SWING TRADING OPTIONS: Maximizing Profits with Short-Term Option Strategies (2024 Guide for Beginners)

By MARK FERGUSON

"Swing Trading Options" offers a comprehensive guide to leveraging short-term option strategies for optimal profit generation in the dynamic world of trading. Whether you're a novice or seasoned trader, this book equips you with the knowledge and tactics needed to succeed in swing trading options.

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• Language: English
• Publisher: MARK FERGUSON
• Release date: Mar 3, 2024
• ISBN: 9783689440138

MARK FERGUSON

Mark Ferguson is a seasoned financial analyst and options trader based in New York City. With over a decade of experience in the stock market, he specializes in swing trading strategies and options trading. Ferguson is passionate about educating beginners on maximizing profits through short-term option strategies.

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Mark Ferguson

SWING TRADING OPTIONS

Copyright © 2023 by Mark Ferguson

All rights reserved. No part of this publication may be reproduced, stored or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise without written permission from the publisher. It is illegal to copy this book, post it to a website, or distribute it by any other means without permission.

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Contents

1. INTRODUCTION

2. CHAPTER 1: Exploring Option Swing Trading

3. CHAPTER 2: ELEMENTS AFFECTING THE VALUATION OF OPTIONS

4. CHAPTER 3: ADVANTAGES OF OPTIONS TRADING OVER

5. CHAPTER 4: OPTIONS TRADING

6. CHAPTER 5: Crafting a Comprehensive Strategy for Swing Trading

7. CHAPTER 6: RISK MANAGEMENT

8. CHAPTER 7: INFLUENCES ON OPTION PRICING

9. CHAPTER 8: SWING TRADING

10. CHAPTER 9: Engaging in Swing Trading Using Call Options

11. CHAPTER 10: Engaging in Swing Trading Using Put Options

1

INTRODUCTION

To begin, it may be beneficial to acquaint ourselves with the concept of options trading. When we discuss options, we are essentially talking about one of the most versatile trading instruments available. Options can serve to mitigate the risk associated with anticipated investments, or they can act as a protective shield in the volatile stock market to minimize potential losses.

However, it’s important to note that while trading options can be quite lucrative, it’s imperative for any trader to fully comprehend the risks involved. Therefore, options trading may not be suitable or easily accessible for everyone. Once you grasp how options operate and learn how to use them effectively, it can significantly enhance your understanding of the broader market dynamics, ultimately making you a more successful and prominent trader.

Key Terminology to Grasp

Derivative:

A derivative can be defined as a financial instrument whose value is entirely dependent on or derived from the price of another asset. For example, think of sugar as a derivative of sugarcane. Likewise, any financial securities whose values are linked entirely to the prices of other assets are referred to as derivatives.

Option:

Options fall under the category of derivatives. The price of an option is intrinsically connected to the price of another asset. In simple terms, options are financial contracts that grant the option holder the right (but not the obligation) to buy or sell the underlying asset at a predetermined price, either on or before a specified future date. The right to sell is known as a put option, while the right to buy is referred to as a call option.

Options trading involves various terminologies that are essential for a comprehensive understanding, including:

Short: When an option is sold, it is said to be short.

Long: Conversely, when an option is purchased and held, it is described as long.

Premium: The term premium pertains to the price associated with an option contract—either the cost of acquiring the contract or the proceeds received from selling it.

Call Option: A call option grants the buyer the right to purchase a specified security (e.g., stock) at a predetermined fixed price, known as the strike price, on or before a designated expiry date. The seller of the call option is obligated to provide the stock at the strike price if the option is exercised.

Put Option: In contrast to a call option, a put option provides the buyer with the right to sell a security at a predetermined fixed price, either on or before the expiration date. The seller of the put option is obligated to purchase the stock at the strike price if the option is exercised.

Expiry Date: This is the date by which an option can be executed.

Strike Price (Exercise Price): The price established for the buyer or seller to transact the underlying asset.

Assignment and Exercise: Exercise refers to the process wherein option buyers invoke the option terms.

Ask: The lowest price at which a seller is willing to sell an option.

Bid: The highest price at which a buyer is willing to purchase a specific option.

Volume: The total number of specific contracts traded on a given day.

Option Chain:

Before delving into an option chain, let’s define open interest as the total number of contracts worldwide. This number is subject to change and is updated based on the previous day’s trading activities.

ITM (In the Money): Options that possess intrinsic value, often due to strike prices below for calls or above for puts, relative to the current underlying asset price.

OTM (Out of the Money): Options that lack intrinsic value, typically with strike prices above for calls or below for puts, relative to the current underlying asset price.

ATM (At the Money): Options with strike prices close to the current market price of the underlying asset.

Intrinsic Value: The difference between the strike price and the stock price, while time value represents the potential for an option to gain higher intrinsic value in the future.

Distinguishing Options from Stocks:

Options are financial instruments that involve contractual agreements. They share similarities with stocks and futures contracts but differ in that options traders are not obligated to buy or sell anything unless they adhere to the terms of the agreement. To become a more informed investor, it is essential to understand what sets options apart from conventional stock trading.

2

CHAPTER 1: Exploring Option Swing Trading

As previously observed, it’s important to note that an option is fundamentally a derivative. It derives its value from an underlying asset. Conversely, a stock represents a financial instrument denoting ownership of an asset. This distinction signifies that holding stock implies some degree of ownership in an investment or business, whereas an option does not grant such ownership.

Now, let’s delve into further disparities between these two financial instruments:

1. Options have a finite lifespan, unlike stocks. Stocks can be retained for extended periods, potentially years, without any expiration. On the