
UniversalInvestmentStrategies.org
855-564-4425 x 2

Tuesday, July 17, 2018

What’s Insider Options Trading…


Insider Options Trading  (IOT) many times is a ‘tell’, a signal that there is a likelihood of a potential large move in the underlying stock. This informed activity is usually initiated by hedge funds and institutional traders. These insiders will use the options market to make very large bets to profit on the leverage that options provide. Frequently they will use the options market to pre-position in advance of an impending news announcement, such as a takeover, that may not be public knowledge.

Hedge funds are using options to a greater degree on a daily basis. Famed hedge fund manager Carl Icahn used options, not stock, to take his large positions in Netflix and Herbalife. Bill Ackman of Pershing Square, the noted adversary of Mr. Icahn, used mostly options to take a very big stake in Target Stores stock.

So our goal is to uncover what the big players are doing and follow along with them in the most profitable manner possible. It requires knowledge, skill and diligence, but the payoff can be enormous.

For those unfamiliar with listed options, they’re classified as either calls or puts. A call gives you the right to buy stock (usually 100 shares), while puts give you the right to sell stock. A call buyer would be taking a bullish stance, while a put buyer would be taking a bearish stance.

Discerning unusual options selling certainly has value, especially on the put side, but the focus of this article will be on uncovering unusual options buying …specifically call options buying.

IOT is first and foremost identified by the size of the trade. But you can’t just look for the biggest trades to discover the unusual aspect of unusual options activity. One has to compare it to the average size trade for that particular stock. For example, 2,000 contracts traded in an Apple option would not be considered unusual, since Apple trades 100,000 option contracts or more daily. But 2,000 contracts traded on a less liquid issue would certainly be a more meaningful event. Normally 3-4 times the normal volume would qualify as unusual.

Another screen we employ is to compare volume to open interest. Open interest represents exiting positions outstanding that still need to be closed. If the volume exceeds open interest, you know it is a new opening position, which has more informative value than a closing position.

We also look to see that the large orders move the implied volatility of options in a meaningful manner. Implied volatility is just another way of stating the price of options. So a large move in the options price, represented by an increase in implied volatility, is a more powerful trade signal than a large order that has a lesser impact.

Finally, we look to uncover if the trade took place on the offer price, meaning the buyer was aggressively willing to pay the higher price to get the trade executed. Trades executed on the offer tend to be a much more meaningful indicator.

While all this may seem to be a daunting process, there is an easier option. We use options scanners to screen out potential unusual options based trade opportunities, in a much more streamlined manner. The technology they employ allows filtering for size, open interest, and trade in relation to bid/ask, plus it is available to the individual trader.

So let’s runthrough real examples from trades we made start to finish…

Fiat Chrysler (FCAU) January 10th entry 

We see 16,500 January 10puts bought for .15-.25c on Fiat Chrysler against an open interest of 573. Recent sales indicate this is one of the worst performing automaker and today’s revelation from the US Government Agency the EPA that it cheated on diesel emissions provides the impetus for a short term sell-off similar to Volkswagon.

January 13th  exit which was one day later, we sold at .40. Based on the purchase of 12 contracts at .18 per contract totaling $216.00 for one trade, we had a total gain of $480.00, a 264.00 profit, which is a gain of 122% in one day!

Lowe's (LOW) February 6th  entry

 2,850 March $72.50 calls bought from $2.12 to $2.19 into the lows of the day and now volume climbing over 4,200 up to $2.23. Today’s action looks to be adding to more than 5,450 in open interest from 1-18 buyers at $1.73 to $1.79 and still has some notable February open interest and longer-term bulls in the January 2018 $67.50 calls

 March 17  exit which was 3 weeks later we sold at $11.10. Based on a $212.00 trade, making a total gain of $1,110.00 a 895.00 profit, which is a gain of $416%.


AMC Entertainment (AMC) March 3rd entry

Trading over 17X average call volume today with a buyer of 2,000 April $29 calls at $1.40 in a stock replacement where 2,500 opened earlier this week. Shares are down following earnings and below its 200 MA, but touching the 38.2% Fibonacci and just above its weekly cloud, a potential bounce spot. The $3.85B theater operator trades 28.5X Earnings, 1.25X Sales with a 2.7% yield. AMC is coming off a strong quarter which topped revenue estimates easily with Admissions up 18.1% and Food & Beverage up 16.6%.  AMC looks like an interesting name at this level on the charts, though still fairly rich on valuation. I think the stock can be traded versus today’s low if looking for a nice reward/risk. 

March 17th 2017 exit which was 2 weeks later we sold at 2.86. Based on the purchase of 2 contracts at 1.40 per contract, totaling a 240.00 trade, the total profit was 572.00, a 292.00 profit, which is a gain of 104%.

All IOT will not be this foretelling or profitable, but by following the big and unusual options order flow, many times we can put ourselves in a position to profit.



" Don't Buy Any Trading Program Or Meet With A Financial Planner Till You Here This Free Recorded Message >>> Call 888-657-8466" 

Key Options Trading Terms

KEY OPITONS TERMS

Don’t worry if some of these meanings aren’t crystal clear at first. That’s normal. Just keep forging ahead, and everything will become more apparent over time.

Long — This term can be pretty confusing. On this site, it usually doesn’t refer to time. As in, “Ally Invest never leaves me on hold for long.” Or distance, as in, “I went for a long jog.”
When you’re talking about options and stocks, “long” implies a position of ownership. After you have purchased an option or a stock, you are considered "long" that security in your account.

Short — Short is another one of those words you have to be careful about. It doesn’t refer to your hair after a buzz cut, or that time at camp when you short-sheeted your counselor’s bed.
If you’ve sold an option or a stock without actually owning it, you are then considered to be “short” that security in your account. That’s one of the interesting things about options. You can sell something you don’t actually own. But when you do, you may be obligated to do something at a later date. Read on to get a clearer picture of what that something might be for specific strategies.

Strike Price — The pre-agreed price per share at which stock may be bought or sold under the terms of an option contract. Some people refer to the strike price as the “exercise price”.
In-The-Money (ITM) — For call options, this means the stock price is above the strike price. So if a call has a strike price of $50 and the stock is trading at $55, that option is in-the-money.

For put options, it means the stock price is below the strike price. So if a put has a strike price of $50 and the stock is trading at $45, that option is in-the-money.

This term might also remind you of a great song from the 1930s that you can tap dance to whenever your option strategies go according to plan.

Out-of-The-Money (OTM) — For call options, this means the stock price is below the strike price. For put options, this means the stock price is above the strike price. The price of out-of-the-money options consists entirely of “time value.”

At-The-Money (ATM) — An option is “at-the-money” when the stock price is equal to the strike price. (Since the two values are rarely exactly equal, when purchasing options the strike price closest to the stock price is typically called the “ATM strike.”)

Intrinsic Value — The amount an option is in-the-money. Obviously, only in-the-money options have intrinsic value.

Time Value — The part of an option price that is based on its time to expiration. If you subtract the amount of intrinsic value from an option price, you’re left with the time value. If an option has no intrinsic value (i.e., it’s out-of-the-money) its entire worth is based on time value.

Let us also take this opportunity to say while you’re reading this site, you’re spending your time valuably.

Exercise — This occurs when the owner of an option invokes the right embedded in the option contract. In layman’s terms, it means the option owner buys or sells the underlying stock at the strike price, and requires the option seller to take the other side of the trade.
Interestingly, options are a lot like most people, in that exercise is a fairly infrequent event.

Assignment — When an option owner exercises the option, an option seller (or “writer”) is assigned and must make good on his or her obligation. That means he or she is required to buy or sell the underlying stock at the strike price.

Index Options vs. Equity Options — There are quite a few differences between options based on an index versus those based on equities, or stocks. First, index options typically can’t be exercised prior to expiration, whereas equity options typically can.

Second, the last day to trade most index options is the Thursday before the third Friday of the expiration month. (That’s not always the third Thursday of the month. It might actually be the second Thursday if the month started on a Friday.) But the last day to trade equity options is the third Friday of the expiration month.

Third, index options are cash-settled, but equity options result in stock changing hands.
NOTE: There are several exceptions to these general guidelines about index options. If you’re going to trade an index, you must take the time to understand its characteristics.

Stop-Loss Order - An order to sell a stock or option when it reaches a certain price (the stop price). The order is designed to help limit an investor’s exposure to the markets on an existing position.

Here’s how a stop-loss order works: first you select a stop price, usually below the current market price for an existing long position. By choosing a price below the current market, you’re basically saying, “This is the downside point where I would like to get out of my position.”

Past this price, you no longer want the cheese; you just want out of the trap. When your position trades at or through your stop price, your stop order will get activated as a market order, seeking the best available market price at that time the order is triggered to close out your position.

Any discussion of stop orders isn’t complete without mentioning this caveat: they do not provide much protection if the market is closed or trading is halted during the day. In those situations, stocks are likely to gap — that is, the next trade price after the trading halt might be significantly different from the prices before the halt. If the stock gaps, your downside “protective” order will most likely trigger, but it’s anybody’s guess as to what the next available price will be.

Standard Deviation — This site is about options, not statistics. But since we're be using this term a lot, let’s clarify its meaning a little.

If we assume stocks have a simple normal price distribution, we can calculate what a one-standard-deviation move for the stock will be. On an annualized basis the stock will stay within plus or minus one standard deviation roughly 68% of the time. This comes in handy when figuring out the potential range of movement for a particular stock.

For simplicity’s sake, here we assume a normal distribution. Most pricing models assume a log normal distribution. Just in case you’re a statistician or something.

In the next lesson we will get into a brief history of options.


" Don't Buy Any Trading Program Or Meet With A Financial Planner Till You Here This Free Recorded Message >>> Call 888-657-8466" 

What You Should Know About Stock Split and its Effect on Option Prices

A stock split is the action a company takes that increases the number of its outstanding shares by dividing each share, which in turn dimini...