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Day 9 VD 1
3
Transcript
Futures Contracts vs Options
What are Futures Contracts?
- Commodity, currency, index, etc.
- Pre-set buy & sell price and expiration date by exchange listing the contract
- Typically 4+ expiration dates per year
- Attractive to day traders
- Can sell before expiration date
- Attractive to swing traders
- Can hold and sell at the exp. date ~3 months in the future
- Must trade them on futures exchanges
- See if your broker allows for futures trading!
- Look for brokers that have lots of leverage
How to Trade Futures Contracts
- Always go in with a plan
- Holding and hoping it goes back up only hurts you more
- Follow patterns and trends from your technical analysis
- (Use the same patterns already covered!)
How to Trade Them
- Day traders
- Set short expirations and focus on small, quick gains
$50
Buy
$55?
Profit
$5
- Swing traders
- Conduct lots of fundamental research into what you're buying (commodity, currency, or index)
- EX: if oil, look at world-wide sentiments
$55
Sell
- Stick to your plan and don't let your emotions take over
What are Options?
- Betting that a stock will be worth more or less in the future
- Strike price = expiration date
- Obligation free
- "Call" is betting on price moving
- "Put" is betting on price moving
- In-the-money
- Out-of-the-money
- At-the-money
- Premium is the price of the option
How to Trade Options
- Always go in with a plan
- Start by trading highly liquid stocks
- Exercising means buying actual stock at the strike price amount
How to Trade Them
- Can simply sell your options contract
- $2 premium, $50 strike price
- Options are for 100 shares of a company
- Cheaper than buying actual stock
- You only lose the premium paid if option is out-of-the-money or at-the-money
- Find news-worthy events and know the expiration date
- Compare strike price & current
price
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