Trading Options For Dummies. Duarte MD Joe

or a particular value for an indicator you use, you must exit the trade when conditions change or your original reason for purchasing the security no longer exists. Don’t let a stock or option position you intended to hold for three weeks become part of your long-term portfolio. Being disciplined and following your rules is a must for all traders.

      ✔ Keep track of the expiration date. Many option chains include the actual expiration date for each month along with the option quote data. The expiration date may also be included with your account position information. Knowing when the option expires is critical to managing the position.

      ✔ Practice. Always remember that you can paper trade a security that is new to you. Although the emotions you experience trading this way don’t exactly mimic having real money on the line, it helps you get familiar with new types of securities.

Chapter 3

      Trading Places: Where the Action Happens

       In This Chapter

      

Finding your way around the option markets

      

Leveraging your investment while managing risk

      

Valuing options with the Greeks

      

Looking at the past to gauge the future

      Your trading career probably started with the stock market. Because there are plenty of similarities between stocks and options, comparing the two takes advantage of your base knowledge to expand firmly into a new trading environment, so we do that where possible in this book.

      Covering options from a trader’s standpoint, this chapter provides information about the option exchanges you encounter, the different market participants impacting your transactions, and the market conditions that affect your trades. All these things have some influence on your trading success. The biggest key to success though, is really getting a handle on the factors that come into play when valuing options. With that in mind, we introduce formal option pricing components, known as the Greeks.

The U.S. Options Exchanges

      There are six option exchanges in the United States, which is pretty amazing for a security that just started trading in the 1970s. Two of these were launched since 2000, and all six offer some form of electronic execution: