Hi friend,

Do you know what option is in the stock market and have you heard it before? If you are wondering what is option, you should continue reading the following paragraphs. Actually, option is an evolution from stock and future. In early time, due to the inconsistent supply and demand of certain commodity such as oil, corn, rice, wheat, gold and etc, the prices of these commodities were changing along the time. Starting from that time, people started to trade commodity by buying large amount of commodity and keeping the stock until the price went up. After the establishment of the company act, listed company was allowed to print share and sold it to the public to generate investment fund. Starting from there, stock could be bought from the stock market as an investment or trading. From stock, two derivatives have been formed. One is future and the other one is option. Both of them have expiration date. The difference is that future price is the combination of stock price and the time value of the future; whereas, option price is the combination of the time value of the option and the difference of the option strike price to the stock price. Therefore, future price is quite expensive and its price is higher than the stock price. Whereas, option price is lower than the future and stock price and that’s why, option is become more popular than future.

Generally, in finance, option is defined as a contract written by a seller for the buyer to exercise on or before a future date that has been agreed between both buyer and seller. Buyer has the right to exercise the contract whereby seller has to be obligated to the agreement stated in the contract. Due to the agreement in the contract, buyer has certain benefit from the agreement and the buyer pays certain amount of money to the seller as a premium. One of the real life examples, which is quite similar to the stock market option is house insurance. Insurance company writes a contract for the insurance buyer and agrees that if the buyer loses his/her house in any unpredictable disaster could claim the property value in the form of money within a certain period of time that has stated in the contract. Conversely, the insurance buyer pays insurance premium to the insurance company. If one day, the buyer’s house has been destroyed in fire or other disaster such as flood, earthquake or etc, the insurance company has to pay to the buyer  an amount of money that is equivalent to the value of the buyer’s house that has been damaged. But if the buyer’s house is fine until the last day of the agreement that has been made between the buyer and insurance company, the premium that has been paid by the buyer will be forfeited. The difference is that insurance could not be traded or transferred to other people whereas option could. Therefore, option can be used as insurance when buying stock. For an example, when we buy 10 contracts of shares, which costs USD 110 per share and we worry that the stock price may drop a lot in the future. So, we could buy 10 contracts call option to protect these 10 contracts of share. In case, the stock price really drops a lot, we could claim back all the money that we have invested in these 10 contracts shares. However, if the stock price on the call option expiration date is higher than the stock price when we are buying the call option, we will lose the premium that we have paid for the option.         

How actually the option game is played? Option is divided to call and put option. When we are expecting the stock price is going up, we will buy call option and if we are expecting stock price is going down, we will buy put option. This is because when the stock price is going up, the call option price will go up; whereas, its put option price will go down. Similarly for the put option, when the stock price is going down, the put option price will go up and its call option will go down. Following is a table shows how the call and put option price change with its stock price.

Table 1: How call and put option price change with its stock price

The organizer of the option trading or investment is Chicago Board Options Exchange (CBOE) and they earn the spread between the bid and ask price of the option. Broker firm is their agent who dealing with the transaction of the option among the investors and traders and they earn profit from the commission of the transaction. They offered a series of option with different strike prices and expiration dates. When someone willing to buy, there will be someone willing to sell. So, in this game, somebody will be the winner and somebody will be the loser. For instance, A trader sells 10 contracts call option to B trader. After a certain time, the stock price for this option has dropped. So, B trader is the loser and the A trader is the winner. B trader loses his/her money that he/she has used to buy the call option and the A trader earns the money that he/she has received from trader B when selling the call option to the B trader. Following is one of the lists of call option that had been offered for the stock of Caterpillar Inc.

Table 2: Lists of Caterpillar. Inc. stock call option

Current price for this stock is USD 60.43. A series of option with different strike price had been offered and labeled with different symbols. The expiration date of these options is on Friday in the third week of January 2007. Bid price is the sell price and the ask price is the buy price. OpInt is the short form for the open interest, which means the number of option contract that is open for sell or buy. Any of the option prices in this table will go up as long as the Caterpillar’s stock price is going up. However, not all the option price will go up as the same rate as the stock price. Usually, deep in the money option (red color number) will go up as the same rate as the stock price. Near the money option (blue color number) will go up half of the rate of the stock price. Out of the money option (black color number) will go up very little compared to the stock price. This is because the delta value of the deep in the money option is very close to 1 and the near the money option delta value is about 0.5. Out of the money option delta value is very small usually less than 0.3. Delta value shows the amount of option price changes when the stock price changes by USD 1.00.    

So, how to trade option? It is very simple. If you are predicting the stock price will go up near the future, you should buy deep or near the money call option. Usually, investor or trader seldom buys out of the money option. This is because its price is not sensitive to the stock price. Once the stock price has gone up, call option price will go up too and the difference of the sell price and the buy price will be the profit of the investment.

However, option is not that simple. This is because option is like future, which has time value. Time value is the value that the option possesses due to its far away expiration date.  If the stock price shoot up immediately after you have bought the call option, There is alright because the call option price will go up immediately too. But if the stock price goes down for a few days before going up again, you may loss your money depends to the stock price momentum and how many days the stock price is below the buy price. This is because the loss of the time value is larger than the profit that has been generated from the option due to the increasing stock price. Following is an example for this situation. Chart below shows how AA stock price changing with one of its call option price.

Figure 1: How AA stock price changing with one of its call option price

On 10-Oct-06, AA stock price is USD 28.29 and its call option price is USD 1.65. On 31-Oct-06, although AA stock price has gone up to 28.91, which is higher than 28.29, its option price (USD 1.45) on 31-Oct-06 is still lower than the option price on 10-Oct-06. This is because the time value that has lost from 10-Oct-06 to 31-Oct-06 is higher than the profit (USD 0.62) due to the increasing of the stock price. So, that’s why, we need strategy to trade option. If we do not apply suitable strategy when trading or investing option, we expose ourselves to a high risk investment and trading. By utilizing option trading strategy, we optimize the profit and minimize the risk. Besides, option also could be used to generate profit from the stock that move side way or fluctuating within certain gap or high volatility stock. Additional, we could buy option together with stock to generate constant income no matter the stock price is going down or up. Or generate profit forever more than loss. Option has a lot of usefulness compared to stock. Strategy by trading stock and option together could be used to earn the free lunch from the stock market. In the stock market, there are a lot of free lunches there. Free lunch means free money. This free money is really exist in the stock market as long as you execute a proper strategy and the money will be your no matter the stock price is going down, up or side way. 

Besides utilizing suitable option trading strategies, we still need a very powerful stock trend prediction method. Suitable option trading strategies only let us trades option in a safer and securer way. This means if you buy option at the wrong side of the market, you will loss lesser if you utilize the right option trading strategies compared if you utilize the wrong option trading strategies. Sometime, utilizing the wrong option trading strategies may cause you loss a lot of money. Therefore, it is important that you know the very basis theory of the option before combining various types of option trading methods together to form an option trading strategy that works. After combining various types of option trading methods together, we still need to prove that whether it is working or not.

Apart from that, we still need a very powerful stock trend prediction method. If we could not predict the stock trend accurately, we still have the probability loss our money no matter how good our option trading strategy. Therefore, in order that we could continually and consistently earn a profit from the stock market; we need a prediction as least 70 to 80 % accurate or higher. Moreover, the amount that has been earned must be more than the amount that has been lost. If not like this, the money that we have invested in the stock market will not grow. Maybe after a few years investing in the stock market, you will discover that the amount of money that you have invested still the same. Worse, the amount of money may reduce compared to the amount of money that you have invested in the beginning. To have an accurate prediction, we need a proper technical indicator and know how to interpret the pattern that has been shown. Sometimes, it needs a few technical indicators combined together to get a better prediction. Usually, novice to the technical indicator could not give an accurate prediction. It need some experience when using technical indicator. This is because; different people may have different interpretation to the technical indicator.

Besides prediction, selection of right stock and the application of the right option trading strategy are also very important. If we select a wrong stock, we may not earn much. For instance, if we utilize an option trading strategy that is used to earn profit from the stock that moves side way to a very volatile stock. In this case, we will sure loss all our money. This is because we use the wrong option trading strategy to a wrong stock also. In order that we could earn profit, we must use the right option trading strategy to a right stock. We should not merely know how to predict stock trend but we also need to know how to predict the volatility trend of the stock. This is because some option trading strategies are for volatile stock and some of it is for non volatile stock.             

So, you can achieve it with options. Many rich and famous people use options to extend their wealth indefinitely. They keep this secret for themselves until now and it is time that you should learn to do the same if you really want to change your life.

Many people perceived options as a high-risk investment tool. This is because they do not know the actual strategy. It actually can be traded in the non-risky way and the return on investment is still more attractive than the other investment alternatives.

If you interested to trade options but don’t know how and where to start, this e-book will be very suitable to you because it contains all the information related to option trading. It teaches all the main strategies, which are really workable and also used by many other professional option traders and investors. After you have finished  this e-book, we can guarantee that you have the capability to start immediately to trade option and make money in the stock market. If you don’t know how to analyze stock trend, don’t worry, it is all included in this e-book.

After you have finished reading this e-book, you will know :

• how to analyze stock trend and predict the future stock price direction.

• what is option and how option trading is employed to create wealth

• 10 main option trading strategies, which are commonly and effectively used by most of the professional option traders and investors

• when to enter and when to exit the market

• how much you should enter in the market

• what is the suitable price to enter and exit the market

• how to avoid severe losses using the presetting order

• how to leverage on the market trend whether bullish, bearish or sideways

• where to get all the free charting, economic and company news

• how to start trading option through online trading immediately

• how to make money in stock market regardless the market direction

This e-book was written by Alexander Chong who had been trading option for almost 10 years. Within this 10 years, he had developed an option trading system that works and could earn a constant and lucrative income from the US stock market every month. All his experiences about trading option were gathered in this e-book.

By utilizing the method that had been taught by Alexander Chong, you can make money even if the stock price trades sideway or fluctuates within certain range. Besides, you also can make money even though you couldn't do the stock market prediction by yourself, especially before the earning report is released. Therefore, you are unnecessary to depend to the stock market forecast that have been produced by the specialist investment consultant firm. Especially, the forecast is usually not accurate at all.   

So, this e-book is actually worth a lot. A lot of money, time and energy had been invested to gather all the information and experiences.

Well, realize that the information in this e-book could be easily sold for thousands of dollars. In fact, if you join seminar, workshop or intensive short course to learn all the strategies, you have to pay as least $3000 to $5000, not including accommodation and transportation fee.

If you engage an investment professional consultant to help you invest your money, it will cost you a lot more. Every month you have to pay high service charge and commission.

With this e-book, you can learn to invest and trade the stocks and options by yourself. The money you’ll earn as a result of these proven strategy can be very easily pay you back hundreds (probably thousand) times your merger investment.