Do you have the knowledge base you need for the investments you’ve chosen?
Before you start trading, you should have a basic understanding of the types of investments you have chosen to trade. The stock market in general has a language that is foreign to those of us who are not familiar with everyday jargon.
Make sure you have a solid understanding of the instruments you’ll be trading and take advantage of reading our “client education” series, where you’ll find topics such as:
What is an option?
An option is a contract that gives the buyer the right, but not the obligation, to buy or sell an underlying asset at a specified price on or before a specified date. An option, like a stock or bond, is a security. It is also a binding contract with strictly defined terms and properties.
How are Options used in the Stock Market?
When you buy an option, you have the right but not the obligation to do something. You can always let the expiration date pass, at which point the option loses its value. If this happens, you lose 100% of your investment, which is the money you used to pay for the option. Second, an option is simply a contract dealing with an underlying asset. For this reason, options are called derivatives, which means that an option derives its value from something else.
Stocks vs. Options
Many traders think of a stock option position as a stock substitute that has higher leverage and less capital required. After all, options can be used to bet in the direction of stock price, just like the stock itself. But options have very different characteristics than stocks, and there is also a lot of terminology that the beginning options trader must learn.
call options
A call gives the holder the right to buy an asset at a certain price within a specified period of time. The calls are similar to being long on a stock. Call buyers expect the stock to rise substantially before the option expires.
put options
A put option gives the holder the right to sell an asset at a specified price within a specified period of time. Put options are very similar to taking a short position on a stock. Buyers of put options expect the stock price to fall before the option expires.
What are chandeliers?
To create a candlestick chart, you need to have a dataset that contains open, high, low, and close values for each timeframe you want to display. The hollow or filled portion of the candlestick is called “the body” (also known as “the real body”). The long, thin lines above and below the body represent the high/low range and are called “shadows” (also known as “highlights” and “tails”). The high is marked by the top of the upper shadow and the low by the bottom of the lower shadow. If the stock closes above its opening price, a hollow candle is drawn with the lower part of the body representing the opening price and the upper part of the body representing the closing price. If the stock closes below its opening price, a filled candle is drawn with the upper part of the body representing the opening price and the lower part of the body representing the closing price.
The above excerpts were taken from investopedia
As we go along, we’ll discuss things like annuities, bonds, bear markets, bull markets, etc. In the meantime, feel free to review this material:
sec.gov/investor.shtml – Information for investors from the Securities and Exchange Commission
The SEC’s Office of Investor Education and Advocacy provides a variety of services to address issues and questions you may face as an investor.
cboe.com/LearnCenter/RCTools.aspx – Chicago Options Exchange Investor Information
The definitive source of information on options trading™
nasdaq.com/aspx/ResearchAndToolsHub.aspx – NASDAQ Investor Information
NASDAQ is the main market for trading NASDAQ-listed stocks.
The better informed you are as an investor; the more likely it is that you will structure your trading plan in the way that is most beneficial to you. If you have specific questions, we’re here to help you develop your plan and work with you to ensure your success.
