Let’s make this strategy of writing covered calls clear with an example. Suppose, you have invested $100K in stock ABC at $50 per share. You want to hold it and sell it when it reaches $55. You would have heard about Call Options. Call Options give you the right to buy or sell the underlying stocks at a certain price before a certain date.

You plan to write call options on your shares of ABC. You are willing to sell your stock in the next 1 months if it reaches the price of $55. You find that ABC 1 months $55 calls are selling for $2. Right now, the stock ABC is trading at $52. This means a profit of $2 per share or a capital gain of $4000 on the 2000 shares of stock ABC.

You can write one options contract on 100 shares of the underlying stock. You own 2,000 shares, so you can write 10 call options contracts. If each call options contract sells for $2 per share, you earn $200 per contract and a total of $2,000. This is instant income that you can get by writing call options contracts on your portfolio of stocks. Now, let’s see what can happen if you sell ten 1 month $55 call options contracts.

Let’s consider the first scenario. Stock ABC rises to $58 instead of $55. You are bound to sell stock ABC to the call options contract buyer for $55. So, you lose $3 per share but at the same time you had made $2 per share by selling the contracts. So, there is a tradeoff here. If you feel that the stock price is on the rise, you can always buy back your options contract something also know as call back.

Consider the second case stock ABC goes down in price to $45 per share. Now, obviously the call options buyer will never like to buy that stock at $55 per share if it can be bought at $45 per share. So, the contracts expire without any obligation on your part. You lose $5 per share but at the same time make $2 per share by selling call options contracts. So, your net loss is only $3 per share. You can see how writing call options contracts had hedged your downside risk. You can again write 1 month $50 call options contract to recover part of that loss. Suppose these contracts sell for $1 per share, so you further reduce your loss to only $2 per share.

The third possibility is that stock ABC neither moves up nor down. You lose nothing in this case but make $4,000. So writing call options on your portfolio of stocks can be a good way to make instant income!

One such system is known as TradingPRO. It has been specially designed to day trade the market indexes or correlated products such as futures indexes, e-minies contracts, options as well as the cash market. This is because it gives you easy to follow trading signals.

Another such system is known as “The Penny Stock Trading System” which has been written specifically for the novice investor. It is still good enough for the more experienced investor to use also. It provides you with strategies that only the more experienced traders know about. Many of the strategies provided in this system have been collected first hand from those with experience along with the collective experience of various experienced penny stock investors. Instead of being taught about “buying low and selling high” they teach you substantive strategies which are extremely effective when carried out correctly. Not only this but this method consists of many small steps which when followed correctly will lead to successful investment in Penny Stocks.

However, today many people who have become online traders find that it is more profitable if they use the services of an online broker. Not only will they manage the accounts for them more effectively they will often charge the person a small fee in order to do it for them. These online penny stock brokers will have all the latest (updated) and relevant knowledge relating to the moods of investors and the movements of the market. They are able to accurately and successfully advise their clients which are the best and most profitable penny stocks for investment.

Day trading used to be the sole realm of professional investors.  In fact, many day traders work for banks or investment firms.  Advances in technology and the Internet, however, have allowed even amateur traders to day trading. 

Day traders often borrow money to trade.  This leveraging allows for a high potential rate of return and large profits.  Some day traders earn millions of dollars a year.  However, day trading can also be extremely risky.  Without the proper skills and tools, day traders can just as easily and quickly lose money. 

Although collectively called day trading, there are several different styles of day trading.  Some trading styles include:

Momentum Trading

Momentum trading is a strategy in which one believes that stocks, or other financial instruments, move with a momentum or trend.  Thus, stocks that have been rising are assumed to continue to rise.  Likewise, stocks that are falling will continue to fall.  A momentum trader thus buys stocks that are rising and short sells ones that are falling.

Contrarian Trading

Contrarian Trading sharply contrasts momentum trading.  Contrarian traders believe that stocks that have been rising will reverse and fall.  The contrarian trader buys stocks that have been falling and short sells stocks that have been rising.

Range Trading

Day traders who range trade look for stocks that have been consistently trading within a specific range.  These stocks rise after hitting a “support” price and fall after hitting a “resistance” price.  A range trader therefore buys stocks that are near the support price and short-sells stocks that are near the resistance price. 

For more information on day trading, check out DayTradingModels.com

Profit is all about to understand the market conditions clearly, before trading and doing right things at the right time. This is said easier than done. For a new investor, the beginning has to be on cautious premises. Choose blue-chips companies, whose reputation is above board and which have been consistently paying dividends and bonus/right issues. Alternatively, in the course of your research, you spot some companies whose share prices are low, it means that you have managed to beat the market and this investment is likely to fetch you good profits.

When you are unable to catch the trends of the market, and move away from them, instead of beating the market, you are beating the retreat. In such conditions, take advice from reputed stock analysts, who can tender appropriate advice, on the basis of the inputs secured from the fundamental and technical analysis. No method provides one with 100% guarantee of success, but workout such plans so that the odds are in your favor. The results of the research before you provide confidence, you understand the market better, and catch the right signals. In addition, your psychology and sentiments are important part of your trading and they are the practical elements in making money. When you provide suitable cut loss limits, they will keep you off trouble and you are able to prevent major losses.

Profit from share trading is not a profound science. The methods to deal with the exchange are amazingly simple. Only you need to employ them effectively and in a timely manner. If you are able to catch the signals of early stage of price rise movements, one can take advantage of the maximum profit opportunity with minimum chances of risk and losses.

Any condition is a good condition for a shrewd investor. The market bows before such investors, and provides them with a series of profit opportunities, whether the shares are moving up, down or sideways. Those are the masters of option trading. Such people wear ‘all weather proof jackets.’ They are mostly stock trading millionaires.

In any given market conditions, as far as possible, avoid day trading. Howsoever great are your strategies, risk looms large in such trades. Intra-day trading in the same security is fraught with great risk. Some one with limited resources and trading experience and with low risk tolerance should not enter this trade zone at all. Those who claim large profits from day trading, are perhaps are conducting their clandestine business to promote a particular share of the company, with some hidden agenda. Even in the normal course of day trading, your competitors are professional licensed traders engaged by securities firms, institutional finance companies and the commercial banks. A small investor stands no chances of engaging them in voluminous trades.

For immediate profits, option trading strategy is less risky and the chances of profits are more. There are many kinds of option trading strategies. Call Option, Sell Naked Put Option, Bull Put Option, Bear Put Spread, Straddle, Covered Call, and Short Straddle etc. Use these strategies as per your specific portfolio needs.

When you think of making profits in all market conditions, it is important for the investor to know, in which condition the market is passing through at a given moment. Unpredictability of the market is well-known to all investors. It so happens, when the well is full, you do not have the drums to store water, and when you have enough empty drums, the well is empty! Such are the tantrums of the share market; one fails to appreciate, its behavior. You can not question it with your reason, only accept the fact and respect the trends. There is no other way to do business dealings in the share market.

With stocks, you own a small piece of a company.  However, with options, you purchase the right to buy or sell underlying stock.  There are two basic types of options – calls and puts.  When you purchase a call option, you buy the right to purchase a stock at a specific price before a specific date.  When purchasing put options, you buy the right to sell a stock at a specific price before a specific date.  Like stocks, you can both buy and sell options. 

Traders consider buying call options when they are bullish on an underlying stock.  As the stock rises, call options, in general, also rise.  There are, though, some important differences between buying an underlying stock and its call options.  First, options are cheaper than buying the underlying stock.  If you a share of XYZ is $100, it may cost you the same to control 1000 shares with options.

Options are cheaper because they have a strike price and an expiration date.  The strike price of a call option is the price at which you have the right to purchase the stock.  If the price of an underlying stock is above the strike price, the call option is considered “in-the-money.”  If the price of the stock is below the strike price, the call option is “out-of-the-money” while it is “at-the-money” if the stock is the same price as the strike price.  Call options that are in-the-money have inherent value.  For example, let’s say the price of stock XYZ increased to $105.  You, however, own a call option with a strike price of $100.  You thus have the option to buy XYZ at $100 while selling it for $105.  This in-the-money call option thus as an inherent value of $5.  Call options that are at-the-money do not have any inherent value.  For instance, it would not be worth it to exercise a call option with a strike price of $15 because you cannot sell it for a profit.  Call options that are out-of-the-money actually have a negative inherent value since the stock would have to rise just to get to the strike price.  The farther the stock price is from the strike price, the lower the inherent value. 

The expiration date is the time until which you have to exercise your option.  Because options expire, they have a time value.  As the expiration draws nearer, the time value of call options decrease because there is less time for the underlying stock to increase in value.  A call option that expires in a year will therefore have much greater time value than a call option that expires in a week.  The price of options are roughly calculated by:

                  Option price = inherent value + time value

There are several exit strategies with call options.  If you do nothing and let an option expire, call options that are at-the-money or out-of-the-money will become worthless – they will have no inherent or time value.  However, if a call option is in-the-money at expiration, you can exercise your option for a profit.  Many option trading companies will automatically exercise options that are in-the-money at expiration for you. 

Most option traders, however, have no intention of ever owning the underlying stock.  Traders often sell their options well before expiration.  Call options, in general, increase in value with the underlying stock.  Thus, if a stock rises, you can usually sell a corresponding call option at a profit. 

This can be beneficial because it leverages your capital.  Let’s say you have $1000 to invest.  If a share of XYZ costs $100, you can buy 10 shares.  However, a call option of XYZ, with a strike price of $100, costs only $10.  You can thus alternatively purchase 100 call options of XYZ.  If shares of XYZ go to $105 at expiration, owning the stock would give you a profit of $50.  Owning the options, however, would give you a profit of roughly $500.  The risk in call options, however, is that this increase in price needs to occur before the expiration date. 

For more information about trading options, visit DayTradingModels.com

Here are my top 5 tips for earnings plays…

1) Determine the relation between the call volatility and put volatility for the current strike and next strike.

High volume and high call volatility is indicative that people are buying contracts for a move to the upside, likewise high volume and low volatility implies people are selling contracts and the stock is likely to go down. This isn’t 100% but it’s one more arrow in your quiver in nailing an earnings play.

2) Look at the institutional block trades in the previous 5 days and ascertain whether the ratio is on the buy side or sell side. This normally gives an underlying clue to what they are doing, the current stock price is often manipulation to hide this

3) Do not buy out-of-the-money calls or puts on a stock if the implied volatility is very high and historically the stock doesn’t move very much. You are really limiting your chances of making big money by not heeding this. You will do better to buy 1 contract in the money than 10 contracts out of the money more often than not.

4) Never put all your capital on 1 earnings trade no matter how tempting. You need to stay in the game. Nobody can get earnings plays right 100% of the time but if you can get a few of them right you can make anywhere between 100-5000% on a single trade. If you get it wrong, you may as well of set fire to your money. Hedge your trades, never put it all on one-side or the other, use 70-80% on the direction you think it will go and 20-30% on the downside.

5) Find stocks that historically move big and take advantage of setups by the market makers in the week or two prior to earnings, sometimes they force stocks down or up so they can either load up or sell of stock before the herd arrives.

The Whole Picture

The recipe for a successful investment philosophy is only as good as the sum of its parts. If your trading plan is solid but you don’t do technical analysis, you going to have problems. If you perform your technical and fundamental analysis but you don’t have a trading system, you will struggle to succeed. If you don’t have the best trading system available, you are likely to leave profits on the table during your futures and options trading. No matter which part you consider, if you don’t emphasize them all, you are going to be weak in a very important facet of your trading.

Trading Plan

This is where it all begins. While you may rely on your trading system to help you ultimately find the targets for you acquisitions, your trading plan is what will get you to the place where you are ready to search. Will you invest in the stock market or commodities trading? What plans will you put in for stop loss strategies? What about your investment philosophy? A well constructed trading plan will help you with these questions and many more, especially when trades are happening quickly and you are tempted to react with your emotions. Just as a trading system is the voice of common sense for your target acquisitions, your trading plan is your voice of reason for your business decisions.

Technical Analysis

After you know what you are going to do and have your plans on how to do it, you can get down to the business of learning. Technical analysis is really about education. If you understand the commodities that you are trading and the factors that affect their prices, you have a distinct advantage in picking profitable trades. You don’t know about pork bellies? Don’t trade them. You have researched oil futures and understand the dynamics of their price movements? Seriously consider investing there. This is important because if you understand a commodity, you are likely to understand the things that make its price move, whether it is the weather, demand or the latest news report on the 6 o’clock news.

Trading System

Once you have a trading plan and you have started performing fundamental and technical analysis, you need to put a trading system into place. The trading system represents your approach to following price movements of your target commodities. Trading systems can be simple like bar charting or more sophisticated like Japanese Candlesticks. Bar charts will give you information like the open and close of a particular stock. With a bar chart you can get a general idea of how a commodity has been trending but nothing about where it is going in the future.

Japanese Candlestick charts offer you much more. This trading system offers opening prices, closing prices, highs, lows and whether the stock was up or down overall for the day. In addition, this trading system offers powerful analysis tools based on several hundred years of use.

Conclusion

Each part of a successful trader’s approach to his or her investments is crucial. The trading plan, the technical analysis and the trading system all contribute to the investor’s ability to create profitable investments.

One powerful technique that can be used in tandem for the increased possibility of success is the use of stock options and trading with Japanese candlestick charts. Stock options lend themselves naturally to the swing trading style of investing. Swing trading simply means buying a stock or option and holding the position for anywhere from a few days to a couple of weeks or possibly a month or two. Swing trading options is not a long term investment strategy since options have expiration dates.

Japanese candlestick charts have been used since the eighteenth century by rice traders to predict rice prices with great success. Candlestick charts have become the most popular type of chart incorporated by traders into the financial markets, used widely in many different trading systems. Once a trader learns the basics and concepts of candlestick charts, the trader can use them to easily identify possible options trade candidates.

Support and resistance areas are very important to the options trader. Stocks follow patterns and usually trade within a wide range between established points of both support and resistance. Because stocks trade within established patterns, options traders have opportunities to capitalize on the movements between these areas of established support and resistance.

Using candlestick charts, a options trader can easily identify these important areas of support and resistance and quickly determine if individual stocks are suitable for an options trade. For example, if a stock recently fell to a strong support level, this could indicate to the options trader by utilizing the candlestick chart that a winning trade may be a possibility. However, the possibility of a winning trade is not guaranteed. A strong support area revealed by the candlestick chart only shows the options trader that the stock has visited this area of support before and has often bounced off the level rather than proceeding downward through the support level. Although chances are excellent that the stock will bounce and reverse direction at strong support, there is no guarantee that the stock will return to previous levels once the stock touches the strong support level.

Using stock options and trading with Japanese candlestick charts can help the options trader identify possible setups for profitable trades and help improve winning ratios. Candlestick charts have been used for centuries and are an important part of many trading systems among not only options traders, but day traders and forex traders as well.