Day Traders and Swing Traders and Options? Maybe!

Typical day traders and swing traders look for stocks with quick,
short term movements, and are not in the business of holding
positions overnight let alone a week or two. So the use of
options has not usually been a component of their trading
strategies.

Now however, some new opportunities for profit are available
since many day trading firms are allowing their traders to trade
options. Unfortunately, many option strategies do not apply to
the quick in and out nature of day trading. Neither day traders
nor swing traders are typically in a single stock long enough for
the strategy of selling options for premium collection to be
viable.

Since these traders often look for break-outs, and sometimes go
bottom fishing to find opportunities for profit, a premium paying
option might work well for them. Why? Because the trader would
be buying protection from catastrophic losses. Bottom fishing
and breakouts are associated with volatility, which means
uncertainty and risk. However, there is a strategy that will
provide the necessary protection for these traders to carry
positions through overnight risk, while remaining fully
protected. This would still allow also them to take advantage of
the large potential upswing that was the original goal of
identifying the bottom and the break-out. This strategy is
called the protective put.

THE PROTECTIVE PUT

The Protective Put Strategy involves the purchase of put options
in combination with the purchase of stock and works well in
situations where a stock is prone to rapid, volatile movements.

A put option gives an owner the right, but not the obligation, to
sell a certain stock, at a certain price, by a specified date.
For this right, the owner pays a premium. The buyer, who
receives the premium, is obligated to take delivery of the stock
should the owner wish to sell at the strike price by the
specified date. A strategically used put option offers
protection against substantial loss.

The protective put strategy is a strategy that is ideal for a
trader who wants full hedging coverage. This strategy is very
effective in stocks that normally trade under high volatility, or
in stocks that normally do not trade under such high volatility
but may be involved in an event driven, highly volatile
situation.

When an investor purchases a stock, they can buy the put
(protective put) to provide a proper hedge. The construction of
this position is actually quite simple. You buy the stock and
you buy the put in a one to one ratio meaning one put for every
one hundred shares. Remember, one option contract is worth 100
shares. So, if you buy 400 shares of IBM then you need to
purchase exactly four puts.

From a premium standpoint, you must keep in mind that by
purchasing an option, you are paying out money as opposed to
collecting money. This means that your position must
"outperform" the amount of money that you paid for the put. If
you were to pay $1.00 for a put and you owned stock against it,
the stock would have to increase in price $1.00 just to break
even. The protective put strategy has time premium working
against it, thus the stock needs to move to a greater degree, and
more quickly, to offset the cost of the put.

When we buy a stock, three potential outcomes exist. The stock
can go up, go down or it can remain stagnant. If we were to
analyze the three scenarios, we would find that only one
scenario, the up scenario, can produce a positive return and
that's only when the stock increases more than the amount you
paid for the puts. The other scenarios produce losses. If the
stock is stagnant, you lose the amount you paid for the put. If
the stock goes down, you lose again- but the loss is limited. It
is the limiting of loss in highly volatile situations that makes
the protective put an attractive and useful strategy.

This is how it works! Imagine you buy stock for $31.00 and buy
the 30 strike put for $1.00. If the stock goes down, the
position will produce a loss. For example, if the stock is down
to $30.00 (down $1.00) at expiration of the option, you have a
$1.00 capital loss. With the stock at $30.00, the 30 strike puts
will be worthless, thus you incur a $1.00 loss because that is
what you paid for the put. Your total loss will be $2.00. Using
the protective put strategy set a cap on your losses. The put
strategy's attractiveness is that it will allow you to set loss
limits!

Let's see how that works. We'll set the stock price down to
$28.00. Since you purchased the stock at $31.00, there will be a
capital loss of $3.00. The puts, however, are now in the money
with the stock below $30.00. With the stock at $28.00, the 30
strike puts are worth $2.00. You paid $1.00 for them so you have
a $1.00 profit in the puts. Combine the put profit ($1.00) with
the capital loss ($3.00) and you have an overall loss of $2.00.
The $2.00 loss is the maximum you can lose no matter how low the
stock goes because the buyer of your put must take the stock at
the strike price. This is the protection the put provides.

_/_/_/_/_/_/_/_/_/_/_/_/_/_/_/_/_/_/_/_/_/_/_/_/
Amazing Options Trading Strategies For Safer Investing
and Explosive Profits. Discover how to protect your
investments with the leveraged power of options. Step
by step video tutorials show you how. Click here now:
http://www.options-university.com
_/_/_/_/_/_/_/_/_/_/_/_/_/_/_/_/_/_/_/_/_/_/_/_/

In The News:

---

Google News Updated : Sat, 11 Oct 2008 23:50:53 GMT Got $700 Billion? Sweat the Details - New York Times Telegraph.co.uk Got $700 Billion? Sweat the Details New York Times - 3 hours ago The bailout plan gives Henry M. Paulson Jr., the Treasury secretary, three broad choices in buying assets. By ALAN S. BLINDER THE House of Representatives was against the bailout bill before it was for it. US firms up plan to buy into banks to stem crisis Reuters Paulson Indicates Need to Purchase Bank Equity `Soon as We Can' Bloomberg Los Angeles Times - Washington Post - The Miami Herald - International Herald Tribune all 2,358 news articles Publ.Date : Sat, 11 Oct 2008 20:39:07 GMT US space tourist set for blast-off - Reuters Canada.com US space tourist set for blast-off Reuters - 40 minutes ago By Maria Golovnina BAIKONUR, Kazakhstan (Reuters) - US video game magnate Richard Garriott will blast off into space aboard a Russian spaceship on Sunday watched by his father, a NASA astronaut who went into space at the height of the Cold War. US space tourist set for launch BBC News Russian space chief reassures US partners The Associated Press Times Online - USA Today - Spaceflight Now - RedOrbit all 287 news articles Publ.Date : Sat, 11 Oct 2008 23:10:50 GMT YouTube to play full TV episodes with ads - Afterdawn.com Vancouver Sun YouTube to play full TV episodes with ads Afterdawn.com - 2 hours ago Google has announced that it will begin offering full-length TV episodes through its YouTube platform beginning this week, thanks to a content deal with CBS. YouTube to Offer TV Shows With Ads Strewn Through New York Times YouTube beams up Star Trek for long-form video, prominent new ads CNET News Wall Street Journal - eFluxMedia - Silicon Alley Insider - Bizjournals.com all 109 news articles Publ.Date : Sat, 11 Oct 2008 21:13:12 GMT Nobel Peace Prize winner wants jobs for the young - International Herald Tribune Times Online Nobel Peace Prize winner wants jobs for the young International Herald Tribune - 10 hours ago AP HELSINKI, Finland: Nobel Peace Prize winner Martti Ahtisaari said Saturday that finding jobs for more than 1 billion young people in the Middle East and Asia will be a major challenge to peacebuilding in the next decade. Video: Ex-Finland President Wins Nobel Peace Prize AssociatedPress Nobel Finn Wall Street Journal Voice of America - Times Online - Burlington Hawk Eye all 1,453 news articles Publ.Date : Sat, 11 Oct 2008 13:12:07 GMT GOP Officials Hope for Stability From McCain - New York Times Voice of America GOP Officials Hope for Stability From McCain New York Times - 1 hour ago By ADAM NAGOURNEY and ELISABETH BUMILLER Republican leaders across the country said Saturday that they were worried that Senator John McCain was heading for defeat unless he brought stability to his presidential candidacy and settled on a clear message ... Antiwar Protestor Disrupts McCain Iowa Rally Washington Post Obama needs 75 percent turnout in Philadelphia, says Rendell CNN Political Ticker The Weekly Standard - Summit Daily News - USA Today - WNCT all 1,087 news articles Publ.Date : Sat, 11 Oct 2008 22:23:47 GMT Gay Marriage Is Ruled Legal in Connecticut - New York Times Boston Globe Gay Marriage Is Ruled Legal in Connecticut New York Times - 5 hours ago In Hartford, Crystal Pretzman of Willimantic, Conn., celebrated the State Supreme Court's decision to legalize same-sex marriage. Video: Connecticut Court Allows Gay Marriage AssociatedPress Marriage ruling not the end of debate in Conn. The Associated Press Newsday - Washington Post - Reuters - NECN all 1,711 news articles Publ.Date : Sat, 11 Oct 2008 18:13:08 GMT World is united to tackle financial crisis, IMF says - MarketWatch BBC News World is united to tackle financial crisis, IMF says MarketWatch - 2 hours ago By Rex Nutting WASHINGTON (MarketWatch) -- Financial policymakers from 180 nations around the world are united in their resolve to tackle the financial crisis, Youssef Boutros-Ghali, head of the International Monetary Fund's policy committee, ... G7 nations face going cap in hand to China guardian.co.uk Finance officials comments at IMF meetings Reuters AFP - BBC News - Bloomberg - New York Times all 579 news articles Publ.Date : Sat, 11 Oct 2008 21:23:46 GMT RSS feeds Increase Online Traffic

PARLOT::Ebooks, Scripts, Websites, and more...

Adsense websites

Protecting the Tax Advantage of Your Deferred Compensation