Secret 40 TAKE THE BET INSTEAD OF MAKING THE BET
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The option markets provide that rare opportunity for the individual
investor to be the bank, casino or legal bookie. In other
words, you have the opportunity to take the bet rather than make
the bet. Taking the bet refers to option writing—the direct opposite
of option buying. The option writer is the one who takes and
guarantees to pay off on the bet made by the option buyer.
When you go to the sports book in a casino in Nevada, the
job title of the person who takes your bet on a football or basketball
game is called a sports writer. The person who takes your
bets when you play Keno in a casino is called a Keno writer.
Now you have the opportunity to be a writer, an option
writer, where instead of buying an option, you sell an option and
the option premium (price) goes directly into your account. Now,
you have to pay off if the underlying stock or futures moves
across the strike price and into-the-money.
The beauty with an option writer over a casino or bookie is
that you have the ability to close the casino door. In other words,
you have the ability to close out your position and obligation at
any time by buying back the option.
For example, let’s say that the IBM Dec 110 call is priced at
2 when the stock price is 100. You would write this option by entering
an order to sell the Dec 110 call at 2 to open. When the
order is executed, $200 goes into your account.
However, for the $200 you are obligated to deliver 100
shares of stock at $110 a share to an option buyer if he exercises
your option. That would occur if IBM is at or above 110, especially
at expiration. If IBM is below 110, the option will expire
worthless; in either case you keep the $200. Of course, you can
close the position out at any time before expiration by buying
back the option.
Option writing can be played by all types of option investors
from the conservative to the high risk-takers and in all cases can
provide an excellent source of income. In fact, to be a professional
option trader, you must do some option writing because it
provides a consistent source of income.
The option markets provide that rare opportunity for the individual
investor to be the bank, casino or legal bookie. In other
words, you have the opportunity to take the bet rather than make
the bet. Taking the bet refers to option writing—the direct opposite
of option buying. The option writer is the one who takes and
guarantees to pay off on the bet made by the option buyer.
When you go to the sports book in a casino in Nevada, the
job title of the person who takes your bet on a football or basketball
game is called a sports writer. The person who takes your
bets when you play Keno in a casino is called a Keno writer.
Now you have the opportunity to be a writer, an option
writer, where instead of buying an option, you sell an option and
the option premium (price) goes directly into your account. Now,
you have to pay off if the underlying stock or futures moves
across the strike price and into-the-money.
The beauty with an option writer over a casino or bookie is
that you have the ability to close the casino door. In other words,
you have the ability to close out your position and obligation at
any time by buying back the option.
For example, let’s say that the IBM Dec 110 call is priced at
2 when the stock price is 100. You would write this option by entering
an order to sell the Dec 110 call at 2 to open. When the
order is executed, $200 goes into your account.
However, for the $200 you are obligated to deliver 100
shares of stock at $110 a share to an option buyer if he exercises
your option. That would occur if IBM is at or above 110, especially
at expiration. If IBM is below 110, the option will expire
worthless; in either case you keep the $200. Of course, you can
close the position out at any time before expiration by buying
back the option.
Option writing can be played by all types of option investors
from the conservative to the high risk-takers and in all cases can
provide an excellent source of income. In fact, to be a professional
option trader, you must do some option writing because it
provides a consistent source of income.