What are stock options?
I'm an option-trader on Moscow stock exchange. Although some days I'm simple scalper. That's funny if market is a volatility.
So why options? Cause it gives me a lot of oppurtinities. I can sell time, i can buy or sell volatile, i can manage my position, i can hedge my stock portfolio.
At first this is not easy to understand option, so I'll explain in a few words main idea. Options are very simple indeed. But understanding takes some time.
What is a share or future traded on stock exchange? First of all these are linear assets. Profit and lose profile for long position always looks like this:
But options are non-linear derivative financial asset. There are a lot of proift and loss profiles.
This is simple example named long Call.
You can't loss more than 400 point.
Moreover your potential profit is unlimited!!!
But there is one thing you should know. If the market does not move, you lose some money every day.
One more example. This long Put option. This case you can't lose more than 300 points. If market downs your potential profit is unlimited.
If we both buy Call option and Put option, then we have profit and loss profile like this.
This is called a straddle!
It means that market direction is unimportant for you. You need just some volatility.
If you know how to hedge you can make some profit almost every day. But if market today isn't volatile you're losing a little. Cause options lose their value over time.
What about me. I'm so called gamma-sclalper. I make about 20-100 deals and even more to hedge my position every day. It's big theme for next time:)
My funny mork place :)
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