A complete list is available on the firm's website.
Trading volumes for stocks have also increased during the past 30 days, as has the number of unique traders, which saw a single-day record set in April. Throughout the spring and summer, the firm is showcasing each option strategy in a series of videos, blog posts, and strategy profiles in its community, the Exchange.
Already published are profiles of married put s and covered call s. Questrade Inc. About Questrade: Questrade Inc. Since , the company has led the industry in delivering outstanding service, exclusive products and services, and competitive pricing. This commitment to innovation has appealed to independent investors, and for the past two years, the company has ranked as Canada's fastest growing online brokerage. The value of the option would slowly dwindle down to ZERO by the expiry date.
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The reason it has any value at all during this time is due to the fact that the further away we are from the expiry date, the more chance there is of ABC getting to its strike price. Actually, now is a good time to make a segway about the pricing of options. The price of an option is made up of two components:. The Intrinsic Value of the Option is quite easy to calculate.
Simple as that. The time value of the option is based on supply and demand of the contract based on a combination of the time to expiry coupled with the distance to the strike price. Okay, so back to our example, if ABC never appreciates or in other words, never gets to the strike price then the option contract will expire worthless! In this case you still have your entire principal. Well, by now you should realize that unless ABC is in the money by the expiry date of the option contract, the option contract will expire worthless no matter what.
So the absolute loss is greater than with the traditional method in this case. Okay, so now you have seen the mechanics behind how call options work. I think I have presented a balanced view of how they can work or backfire for an investor. So who buys options? Well there are two main reasons for buying call option contracts. If you have a theory or a speculation that a stock is going to appreciate, buying an option allows you to leverage your long position in that stock for a quick and large gain, in theory. In reality when you are buying a stock option call or put, you are in fact paying a hefty premium and particularly in times like today in which the volatility is at peak as also reflected on the VIX which measures volatility expectations by measuring the premium rates on puts — if the VIX is high it means that put premiums are high.
As of today, taking significant positions will be very expensive to do and while your loss in buying options is capped you still have a spread to beat. The best way is to explain this concept is with an example.
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If you are an ETF indexer , there is a high probability that you own XIU, but how do you use puts to protect it against depreciation in the event of a market meltdown? Below you can find a simple advantage on how to use put options to mitigate risks written in , but still relevant today :. If I go to the options quotation section of my account, I see listings for various XIU put options at specific strike prices and associated premiums.
Of course, the higher the strike price, the higher the premium and vice versa. What does this mean for the put option? What kind of profit would I have? Doing the calculations, it would be:. The investor can sell the option itself at any time before or on expiration without purchasing the underlying shares as most do. What is the risk? However, is that a bad thing? It simply means that the underlying index is still strong, and that your insurance was not used.
Introduction to trading options
You are either trying to defend your long portfolio by betting in the opposite direction, or simply making a speculation. So you buy put options for a strike for Jan 15, Instead of instructing your broker to sell when your stock gets to a certain point, you can just WRITE or SELL a call option and pick up some additional revenue the price you get for the contract to boot.
When the stock reaches the strike price, the option holder will exercise their right to buy the shares and you will be forced to sell — again: great if you were instead planning on setting a limit sell order. In fact, the gain could be higher if the call option expires before reaching the stock price. If that were the case, you would keep writing the call options on an ongoing basis and keep pocketing the premiums along the way. Many investors will just keep writing covered calls and collecting the premiums over and over again.
When a contract expires, they will turn around and write another one. You can see from this example that if the stock moves significantly, your losses can be extreme! The world of options is an interesting one. And there are MANY other option strategies that we have not mentioned — some for engaging large amounts of leverage and enhancing returns, and some for mitigating risk by hedging your portfolio or through other means. For an option-based portfolio you should also consider Interactive Brokers. Although this description may be specific to Questrade, it should be very similar to other interfaces at least it is with CIBC and iTrade.
Trading with margin
Not all stocks have underlying options, for the most part, the stocks with underlying options are large blue chips with fairly high volume. Symbol : The symbol is straight forward, which is simply the stock symbol for the underlying stock that you want to trade options with.
From there, click the magnifying glass to get the options quote and options symbol which brings up the table below. Read further down for details on how to decipher this table. Reading the table : Options expire every third Friday of the month, which is the contract date above. In this example, I chose the June expiry which displays corresponding quotes for each option available.
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However, if the stock closes lower than the strike price, then the option will simply expire and I get to keep my shares and the premium! Contracts : One contract equals shares of the underlying stock. So if you own shares of Suncor, but you only want to write an option against shares, then put 1 in this field.
Note that the bid is what the buyer is willing to pay, while the ask is what the seller is willing to sell for. Stops are typically used to automatically sell a position should it fall to a pre-determined price. Transaction : This is where some investors can get confused. This simply means that you are selling the option to open the position.
Duration : This is the duration that the order will remain open if not executed immediately. Day will keep the order open until the end of the trading day and Good Till Canceled GTC will remain open until manually canceled.
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Even if they do, I always leave it on auto. If you have any questions, or anything to add, please leave them in the comments. Speculation and Hedging are the two main reasons for using derivatives.
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Speculation is the taking on of risk, and hedging is the reduction of risk. Within both broad categories, there are varying degrees of each. The Equity Collar is very much a hedging strategy designed to reduce risk. Perhaps as a means to facilitate understanding I will start with an investor profile and then work in the strategy as a solution to her problem. The markets have pulled back recently, and Sally is unsure if we have hit bottom or if there is more downside to the markets. This now protects her from losses in her portfolio up until the expiry date of the option which in her case would be 9 months from now.
Therefore she protected her portfolio from loss. Of course, as with any insurance there is a cost involved which I have omitted up to this point.