Founder : Sudhanshu Malhotra · Copyright Webcom Trade. Further reproduction prohibited without...

Copyright Webcom Trade. Further reproduction prohibited without permission.

Trade GOLDMINE

Presents

Founder : Sudhanshu Malhotra


ACCEPTANCE

2


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11


RISK DISCLAIMER

The financial markets are risky. There is a real risk of losing money in any Stocks or

Futures or Currency markets or Options market, and the individual must decide his or

her own financial ability to trade in such markets. Webcom Etrade ,its directors, officers

and or employees are not Registered Investment Advisors or Commodity Trading

Advisors.

No guarantees nor warranties have been implied as to the profitability of any individual

who may use the techniques and indicators learnt or software used in this Forex,

Stocks, Futures and Options course. No advice has been offered as to the individual’s

financial decisions or ability to execute transactions in any trading market with the

course contents learnt in this course.


Welcome to Trading


FOREX | STOCKS | OPTIONS | FUTURES |COMMODITIES

LEARN TO MAKE MONEY BY TRADING :

WEBCOM E TRADE INC.


15

LEVEL 1

LEVEL 2

LEVEL 3

6-61

62-155

156-236

Table of Contents


Business Without Much Investment

To make money irrespective of market direction. We will

teach you to make money in Up Market, Down Market or

Side Ways moving Market.

16


WHY TRADE?

• To make money

• To learn a technique of making money

• Be your own boss and choose your own hours

• Trade comfortably from home

• To have more time for what you want to do: ► spend more time with your families

► to play Golf.

17 INC.


18 INC.

TYPES OF TRADING

Trade for a Hobby: - Another source of income for support

- Only a small size account needed

Trade for a Living: - Sufficient savings for 2+ months of living expenses

- Focus on learning during this time with minimal losses


19 INC.

FORMULA FOR SUCCESS

Success =

SELF DISCIPLINE + KNOWLEDGE + EXPERIENCE + SKILL

= Profits


20 INC.

STRONG DESIRE/INTEREST

PATIENCE

A VALID TRADING PLAN

CONFIDENCE IN TRADING PLAN

EMOTIONAL DISCIPLINE

RIGID MONEY MANAGEMENT

ADEQUATE CAPITAL

KEYS TO SUCCESS


21 INC.

MOTIVATION

GREED

EXCITEMENT

PASSION

HARD WORK

KNOWLEDGE +

CONFIDENCE +

NO FEAR

LEADS TO

LEADS TO


22 INC.

Watch the markets religiously but without trading

Begin paper trading the most promising ideas

Know the primary chart pattern that repeats everyday

Learn the techniques necessary to be a consistent winner in the stock market

Know why stocks/indexes act in a non-random pattern that repeats everyday

A TRADING SYSTEM


23 INC.

To make money

To keep our losses small and make our winnings big through risk

management

To spare more time for our personal likings such as family, recreation,

entertainment, etc.

WHY ARE WE HERE?


24 INC.

Forex

Stocks

Stock options

Index

Futures

Commodities

INSTRUMENTS FOR TRADING


25 INC.

The foreign exchange market (Forex, FX, or currency market) is a

worldwide decentralized over-the-counter financial market for trading

currencies.

Forex can be traded 24 hours a day, around the globe

Asia: 7PM – 6AM

Europe: 2AM – 11AM

US: 8AM – 4PM

Forex can be traded with an account as small as $250 USD

Leverage of 100:1

WHAT IS FOREX?


26 INC.

To gain PIPs

Pip stands for percentage in point.

A pip is equal to 1/100th of 1 percent

Example:

1 PIP = $10 USD/ GBP/ EUR

FOREX - OBJECTIVE


27 INC.

An instrument that signifies an ownership position (called equity) in a corporation, and

represents a claim on its proportional share in the corporation's assets and profits.

Stocks are traded in different exchanges such as:

NYSE, NASDAQ, TSX

9:20AM – 4PM

Start with minimum $1,000 USD

Example:

$1000 investment in a $100 stock = 10 shares

10 shares = 1 point

1% = $10 profit

WHAT ARE STOCKS?


WHAT ARE STOCK OPTIONS?

28

Stock option is a contract to buy or sell the 100 shares

for a pre-determined time and at a pre-determined price.

They derive their value from the Stock price

INC.

STOCKS OPTIONS OPTION

STRATEGIES

$10,000 $500 $200


Different types of Stock Options

Call Options – Up Market

Put Options – Down Market

29 INC.


WHAT ARE INDEXES?

A market index is a method of measuring a section of the

stock market. Many indices are used to measure the

performance of portfolios such as mutual funds.

There are 4 major indexes

NASDAQ

DOW JONES

S&P 500

Russell 2000

30 INC.


WHAT ARE FUTURES? A standardized, transferable, exchange-traded contract that requires delivery of a commodity,

bond, currency, or stock index, at a specified price, on a specified future date.

In futures two positions distinguished themselves, in whose losses or profits will depend on

the relation between the future price (agreed at the present) and the price of liquidation

(price of the underlying asset at the market and on the date of expire).

Futures can be traded with a minimum of $ 750

Trading is based on contracts

Example for e-mini Russell 2000 Index:

1 contract with 1.0 pt = $100 USD

5 contracts with 1.0 pt = $500 USD

31 INC.


COMMODITIES TRADING It is an exchange for buying and selling commodities for

future delivery

Example:

Gold

Silver

Wheat

Oil

Commodities are traded in only specific exchanges such as

CME, NYMEX etc.

32 INC.


HOW TO GET STARTED?

1. Initial investment (e.g. $1500 – infinity)

2. Find a broker (e.g. IB, AMP, Global)

3. Familiarize with a trading platform (NinjaTrader, Trade Station)

4. Learn and follow the trading strategy (Fearless)

5. Start trading!!!

33 INC.


RETURN ON INVESTMENT

Being Conservative, if we can achieve 50% per month on

your investment

34 INC.


ONLY 3 SCENARIO’S

Bullish

Market

Neutral

Market

Bearish

Market

35


Trading as an Ideal Business

NO Boss, NO employees

Work from home or ANYWHERE IN THE WORLD

No Selling, No inventory

Minimal investment

Unlimited potential

Low overhead

Part time or Full time

36


WHY SOME TRADERS LOSE MONEY

NO EXPERIENCE

LACK OF KNOWLEDGE

NO SELF DISCIPLINE

NO TRAINING

NO FOCUS

NO MONEY MANAGEMENT

37


A SENSE OF HUMOR

EMOTIONAL CONTROL

ABILITY TO FOCUS

ABILITY TO ORGANIZE IN CHAOS

FOLLOW THE TRADING PLAN

ALWAYS SEEKING TO IMPROVE AND LEARN

LITTLE OR NO EGO – STRONG SELF CONCEPT

DO NOT FOCUS ON MONEY

ACCEPTANCE OF LOSING TRADES

CHARACTERISTICS OF A SUCCESSFUL TRADER

38


CRITICAL MISTAKES TO AVOID TRADING WITHOUT A PLAN

- Relying on “Gut Feel”

- CNBC picks

- Not paying attention to news reaction

IMPATIENCE

- Trading too frequently

- Overconfidence – “This is easy”

POOR MONEY MANAGEMENT

- Not using stops – Trading too large

- Hoping the pain will end

- Trades becoming “Investments”

39


GOOD/BAD TRADES, WINNING/LOSING TRADES

A good trade is any trade executed in accordance with

your well conceived trading rules

A bad trade is any trade which deviates you from well

conceived trading rules

DO NOT CONFUSE A WINNING TRADE WITH A GOOD

TRADE

40


MONEY MANAGEMENT Don‟t trade with „scared money‟

Don‟t risk more than 2% of your capital on any trade

If your trading performance is struggling:

- Reduce share size, revert to paper trading or take a

vacation

- Key: Learn to succeed before going broke on the

learning curve

41


PUT THE POWER OF PATTERN RECOGNITION IN YOUR TRADING

Learn how to put the probabilities of winning in your favor by focusing on the price

Know the primary chart pattern that repeats everyday

Learn to trade without fear

Learn the techniques necessary to be a consistent winner in the stock market

Understand the harmony in the stock market and why it must move up and down

Know why stocks/indexes act in a non-random pattern that repeats everyday

42


US INDEXES DOW:

The Dow Jones Industrial Average is a price-weighted average of 20 significant stocks

traded on the New York Stock Exchange and the Nasdaq. The DJIA was invented by

Charles Dow back in 1896.

NASDAQ:

Acronym for National Association of Securities Dealers Automated Quotation

A computerized system that facilitates trading and provides price quotations on more

than 5,000 of the more actively traded over the counter stocks. Created in 1971, the

Nasdaq was the world's first electronic stock market.

Stocks on the Nasdaq are traditionally listed under four or five letter ticker symbols. If

the company is a transfer from the New York Stock Exchange, the symbol may be

comprised of three letters.

43


Standard and Poor's Indexes

S&P 500:

An index of 500 stocks chosen for market size, liquidity and industry

grouping, among other factors. The S&P 500 is designed to be a

leading indicator of U.S. equities and is meant to reflect the risk/return

characteristics of the large cap universe.

Companies included in the index are selected by the S&P Index

Committee, a team of analysts and economists at Standard &

Poor's. The S&P 500 is a market value weighted index - each stock's

weight is proportionate to its market value.

E-MINI S&P 500 (ES) 1 contract is $50 per point. 44



S&P 400:

This Standard & Poor's index serves as a barometer for the

U.S. mid-cap equities sector and is the most widely

followed mid-cap index in existence. To be included in the

index, a stock must have a total market capitalization that

ranges from roughly $750 million to $3 billion dollars.

Stocks in this index represent household names from all

major industries including energy, technology, healthcare,

financial and manufacturing

45



S&P 600:

The S&P 600 SmallCap Index, more commonly known as

the S&P 600, is a stock market index from Standard &

Poor's. It covers roughly the small-cap range of US stocks,

using a capitalization-weighted index. The index covers

roughly three to four percent of the total US equities

market.

46


Russell Indexes

Russell 1000:

An index of approximately 1,000 of the largest companies in the U.S.

equity markets, the Russell 1000 is a subset of the Russell 2000

Index. The Russell 1000 (maintained by the Russell Investment Group)

comprises over 90% of the total market capitalization of all listed U.S.

stocks, and is considered a bellwether index for large cap investing.

The Russell 1000 is a market capitalization-weighted index, meaning

that the largest companies constitute the largest percentages in the

index and will affect performance more than the smallest index

members.

47


Russell Indexes

Russell 2000:

An index measuring the performance of the 2,000 smallest

companies in the Russell 2000 Index, which is made up of

3,000 of the biggest U.S. stocks. The Russell 2000 serves

as a benchmark for small cap stocks in the United States.

E-MINI Russell 2000 (TF) 1 contract is $100 per point.

48


Russell Indexes

Russell 2500:

A broad index featuring 2,500 stocks that covers the small

and mid cap market capitalizations. The Russell 2500 is a

market cap weighted index that includes the smallest

2,500 companies covered in the Russell 2000 universe of

United States based listed equities.

The index is designed to be broad and unbiased in its

inclusion criteria, and is recompiled annually to account for

the inevitable changes that occur as stocks rise and fall in

value 49


Russell Indexes

Russell 2000:

A market capitalization weighted equity index maintained

by the Russell Investment Group that seeks to be

a benchmark of the entire U.S. stock market. More

specifically, this index encompasses the 3,000 largest U.S.

traded stocks, in which the underlying companies are all

incorporated in the U.S.

50


Nasdaq Indexes

Nasdaq 100:

An index composed of the 100 largest, most actively

traded U.S companies listed on the Nasdaq stock

exchange. This index includes companies from a broad

range of industries mainly technology with the exception

of those that operate in the financial industry, such as

banks and investment companies.

E-MINI NASDAQ 100 (NQ) 1 contract is $20 per point.

51


US Stock Index Futures Expiry Months

March (H)

June (M)

September (U)

December (Z)

They expire on the 3rd Friday of the month.

Example:

Trading symbol for September E-mini S&P 500 Future is ESU10

ES = E-mini S&P 500

U = Month

10 = Year 2010

52


Major US Stock Exchanges

American Stock Exchange

Boston Stock Exchange

Chicago Stock Exchange

NASDAQ

National Stock Exchange

New York Board of Trade

New York Stock Exchange

NYSE

ARCA

Philadelphia Stock Exchange

ICE-Inter Continental Exchange 53


US STOCK MARKET Stock Day Trader must have $25,000 in his/her account

VOLUME PER DAY = $100 Billion USD

Monday - Friday = 9:20 am to 4:00 pm

Gaps

Leverage 50:1

54


US FUTURES MARKET

Very fast and volatile

Monday – Friday

S&P 500 and Russell 2000 trade 24 hours

S&P 500 closes 4:15 pm - 4:20 pm and 5:20 pm - 6:00 pm

Monday to Thursday, closes 4:15 pm Friday and re-opens

6:00 pm Sunday

Russell 2000 closes Monday to Thursday

6:00 pm - 8:00 pm, closes 6:00 pm on Friday and re-opens

at 8:00 pm on Sunday

55


FOREX MARKET

Opened to small investors in 1995

Prior to 1995, the requirement was to have $1 million

USD in cash or assets to trade Forex

Margin requirements have changed for the small investor

since then

Small investor can even open an account with $250 USD

and trade Forex

56


US Stock Market US Treasury

Bond Market FOREX

$100 Billion

$200 Billion

$3 Trillion

Volume in Forex is more then all other world Markets COMBINED

Comparison

57


FOREX MARKET

Trade possibilities in approx. 20 currency pairs

Focus on 6 currencies: USD, GBP, JPY, CHF, CAD, AUD,

EUR

Best pair to trade in terms of volume and volatility is

EUR/USD

No gaps

Immediate execution

Leverage 100:1

58


FOREX MARKET

1 standard lot = $100,000 1 pip = $10 USD

1 mini lot = $10,000 1 pip = $1 USD

1 micro lot = $1,000 1 pip= $0.10 USD

Our objective is to capture pips

59


TRADER’S CHOICES

LONG position is BUYING without owning anything

SHORT position is SELLING without owning anything

Covering or Exiting a LONG position means selling the

holding position

Covering or Exiting a SHORT position means buying the

holding position

Entering a long position means you are Bullish

Entering a short position means you are Bearish

60


Bullish Market

61


Bearish Market

62


Timing in the Forex Market

Forbidden timing to trade : 4 pm – 8 pm

No major markets open

Minimum movement

Financial institutions are still executing transactions but not large enough to

move the market

Market consolidates (sideways/choppy) and moving in the range of 5-20 pips

During this time, there is more risks, can have losing trades and may be

frustrating

Best time to trade : 2am – 11 am

During these times there are major movements in the market due to some

fundamental economic news announcements

63


Reading a Chart

Price action

Candle formation

Reading high, low and close of the Candle

Volume reading

64


Market Nature

Struggle between bulls and bears

Market moves in waves . At any given time, market is

doing one of the following 3 things:

Trending UP

Trending DOWN

Sideways movement

65


Trending UP Trending DOWN

Sideways Movements

Higher highs,

Higher Lows

Lower Highs,

Lower Lows

66


Our Objective

To indentify a trend

Identify a low within a trend to take a long position

Identify a high within a trend to take a short position

Note: Markets never act in a random pattern and always

respect technicals and fundamentals

67


Trading Types

Short term trading (Day trading)

Closing all positions at the end of the day (4 PM)

Swing trading (3-10 days)

Long term trading (6 months – 2 years)

Note: Day trading margins are much less then swing or

long term trading margins

68


CHART FORMATION

Three types of charts

Bar chart

Line chart

Japanese Candlesticks chart

69


Bar Chart

70


Line Chart

71


Candle Chart

72


73


BULLISH

BEARISH

74


Reversal Price Patterns

Candle types

Doji

Engulfing

Hammer

Hanging man

Harami

Harami Cross

Inverted Hammer

Shooting Star

• Morning Star

• Evening Star

• Tweezers top

• Tweezers bottom

• High Wave Candles

• Spinning Tops

75


Doji

Four types of Dojis:

Common, Long-Legged, Dragon Fly and Gravestone

Dojis open and close are at the same price level.

76

Common Doji


Engulfing Bullish Pattern

Forms when a small red candlestick is followed by a large

green candlestick that completely eclipses or "engulfs“ the

red candlestick. The shadows or tails of the small candlestick

are short, which enables the body of the large candlestick to

cover the entire previous candlestick.

77


Engulfing Bearish Pattern

Consists of a small green candlestick with short shadows

or tails followed by a large red candlestick that eclipses

or "engulfs" the small green one.

78


Hammer

Occurs when a security trades significantly lower than its

opening, but rallies later to close either above or close to

its opening price. This pattern forms a hammer-shaped

candlestick.

79

Body is red if stock

closed lower. Body

is green if it closed

higher.


Hanging Man

A bearish candlestick pattern that forms at the end of an

uptrend. It is created when there is a significant sell-off, but

buyers are able to push this stock back up so that it closes at

or near the opening price. Generally the large sell-off is seen

as an early indication that the bulls (buyers) are losing control

and demand for the asset is waning.

80 WEBCOM E TRADE INC.


Bullish Harami

Bullish Harami Pattern is characterized by a small green

real body contained within a prior relatively long red real

body. “Harami” is an old Japanese word for “pregnant”.

The long red candlestick is “the mother” and the small

candlestick is “the baby”.



Bearish Harami

Bearish Harami Pattern is a two-candlestick pattern

composed of a small red real body contained within a

prior relatively long green real body. “Harami” is an old

Japanese word for “pregnant”. The long green

candlestick is “the mother” and the small red candlestick

is “the baby”.



Bullish Harami Cross

Bullish Harami Cross Pattern is a Doji preceded by a long

red real body. The Bullish Harami Cross Pattern is a

major bullish reversal pattern. It is more significant than

a regular Bullish Harami Pattern.

83


Bearish Harami Cross

Bearish Harami Cross Pattern is a Doji preceded by a

long green real body. The Bearish Harami Cross Pattern is

a major reversal pattern and is more significant than a

regular Bearish Harami Pattern

84


Bullish Inverted Hammer

Bullish Inverted Hammer Pattern is a candlestick

characterized by a long upper shadow and a small real

body preceded by a long red real body.

85


Bearish Inverted Hammer

There is a long string of green candles, and then

suddenly a red candle appears. The body is very short

and has a sizeable upper wick. Prices have started at a

low point, but made up for it.

86


Shooting Star

Shooting Star Pattern suggests that prices may be approaching to a top. It

looks like its name, a shooting star. The shooting star is a small real body

characterized by a long upper shadow, which gaps away from the prior real

body.

87


Morning Star

This is a three-candlestick bullish formation that signals a major bottom. It

is composed of a first long red body, a second small real body, green or

red, gapping lower to form a star. These two candlesticks define a basic

star pattern. The third is a green candlestick that closes well into the first

session‟s red real body. Third candlestick shows that the market turned

bullish now.

88


Evening Star

This is a major top reversal pattern formed by three candlesticks. The first

candlestick is a long green body; the second one is a small real body that

may be green. It is characteristically marked with a gap in higher direction

thus forming a star. In fact, the first two candlesticks form a basic star

pattern. Finally we see the red candlestick with a closing price well within

first session‟s green real body.

This pattern clearly shows that the market now

turned bearish.

89


Tweezers Top

High at the same price.

Size of body is irrelevant.

Lows can be uneven but tops

have to be the same

90


Tweezers Bottom

Low at the same price.

Size of body is irrelevant.

Highs can be uneven but bottom

have to be the same

91


High Wave Candles

Bearish pattern

92


Spinning Top

Small real bodies

Bearish pattern

93


Types of Orders Market Order

Limit Order

Stop Market

Stop Limit

OCO ( Order Cancels Order )

OSO ( Order Sends Order )

Cancel/Replace Order

Trailing Stop Order

94


Market Order

When you want to buy or sell at current market price

95


Limit Order

When you are expecting a market to fill your buy/sell

order at your predetermined price

96


Stop Market

An order placed with a broker to close a position when it

reaches a certain price. A stop-loss order is designed to

limit an investor's loss

97


Stop Limit

An order placed with a broker that combines the features

of stop order with those of a limit order. A stop-limit

order will be executed at a specified price (or better) after

a given stop price has been reached. Once the stop price

is reached, the stop-limit order becomes a limit order to

buy (or sell) at the limit price or better.

98


OCO (Order Cancels Order)

An order stipulating that if one part of the order is

executed, then the other part is automatically canceled.

99


OSO (Order Sends Order)

An order stipulating that if one part of the order is

executed, then the other part is automatically routed to

the exchange.

100


Cancel/Replace Order

Trader has the option to cancel or replace the placed

order

101


Trailing Stop Order

A virtual trailing stop order (VTSO), is a stop order that

adjusts as the price of a security moves. The stop price is

placed at a set distance above or below the market price

depending on whether it is on a long or short position.

The stop price then adjusts as the price of the security

moves, maintaining the set distance. The purpose of this

order is to maintain a set level of potential loss at any

point in time while allowing for continued appreciation as

long as the price does not fall to the stop loss.

102


Support

The price level which, historically, a stock has had

difficulty falling below. It is thought of as the level at

which a lot of buyers tend to enter the stock

The price at which a stock or market can trade,

but not exceed, for a certain period of time

Market is Nothing but support or resistance.

Resistance

103


UPTREND

Higher highs and higher lows

Buy every dip until the pattern breaks

104


DOWNTREND

Sell short on rallies

105


SIDEWAYS

Buy the dips and sell the rallies

106


WHEN MARKET OPENS POSITIVE

Find the stocks in uptrend but have fallen in past few

days, buy them

107


WHEN MARKET OPENS NEGATIVE

Find the stocks in downtrend but have rallied in past few

days, sell them short

108


BUY ACTION

Buy if 3 or more consecutive higher lows

Buy when stock trades above the previous day‟s high

Buy when stock trades above the first 20 minutes high

Note: only if prior day‟s high is too far away

Low level Consolidation (congestion) breakout…second

entry

109


GOOD BUY

3 pushes down on a daily chart

Low ADX (Average Directional Index) base building

Formation of Higher lows

Gap open, buy at yesterday‟s high while pulling back

Buy off the support….if an index bounced off a certain

price before, it is likely to bounce from that point again. If

you get faked out and index drops, exit immediately.

110


SHORT ACTION

Look for a pullback after 3 higher highs

When a pullback occurs, look for the breakout level to

serve as new intraday support

Stocks or futures retest high at least once and fail

Short broken support

Short if previous day low is broken

111


Locating Support

Support

112


Locating Resistance Resistance

113


TREND IS YOUR FRIEND UNTIL IT BENDS.

ALWAYS STAY WITH THE

TREND.

114


Yesterday’s Highs and Lows provide support and

resistance

115


Intraday’s High and Low provide support and

resistance

116


Pivot

Pivot is the middle point

Provide support and resistance

Daily, weekly and monthly pivots are very important

To calculate a daily pivot =

(Daily High + Daily Low + Daily Close)/3

To calculate a weekly pivot =

(Weekly High + Weekly Low + Weekly Close)/3

To calculate a monthly pivot =

(Monthly High + Monthly Low + Monthly Close)/3

117


Calculation of S1, S2, S3

Daily S1= (2* Daily Pivot) - Daily High

Daily S2= (Daily Pivot – Daily R1) + Daily S1

Daily S3= (Daily Pivot – Daily R1) + Daily S2

118


Calculation of R1, R2, R3 Daily R1= (2* Daily Pivot) - Daily Low

Daily R2= (Pivot – Daily S1) + Daily R1

Daily R3= (Pivot – Daily S1) + Daily R2

119


Power of Number 9

Number 9 provides a very powerful support and

resistance in all markets

120


Number Power

1-5 = Buy Zone

6-9= Sell Zone

5= pivot

Applicable to all markets

121


Golden Rules of Trading

Anticipate: wait for market to come to you

Confirm: confirm with your trading plan

Trade: enter the market with a stop loss and profit

limit order

A

C

T 122


Fibonacci Retracements

A term used in technical analysis that refers to the

likelihood that a financial asset's price will retrace a large

portion of an original move and find support or

resistance at the key Fibonacci levels before it continues

in the original direction. These levels are created by

drawing a trendline between two extreme points and

then dividing the vertical distance by the key Fibonacci

ratios of 38.2%, 50%, and 61.8%.

123


Technical Indicators

Statistics used to measure current conditions as well as

to forecast financial or economic trends. Indicators are

used extensively in technical analysis to predict changes

in stock trends or price patterns. In fundamental

analysis, economic indicators that quantify current

economic and industry conditions are used to provide

insight into the future profitability potential of public

companies.

They tell us short term and long term trends

Most indicators are lagging indicators 124


Indicators

Moving average

Stochastic

MACD (Moving Average Convergence and Divergence)

RSI (Relative Strength Index)

125


Moving Average

An indicator frequently used in technical analysis

showing the average value of a security's price over a set

period. Moving averages are generally used to measure

momentum and define areas of possible support and

resistance.

126


Short/Long term Moving Averages

For short term trading:

10/20 day moving average are preferred

For intermediate term trading:

50 day moving average is preferred

For long term trading:

200 day moving average is preferred

127


Stochastic Oscillator

A technical momentum indicator that compares a security's closing

price to its price range over a given time period. The oscillator's sensitivity

to market movements can be reduced by adjusting the time period or by

taking a moving average of the result. This indicator is calculated with the

following formula:

%K = 100[(C - L14)/(H14 - L14)]

C = the most recent closing price

L14 = the low of the 14 previous trading sessions

H14 = the highest price traded during the same 14-day period.

%D = 3-period moving average of %K 128


MACD

A trend-following momentum indicator that shows the

relationship between two moving averages of prices. The

MACD is calculated by subtracting the 26-day exponential

moving average (EMA) from the 12-day EMA. A 9-day EMA

of the MACD, called the "signal line", is then plotted on

top of the MACD, functioning as a trigger for buy and sell

signals

129


RSI

A technical momentum indicator that compares the

magnitude of recent gains to recent losses in an attempt

to determine overbought and oversold conditions of an

asset. It is calculated using the following formula:

130


Power of Doji

Doji‟s high/low provide a powerful support and

resistance

131


Power of 60 Minute Chart

132


TRIN (Arms Index)

Short for TRaders INdex. A technical analysis indicator

calculated by taking the advances-to-declines spread and

dividing that by the volume of advances to declines:

= (advances / declines) / (up volume / down volume)

TRIN reading for NYSE is extremely important

133


TRIN Readings

TRIN = 1 = Neutral trend

TRIN < 1 = Bullish trend

TRIN > 1 = Bearish trend

134


VIX (Volatility Index)

The ticker symbol for the Chicago Board Options

Exchange (CBOE) Volatility Index, which shows the

market's expectation of 20-day volatility. It is constructed

using the implied volatilities of a wide range of S&P 500

index options. This volatility is meant to be forward

looking and is calculated from both calls and puts. The

VIX is a widely used measure of market risk and is often

referred to as the "investor fear gauge".

135


VIX Readings

When VIX is negative = bullish trend

When VIX is positive = bearish trend

Degree of Bullishness and Bearishness is dictated by the

percent gain or loss in VIX

136


At the end of the Month and the beginning of the Month

(first 3 days), there is a lot of buying pressure in the stock

markets due to mutual/hedge funds receiving fresh money

from investors.

137


9:20 am – 10:00 am, professional traders watch the markets and enter there trades after 10:00 am. The reason for this is a lot of pending orders

the market has to fill from the previous day or orders before

the market had opened. 138


139


140

Russell 2000 (TF)/NASDAQ (NQ): Long Postion

Must have Buy signal in TF 733 tick chart;

Must have green candle in TF 733 tick chart;

Must be blue color on the moving average;

Must have Buy signal in S&P 500 2000 tick chart;

Must have green candle in S&P 500 2000 tick chart;

If Buy signal is not there in S&P 500 2000 tick chart, it appears within

10 minutes of the signal issued in TF 733 tick chart, then buying price

of TF must be within 1 point of the Buy signal price.

Other 2 indicators Trade

Goldmine_Histogram and TradeGoldmine_BuySell are just supporting

indicators but do not trigger the trade on the entry or exit


141

Russell 2000/Nasdaq(NQ) (TF): Long Position

Example:

A buy signal appears in TF 733 tick chart and buy price shows 632 at 10:05 am

but buy signal and green candle appears in S&P 500 2000 tick chart at 10.12

am. You should buy only up to 633 otherwise signal is invalid.

If you bought and you are in the trade, do not pay attention to S&P 500 2000

tick chart anymore but focus on TF 733 tick chart only;

Stop loss for the trade is red candle close in TF 733 tick chart. If after few red

candles, green candle closes again, enter the trade again;

If you are trading more than 1 contract and your trade is profitable, after 3

points in profit, have a stop loss of 2 points and keep on raising it for every 1

point move. You can even sell ½ position for 3 points and let the other ½ run to

the upside. If market starts coming down, exit at breakeven. Make sure that if

your position is in profit, it must NOT end up in loss.


Russell 2000 (TF): Short Position

142

Must have Sell signal in TF 733 tick chart;

Must have red candle in TF 733 tick chart;

Must be red color on the moving average;

Must have Sell signal in S&P 500 2000 tick chart;

Must have red candle in S&P 500 2000 tick chart;

If Sell signal is not there in S&P 500 2000 tick chart, it appears within 10

minutes of the signal issued in TF 733 tick chart, then TF selling price

must be within 1 point of the Sell signal price.

Other 2 indicators TradeGoldmine_Histogram and TradeGodmine_BuySell

are just supporting indicators but do not trigger the trade on the entry or

exit


143

Example:

Sell signal appears in TF 733 tick chart and Sell price shows 632 at 10:05

am but Sell signal and red candle appears in S&P 500 2000 tick chart at

10.12 am. You should sell 631 or better otherwise signal is invalid.

If you sold and you are in the trade, do not pay attention to S&P 500 2000

tick chart anymore but focus on TF 733 tick chart only;

Stop loss for the trade is green candle close in TF 733 tick chart. If after

few green candles, red candle closes again, enter the trade again;

If you are trading more than 1 contract and your trade is profitable, after 3

points in profit, have a stop loss of 2 points and keep on raising it for every

1 point move. You can even buy ½ position for 3 points and let the other ½

run to the downside. If market starts coming up, exit at breakeven. Make

sure that if your position is in profit, it must NOT end up in loss.

Russell 2000 (TF): Short Position


EURUSD: Long Position

144

Must have Buy signal in EURUSD 8 minute chart;

Must have green candle in EURUSD 8 minute chart;

Must be blue color on the moving average;

Stop loss for the trade is red candle close in EURUSD 8 minute chart. If

after few red candles, green candle closes again, enter the trade again;

Also as a caution, take a look at 20 minute chart. If your trade is against

20 minute chart signal, then exit with small profit;

Other 2 indicators TradeGoldmine_Histogram and TradeGoldmine_BuySell


exit;

If you are trading more than 1 lot and trade is profitable, after 50 Pips

move in your favor, have a stop loss of 20 pips and keep on raising it for

every 10 pips move in your favor. You can even sell ½ position for 50 pips

and let the other ½ run to the upside. If price starts coming down, exit at

breakeven. Make sure that if position in profit, it must NOT end up in loss.


EURUSD: Short Position

145

Must have Sell signal in EURUSD 8 minute chart;

Must have red candle in EURUSD 8 minute chart;

Must be red color on the moving average;

Stop loss for the trade is green candle close in EURUSD 8 minute chart. If

after few green candles, red candle closes again, enter the trade again;

Also, take a look at 20 minute chart. If your trade is against 20 minute

chart signal, then exit with small profit;

Other 2 indicators TradeGoldmine_Histogram and TradeGoldmine_BuySell


exit;

If you are trading more than 1 lot and trade is profitable, after 50 Pips

move in your favor, have a stop loss of 20 pips and keep on moving it for

every 10 pips move in your favor. You can even sell ½ position for 50 pips

and let the other ½ run to the downside. If price starts going up, exit at

breakeven. Make sure that if position in profit, it must NOT end up in loss.


146


Enter Buy and Sell signals from Daily charts

147

Stocks, Commodities, ETF’s


148

Forex, S&P 500, Russell 2000, Nasdaq 100 Futures

Enter Buy and Sell signals from 480 minutes charts


149


Stocks, Commodities, ETF’s, Forex, Index Futures

150

Enter Buy and Sell signals from Weekly or Monthly

charts


151


Trade Goldmine Strategy

152

Trades must be entered after the buy or sell signals

appear on the charts. Any assumption or speculation

may end up in a loss.


Candles Paint Bar

153

Candles are green when the market is in an uptrend

Candles are red when the market is in a downtrend

If buy or sell signal appears after 5 green or red

candles, there is a higher risk entering the trade


Trade Goldmine Trend Line

154

This trend line (yellow colour) acts as support or

resistance but does not trigger entry or exit of any trade


Trade Goldmine Line 1

155

This is a 20 days simple moving average which changes

color in uptrend (blue) or downtrend (red)


Trade Goldmine Histogram

156

This indicator changes color in an

uptrend or downtrend.

When bars are above zero line it

changes color to cyan

When bars are below zero line it

changes color to red


Trade Goldmine BuySell

157

Market is overbought at or close to 80 line

Market is oversold at or close to 20 line

When the indicator crossover happens

close to 20 line, triggers a trade for long

side

When the indicator crossover happens

close to 80 line, triggers a trade for short

side

Attention must be paid only to green or red

color line on this indicator. Blue color line

is used for crossover only.


NinjaTrader Download Instructions

158

1. Go to : http://www.ninjatrader.com/webnew/index.htm

2. Go to the “Download” tab.

3. Enter the info asked :

Referred By: Name

My Broker Is: Name

Email Address: Your email

4. Choose: I have/will have access to one of the connectivity providers listed

above.

5. Choose all three Futures, Forex, Equities

6. Click Download under Download Software for Version 6.5 (Current Release)

7. Install the NinjaTrade Software to your computer.

http://www.ninjatrader.com/webnew/index.htm



159

7. Go to: http://www.zen-fire.com/

8. Go to the “Free Demo” tab.

9. Click on “Click Here” under the Demo tab for the NinjaTrade column

10. Enter the info asked and click “Submit Demo Request”

11. Open the email that you entered for the Ninja Trade/Zenfire.

12. Open the email that Zenfire has sent you.

13. Open NinjaTrade from your Desktop.

14. Enter the license key that was given to you by Zenfire.

http://www.zen-fire.com/





160

15. Go to the NinjaTrade software.

16. Click Tools -> Account Options -> New Account.

17. Click Next until asked “Connection Name” for “Username” and

“Password”.

18. Enter SIM as Connection Name. Enter the Username and Password given

to you by Zenfire in the email they sent. ( DO NOT copy and paste the

Username or Password, type it out)

19. Keep clicking Next until the account setup is done.

20. Close Ninjatrade.

21. Restart your computer

22. Open Ninjatrade -> Click File -> Connect -> SIM

IF THERE ARE ANY PROBLEMS PLEASE CALL :

(800) 560-1640


161


162


WHAT ARE STOCK OPTIONS?

Stock option is a contract to buy or sell the 100 shares at

pre-determined time and pre-determined price. They derive

their value from the Stock price

STOCKS OPTIONS OPTION

STRATEGIES

$10,000 $500 $200

163


Different types of Stock Options

Call Options – Up Market

Put Options – Down Market

164


Why trade stock options?

Hedging – Options allow you to reduce the risk of

investing in the stock market. By using appropriate

strategies, those losses could have been trimmed by

50 to 90%.



Income – By selling someone else the right to buy your

stock at a predetermined price, you are paid a

premium that you can consider to be a special

dividend.



Leverage – You never have to trade a share of stock,

and invest far less money than stockholders.


Options Benefits

One option contract represents 100 shares of stock

and is usually a fraction of the cost of what you‟d pay

for the equivalent number of shares

For example: ABCD stock is priced at $20 on August 5th

2010. An option to buy ABCD shares (call options) might

be priced at $2.00 because 1 contract represents 100

shares we can therefore buy 1 ABCD call contract for

$200 (100*$2.00). In this example we can buy 100

shares with the call option for less then %10 of the stock

price

168


Options Benefits

Due to our cost basis being so low, the position is

much more sensitive to the underlying stock‟s price

movements and hence our percentage returns can be

so much greater

You can control more assets with less money through

options

We can design strategies specifically for the purpose

of generating income on a regular basis

169


Options Benefits

Profit from declining stocks by buying puts or selling

calls

Profit from volatility or protection against various

factors such as time decay, volatility or lack of

volatility, and more through options strategies

Options enable us to substantially reduce or risk of

trading and in certain rare cases, we can eliminate risk

altogether

170


Profit +

Loss -

Between

+25

0

-25

0 25 50

Stock purchase price

Asset price($)

Long Position O

pti

on

Pri

ce

($)

171


Profit +

Loss -

Between

+25

0

-25

0 25 50

Stock Short Price

Asset price($)

Short Position O

pti

on

Pri

ce

($)

172


4 Basic Option Strategies

Long Call

Short Call

Long Put

Short Put

173


Long Call

Buy a call with the belief that stock will rise (bullish

outlook)

Risk limited to premium paid

Unlimited maximum reward

Exposes us to time decay

To avoid time decay, calls must be bought with

expiration dates that are reasonably far away to give us

a chance of our option increasing in value

174


Short Call

Sell a call with the belief that stock will fall (bearish

outlook)

Maximum reward limited to premium received

Risk potentially unlimited (as stock price rises)

Can be combined with another position to limit the risk

175


Long Put • Buy a put with the belief that stock will fall

(bearish outlook)

• Risk limited to premium paid

• Unlimited maximum reward up to the strike

price less the premium paid

176


Short Put Sell a call with the belief that stock will rise (bullish

outlook)

Risk “unlimited” to a maximum equating to the strike

price less the premium received

Maximum reward limited to the premium received

Can be combined with another position to limit the risk

177


Definitions Strike price (Exercise price):

Price at which an asset can be bought or sold by the buyer of a call or put option

Spread: Difference between the bid and ask of a traded option

Expiration Date: Last day on which an option can be exercised

Open Interest: Total number of options contracts that are not closed or delivered on

a particular day

This is measure of an options liquidity

A higher number of “Open” contracts indicate greater liquidity

Greater Liquidity affords to greater efficiency in closing open positions

178


Definitions Arbitrage:

Where the simultaneous purchase and disposal of a combination of financial instruments is such that a guaranteed profit is made automatically

ATM (At the money option): Where the option exercised priced is the same as the asset

price

OTM (Out of the money option): Where the option has no intrinsic value and where you cannot

exercise an option for a profit

ITM (In the money option): Where you can exercise an option for a profit

179


Definitions

DITM Calls (Deep in the money):

Where the price of the underline security is far greater then the Call

strike price

DITM Puts (Deep in the money):

Where the price of the underline security is far less then the Put

strike price

Intrinsic Value:

Amount by which an option is in the money

LEAPs:

Long term stock options with expirations up to 3 years in the future

Are available in Calls and Puts and American style traded options

180


Definitions

American Style Option:

An option contract that can be exercised at any time before

the expiration date

European Style Option:

An option contract that cannot be exercised before the

expiration date

Volatility:

Measure of the fluctuation in the price movement in a security

over a period of time

181


Option Types

Covered Call

Naked (Short) Call

Covered Put

Naked (Short) Put

182


Covered Call

Is the most basic of income strategies yet highly

effective and can be used by novices and experts alike

Buy the stock and sell calls against it

Your outlook is neutral to bullish

Net debit transaction because you are paying for the

stock and taking in the small premium for the sold call

option

Time decay is helpful to your trade

183


Naked (Short) Call

Simple to execute

Without any form of cover is a risky strategy

Exposes us to uncapped risk if the stock rises

Brokers allow only experienced options traders to

trade this strategy

Recommended that call option may be sold with a

strike price higher then the current stock price

Your outlook is bearish or neutral

184


Covered Put Simple and short term income strategy

Short the stock and sell puts against it


Net credit transaction because you are selling the

stock and also receiving premium for the sold put

option

Time decay is helpful to your trade

185


Naked (Short) Put

Simple and short term income strategy

A put is an option to sell

You sold someone the right to sell

As the stock falls, you may be obligated to buy the stock if you

are exercised

It‟s recommended that you sell puts out of the money,

which is selling a put option with a strike price lower

then the current stock price

Your outlook is bullish or neutral

186


Options Delta The amount by which an option premium moves relative to

the movement of the underlying asset

Resulting figure gives us an indication of the speed at which the option position is moving relative to the underlying asset position

Delta of 1 means the option position is moving 1 point for every point the underlying stock moves

Delta of -1 means the option position is moving -1 point for every point the underlying stock moves

Typically, at the money options move with a delta of .5 for calls and -0.5 for puts, meaning that ATM options move ½ a point for every 1 point that the underlying asset moves

187


Options Gamma Is mathematically the 2nd derivative of the underlying

asset‟s price or the 1st derivative of delta

Can be viewed in 2 ways: either as the acceleration of the option position relative to underlying stock price or as the odds of a change in probability of the option expiring ITM (odds of a change in delta)

Is effectively an early warning to the fact that delta could be about to change

Deep OTM and deep ITM options near zero gamma because the odds of a change in delta are very low

Logically, gamma tends to peak around the stock price

188


Options Theta

Stands for the option position‟s sensitivity to time

decay

Long options (options that you have bought) have

negative theta, meaning that everyday you own that

option, time decay is eroding the Time Value portion

of the options value

Shorting options, Theta is positive, indicating that time

decay is helping the option writer‟s position

189


Options Vega

Stands for the option position's sensitivity to volatility

Options tend to increase in value when the underlying

stock‟s volatility increases

Volatility helps the owner of an option and hurts the

writer of an option

190


Bear Call Spread Is an intermediate strategy that can be profitable for stocks

that are either rangebound or falling

Protects the downside of a naked call by buying a higher strike call to insure the one you sold

Both call strikes should be higher then the current stock price so as to insure a profit even if the stock does not move at all

Example: Current stock price = $20

Sell 32 calls for Sep 2010

Buy 35 calls for Sep 2010

Maximum reward = Net credit received

191


Bull Put Spread Is an intermediate strategy that can be profitable for stocks

that are either rangebound or rising

Protects the downside of a naked Put by buying a lower strike Put to insure the one you sold

Both Put strikes should be lower then the current stock price so as to insure a profit even if the stock does not move at all

Example: Current stock price = $20

Sell 28 puts for Sep 2010

Buy 25 puts for Sep 2010

Maximum reward = Net credit received

192


Long Iron Butterfly Is an intermediate strategy that can be profitable for stocks

that are rangebound

Combination of a Bull Put Spread and a Bear Call Spread

Combination of two income strategies also makes this an

income strategy

Often, traders will leg into the Long Iron Butterfly, first

trading a Bull Put Spread just below support and then as

the stock rebounds off resistance adding a Bear Call

Spread, there by creating a Long Iron Butterfly

Your outlook is direction neutral, you expect little

movement in the stock price

193


Long Iron Butterfly Example:

Stock XYZ is trading at $25 on AUG 12 2010

Buy Sep 2010 20 strike put for $0.20

Sell Sep 2010 25 strike put for $1.50

Sell Sep 2010 25 strike call for $2.00

Buy Sep 2010 20 strike call for $0.50

194


195

Long Iron Condor Is an intermediate strategy that can be profitable for

stocks that are range bound

A Variation of the Long Iron Butterfly, in fact a ccombination of a Bull Put Spread and a Bear Call Spread

Higher strike put is lower then the lower strike call in order to create the condor shape

Traders will often lag into the Long Iron Condor, first trading a Bull Put Spread just below support and then as the stock rebounds off resistance adding a Bear Call Spread there by creating the Long Iron Condor


196

Long Iron Condor Example

Stock XYZ is trading at $27.50 on AUG 12th, 2010






197

Covered Short Straddle

Most risky type of income strategy and is not recommended

Buy the stock

Sell puts with a strike price lower then where you think the stock will be at

expiration

Sell calls with the same strike and expiration

Example:

Stock XYZ is trading at $28.50 on Aug 12, 2010

Buy the stock for $28.50



Your outlook is bullish


198

Covered Short Strangle

Another risky type of income strategy but certainly an improvement on the

Covered Short Straddle

Buy the stock

Sell OTM (lower strike) puts with a strike price lower then where you think

the stock will be at expiration

Sell OTM (higher strike) calls with the same expiration date

Example:

Stock ABCD is trading at $28.50 on Aug 12, 2010

Buy the stock for $28.50

Sell Sep 2010 27.5 strike put for $1.20




199

Calendar Call

Calendar spreads are known as horizontal spreads

Calendar calls are a variation of a covered call, where you substitute the

long stock with a long term long call option instead

It reduces the investment significantly thereby increasing the initial yield

Example


Buy Jan 2012 70 strike calls at $13.00

Sell Sep 2010 70 strike calls at $2.80



200

Diagonal Call

Is a variation of a covered call, where you substitute the long stock with a

long term deep in the money long call option instead

It reduces the investment significantly thereby increasing the initial yield

Example


Buy Jan 2012 25 strike calls at $6.00

Sell Sep 2010 27.50 strike calls at $0.60



201

Calendar Put

Is the put version of the Calendar Call

Instead of buying longer term calls you buy longer term

puts

Instead of selling calls with less time to expiration you

sell puts with less time to expiration

Your outlook is neutral to bearish

Example: Stock XYZ is trading at $26.00 on Aug 12, 2010

Sell Oct 2010 25 strike puts at $2.00

Buy Dec 2010 25 strike puts at $7.00


202

Diagonal Put Is the put equivalent of the Diagonal Call

Instead of buying lower strike calls you buy higher strike

puts

Instead of selling higher strike calls with less time to

expiration, you sell lower strike puts with less time to

expiration

Your outlook is bearish


Sell Oct 2010 75 strike puts at $3.20

Buy Dec 2010 95 strike puts at $17.00


203

Covered Put

Opposite process to a Covered Call

Where as the Covered Call is bullish, the Covered Put is a

bearish income strategy

You receive a substantial net credit for shorting both the

put and the stock simultaneously to create the spread


Sell short stock for $50.00



204

Vertical Spreads

Typically defined as 2 legged option strategies with

different strike prices but the same expiration date

whereas calendar spreads or 2 legged option strategies

where both legs share the strike but not the expiration

We have covered two vertical spread income strategies in

the previous slides – the Bull Put and Bear Call spreads.

These are net credit vertical spread trades that produce a

short term income

Now we are going to cover the 2 net debit vertical spread


205

Bull Call Spread

Is a vertical strategy that creates a net debit in your

account

You buy near the money long term (typically over 6

months to expiration) call and sell a higher strike

(typically OTM) call with the same expiration

Example:

Stock XYZ is trading at $26.00 on Aug 12th , 2010

Buy March 2011 27.5 strike call for $1.50

Sell March 2011 32.5 strike call for $0.20


206

Bear Put Spread

Is a vertical spread strategy that creates a net debit in

your account

You buy near the money long term (typically over 6

months to expiration) put and sell a lower strike (typically

OTM) put with the same expiration

Example:


Sell March 2011 20 strike put for $0.35

Buy March 2011 25 strike put for $1.70


207

Bull Call Ladder

Is an extension to the Bull Call Spread

Buy lower strike calls

Sell the same number of middle strike calls with the same expiration date

Sell the same number of higher strike calls with the same expiration date

Example:



Sell Sep 2011 27.5 strike call for $0.20



208

Bull Put Ladder Is an extension to the Bull Put Spread

Buy lower strike puts

Buy the same number of middle strike puts with the same expiration date

Sell the same number of higher strike puts with the same expiration date

Example:


Buy Nov 2010 40 strike put for $1.20


Sell Nov 2010 50 strike put for $4.50


209

Bear Call Ladder

Is an extension to the Bear Call Spread

Sell lower strike calls

Buy the same number of middle strike calls with the same expiration date

Buy the same number of higher strike calls with the same expiration date

Example:


Sell Nov 2010 50 strike call for $4.20

Buy Nov 2010 55 strike call for $2.20



210

Bear Put Ladder

Is an extension to the Bear Put Spread

Sell lower strike puts

Sell the same number of middle strike puts with the same expiration date

Buy the same number of higher strike puts with the same expiration date

Example:




Buy Sep 2010 27.5 strike put for $2.25


211

Straddle

Most popular volatility strategy and the easiest to understand

You simply buy puts and calls with the same strike price and

expiration date so that you can profit from a stock soaring up

or plummeting down

Each leg of the trade has limited downside (i.e. the call for

put premium) but uncapped upside

Example:





212

Strangle

Is a simple adjustment to the straddle to make it slightly

cheaper

Instead of buying ATM options, you buy OTM calls and

puts

Creates a lower cost bases and therefore potentially

higher returns Example:


Buy Nov 2010 22.5 strike put for $0.90

Buy Nov 2010 27.5 strike call for $1.00


213

Strip

Is a simple adjustment to the straddle to make it more

biased toward the downside

Buy 2 ATM strike puts, preferably with about 3 months to

expiration

Buy 1 ATM strike call with the same expiration Example:


Buy 2 Nov 2010 25 strike put for $1.60

Buy 1 Nov 2010 25 strike call for $2.25


214

Strap

Is a simple adjustment to the straddle to make it more

biased toward the upside

Buy 2 ATM strike calls, preferably with about 3 months to

expiration

Buy 1 ATM strike put with the same expiration Example:


Buy 2 Nov 2010 25 strike puts for $1.60



215

Guts

Is a simple adjustment to the strangle, but this

adjustment makes it more expensive

Buy ITM (lower) strike calls, preferably with about 3

months to expiration

Buy ITM (higher) strike puts with the same expiration Example:


Buy Nov 2010 22.5 strike call for $4.00

Buy Nov 2010 27.5 strike put for $3.50


216

Short Call Butterfly

Is another volatility strategy and is the opposite of a Long

Call Butterfly

Sell 1 lower strike (ITM) call

Buy 2 middle strike (ATM) calls

Sell 1 higher strike (OTM) call Example:


Sell 1 Nov 2010 45 strike call for $8.00

Buy 2 Nov 2010 50 strike calls for $5.00



217

Short Put Butterfly

Is identical to the Short Call Butterfly, except that it uses

puts instead of calls

Sell 1 lower strike (OTM) put

Buy 2 middle strike (ATM) puts

Sell 1 higher strike (ITM) put Example:


Sell 1 Nov 2010 45 strike put for $3.00

Buy 2 Nov 2010 50 strike puts for $5.00



218

Short Call Condor

Is identical to Short Butterflies, with the exception that the 2 middle

bought options have different strikes

Is the opposite of a Long Call Condor


Buy 1 lower middle strike (ITM) call

Buy 1 higher middle strike (OTM) call


Stock ABCD is trading at $52.50 on Aug 12th , 2010






219

Short Put Condor

Is identical to Short Call Condor, except that it uses puts instead of calls

Is the opposite of a Long Put Condor


Buy 1 lower middle strike (OTM) put

Buy 1 higher middle strike (ITM) put

Sell 1 higher strike (ITM) put Example:







220

Short Iron Butterfly

Is the opposite of a Long Iron Butterfly


Buy 1 middle strike (ATM) put

Buy 1 middle strike (ATM) call








221

Short Iron Condor

Is the opposite of a Long Iron Condor


Buy 1 middle strike (OTM) put

Buy 1 middle strike (OTM) call








222

Short Straddle

The opposite of a long a straddle

Sell ATM strike puts, preferably with 1 month or less to

expiration

Sell ATM strike calls with the same expiration

Your outlook is direction neutral Example:





223

Short Strangle

Is a simple adjustment to the short straddle to improve the probability of a

profitable trade by widening the strikes and therefore the break even

points

Instead of selling ATM options, you sell OTM calls and puts, which means a

lower net credit but typically wider breakeven points

Sell OTM (lower) strike puts, preferably with 1 month or less to expiration

Sell OTM (higher) strike calls with the same expiration Example:





224

Short Guts

Is a simple adjustment to the short strangle that

increases the net credit

Instead of selling OTM options, you sell ITM calls and

puts, which creates a higher net credit

Sell ITM (lower) strike calls, preferably with 1 month or less to expiration

Sell ITM (higher) strike puts with the same expiration Example:





225

Long Call Butterfly

Is the opposite of a Short Call Butterfly


Sell 2 middle strike (ATM) calls

Buy 1 higher strike (OTM) call Example:


Buy 1 Sep 2010 45 strike call for $6.00

Sell 2 Sep 2010 50 strike calls for $3.00



226

Long Put Butterfly

Is the opposite of a Short Put Butterfly

Buy 1 lower strike (OTM) put

Sell 2 middle strike (ATM) puts

Buy 1 higher strike (ITM) put Example:


Buy 1 Sep 2010 45 strike put for $1.00

Sell 2 Sep 2010 50 strike puts for $3.00



227

Long Call Condor

Identical to Long Butterflies, with the exception that 2

middle bought options have different strikes

Buy 1 lower strike (ITM) call

Sell 1 lower middle strike (ITM) call

Sell 1 higher middle strike (OTM) call








228

Long Put Condor

Is the opposite of a Short Put Condor

Is quite popular because they offer a good risk/reward

ratio, together with low cost


Sell 1 lower middle strike (OTM) put

Sell 1 higher middle strike (ITM) put








229

Modified Call Butterfly

Is identical to the Long Call Butterfly with the exception

that the distance between the middle and higher strike

calls is closer then that of the lower and middle strikes

Buy 1 lower strike (ITM) call

Sell 2 middle strike (ATM) calls




Sell 2 Sep 2010 55 strike calls for $1.50



230

Modified Put Butterfly

Is identical to the Long Put Butterfly with the exception

that the distance between the middle and higher strike

puts is closer then that of the lower and middle strikes


Sell 2 middle strike (ATM) puts




Sell 2 Sep 2010 55 strike puts for $6.00



231

Collar

Is similar to a covered call but typically works over a

much longer time period and involves another leg –

buying a put to insure against the stock falling

Buy the stock

Buy ATM (or OTM) puts

Sell OTM calls Example:


Buy 100 shares at $50.00

Buy 1 March 2012 50 strike put at $8.00

Sell 1 March 2012 55 strike call at $3.00


232

Synthetic Call

Buy the stock

Buy ATM (or OTM) puts Example:



Buy 1 March 2012 50 strike put at $8.00


233

Synthetic Put

An insurance policy for covering a short position

Is the opposite of a synthetic call

Short the stock

Buy ATM (or OTM) calls Example:


Short 100 shares at $50.00

Buy 1 March 2012 50 strike call at $8.00


234

Long Call Synthetic Straddle

Straddles can be created “synthetically”

Instead of buying calls and puts together, you create the

same risk profile by combining calls or puts with a long

or short position in the stock

Short the stock

Buy 2 ATM calls Example:



Buy 2 Nov 2010 50 strike calls at $4.00


235

Long Put Synthetic Straddle


Instead of buying calls and puts together, you create the



Buy the stock

Buy 2 ATM puts Example:



Buy 2 Nov 2010 50 strike puts at $4.00


236

Short Call Synthetic Straddle


Instead of selling calls and puts together, you create the



Buy the stock

Sell 2 ATM calls Example:



Sell 2 Nov 2010 50 strike calls at $4.00


237

Short Put Synthetic Straddle


Involves selling puts and counteracting them with a short

stock position

Sell the stock

Sell 2 ATM calls Example:



Sell 2 Nov 2010 50 strike puts at $4.00


238

Long Synthetic Future


Sell an ATM put

Buy an ATM call with the same strike and expiration date Example:



Buy Nov 2010 50 strike call at $4.50


239

Short Synthetic Future


Buy an ATM put

Sell an ATM call with the same strike and expiration date Example:



Sell Nov 2010 50 strike call at $4.50


240

Long Combo

Is a variation of the long synthetic future


Sell an OTM (lower strike) put

Buy an OTM (higher strike) call with the same expiration

date Example:





241

Short Combo

Is the opposite of Long Combo


Buy an OTM (lower strike) put

Sell an OTM (higher strike) call with the same expiration

date Example:





242

Long Box

Is a complex strategy


Buy same strike (ITM) call

Buy 1 higher strike (ITM) put

Sell same strike (OTM) call Example:






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