My First Two Months Trading Stocks with Robinhood

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The stock market has been on quite a tear in the past eight years, and a large number of traders are betting that what goes up must come down. Inexperienced traders often stick to the objective of buying low and selling high, but short sellers recognize that selling high and buying low can be just as profitable.

At the most basic level, short selling is making a prediction that a stock will go down rather than up. The goal is to re-buy those shares of stock at a lower price in the future and then return the borrowed shares to the lender. Short sellers are hoping they can profit off of the difference between the proceeds from the short sale and the cost of buying back the shares, referred to as short covering. Typically this is done automatically, and the broker will also automatically take their shares back as soon as a short is covered.

While short selling can be an extremely handy and profitable tool for traders under the right circumstances, it also comes with its fair share of unique risks. Should i do options trading works begin with, short selling is inherently more risky than traditional stock buying because the potential maximum profit and loss imbalance is reversed.

When buying a stock, potential losses are capped at percent of the original investment and potential gains are unlimited. When should i do options trading works a stock, the maximum gain is capped at percent of the original investment, and the potential losses are unlimited. Short selling also comes with a number of costs that typical stock buying does not. Short sellers are charged stock borrowing costs that can exceed the value of the short trade if a stock is particularly difficult to borrow.

Because short selling can should i do options trading works be done in margin accounts, short should i do options trading works must also pay margin interest on their positions.

In addition, short sellers are responsible for paying any dividends or distributions paid out by the borrowed stock. These costs can take a large bite out of any potential trading gains. Finally, heavily shorted stocks should i do options trading works also subject to buy-ins, a phenomenon when the broker automatically covers a short position at the market price without notice. Lightspeed Trading recently added the Short Request module to its trading platform that allows users to easily find stocks they want to short.

If the stock is available to short, Lightspeed will provide the current borrow price and total borrow price for the given quantity of shares. This article is provided for educational purposes only and is not considered to be a recommendation or endorsement of any trading strategy. The author is not affiliated with Lightspeed Trading and the content and perspective is solely attributed to the author. Navigating Taxes as an Active Trader. Large Cap Momentum Trading.

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How to trade on binary options

In finance, a put or put option is a stock market device which gives the owner of a put the right, but not the obligation, to sell an asset the underlying , at a specified price the strike , by a predetermined date the expiry or maturity to a given party the seller of the put.

The purchase of a put option is interpreted as a negative sentiment about the future value of the underlying. Put options are most commonly used in the stock market to protect against the decline of the price of a stock below a specified price. In this way the buyer of the put will receive at least the strike price specified, even if the asset is currently worthless.

If the strike is K , and at time t the value of the underlying is S t , then in an American option the buyer can exercise the put for a payout of K-S t any time until the option's maturity time T. The put yields a positive return only if the security price falls below the strike when the option is exercised. A European option can only be exercised at time T rather than any time until T , and a Bermudan option can be exercised only on specific dates listed in the terms of the contract.

If the option is not exercised by maturity, it expires worthless. The buyer will not exercise the option at an allowable date if the price of the underlying is greater than K. The most obvious use of a put is as a type of insurance. In the protective put strategy, the investor buys enough puts to cover his holdings of the underlying so that if a drastic downward movement of the underlying's price occurs, he has the option to sell the holdings at the strike price.

Another use is for speculation: Puts may also be combined with other derivatives as part of more complex investment strategies, and in particular, may be useful for hedging. By put-call parity , a European put can be replaced by buying the appropriate call option and selling an appropriate forward contract.

The terms for exercising the option's right to sell it differ depending on option style. A European put option allows the holder to exercise the put option for a short period of time right before expiration, while an American put option allows exercise at any time before expiration.

The put buyer either believes that the underlying asset's price will fall by the exercise date or hopes to protect a long position in it. The advantage of buying a put over short selling the asset is that the option owner's risk of loss is limited to the premium paid for it, whereas the asset short seller's risk of loss is unlimited its price can rise greatly, in fact, in theory it can rise infinitely, and such a rise is the short seller's loss.

The put writer believes that the underlying security's price will rise, not fall. The writer sells the put to collect the premium. The put writer's total potential loss is limited to the put's strike price less the spot and premium already received. Puts can be used also to limit the writer's portfolio risk and may be part of an option spread. That is, the buyer wants the value of the put option to increase by a decline in the price of the underlying asset below the strike price.

The writer seller of a put is long on the underlying asset and short on the put option itself. That is, the seller wants the option to become worthless by an increase in the price of the underlying asset above the strike price. Generally, a put option that is purchased is referred to as a long put and a put option that is sold is referred to as a short put.

A naked put , also called an uncovered put , is a put option whose writer the seller does not have a position in the underlying stock or other instrument.

This strategy is best used by investors who want to accumulate a position in the underlying stock, but only if the price is low enough. If the buyer fails to exercise the options, then the writer keeps the option premium as a "gift" for playing the game. If the underlying stock's market price is below the option's strike price when expiration arrives, the option owner buyer can exercise the put option, forcing the writer to buy the underlying stock at the strike price.

That allows the exerciser buyer to profit from the difference between the stock's market price and the option's strike price. But if the stock's market price is above the option's strike price at the end of expiration day, the option expires worthless, and the owner's loss is limited to the premium fee paid for it the writer's profit. The seller's potential loss on a naked put can be substantial. If the stock falls all the way to zero bankruptcy , his loss is equal to the strike price at which he must buy the stock to cover the option minus the premium received.

The potential upside is the premium received when selling the option: During the option's lifetime, if the stock moves lower, the option's premium may increase depending on how far the stock falls and how much time passes.

If it does, it becomes more costly to close the position repurchase the put, sold earlier , resulting in a loss. If the stock price completely collapses before the put position is closed, the put writer potentially can face catastrophic loss.

In order to protect the put buyer from default, the put writer is required to post margin. The put buyer does not need to post margin because the buyer would not exercise the option if it had a negative payoff. A buyer thinks the price of a stock will decrease. He pays a premium which he will never get back, unless it is sold before it expires.

The buyer has the right to sell the stock at the strike price. The writer receives a premium from the buyer. If the buyer exercises his option, the writer will buy the stock at the strike price.

If the buyer does not exercise his option, the writer's profit is the premium. A put option is said to have intrinsic value when the underlying instrument has a spot price S below the option's strike price K. Upon exercise, a put option is valued at K-S if it is " in-the-money ", otherwise its value is zero. Prior to exercise, an option has time value apart from its intrinsic value. The following factors reduce the time value of a put option: Option pricing is a central problem of financial mathematics.

Trading options involves a constant monitoring of the option value, which is affected by changes in the base asset price, volatility and time decay. Moreover, the dependence of the put option value to those factors is not linear — which makes the analysis even more complex. The graphs clearly shows the non-linear dependence of the option value to the base asset price.

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