What Are LEAP Options?
British Pound is known to be a stable currency. Great Britain is a strong economy. But, Great Britain was finding it difficult to stay within the tight exchange rate band set by the European Monetary Union (EMU) in the early'90s. One person who made history with options was George Soros who is famously known as the man who broke the Bank of England.
George Soros is a famous name in the world of investing. He had always believed in contrarian investing. Contrarian investing means doing exactly opposite of what the crowd is doing. George Soros had this intuition that the Bank of England would be forced to devalue British Pound. So he bought call options on German Marks and put options on British Pound. He made a bet of $10 Billion by leveraging all the assets in his hedge fund.
Bank of England had made a number of public statements regarding its intention of staying within the EMU. However, within a few days of the speculative attack on the British Pound, Bank of England was brought to its knees as it was unable to sustain the immense selling pressure on the British Pound. Bank of England was forced to devalue British Pound in view of the speculative attack on the British Pound.
In a matter of a few days, George Soros made a cool $1 Billion profit on his bet. Can you make such a bet? Maybe not but this one example show the immense power options have if used correctly. Options are risky; there should be no doubt about it.
Most people who trade options lose money, plain and simple. Options give you the right to buy or sell an underlying security like stocks, futures, commodities or currencies at a price before a certain date. This price is known as the Strike Price. This date is known as the Expiry Date. However, in European Style options you can only buy or sell on the expiry date not before that.
Trading options without training is risky. You need to learn the Options Greeks. One of the important things that you need to learn while trading options is the importance of time factor. Time factor is very important when valuing an option. Further out the options contract is from expiration, you will have to pay a higher premium. As the options contract approaches the expiration date and if it is out of money, it loses its value very fast.
LEAP options are basically long term options. Leap options can help you profit over the long haul. You can use LEAP options in options strategies like the covered calls, straddles, spreads and so on. LEAP stands for long term equity anticipation. It basically means that the option is much like the regular option except that the timeframe to expire is greater than 1 year.
LEAP options are risky because the option writer usually demands a hefty premium for taking on the long term risk. However, LEAP options can be incredibly profitable if used correctly. The buyer of the LEAP options has the right to exercise the option prior to expiration should the price of the underlying stock move in the money.
See, closer the out of money option is to expiration, faster its value drops. What this means is that the buyer of the options loses the premium that was paid for getting the right to buy or sell the underlying security. LEAP options can be a great trading vehicle for swing traders as they mitigate some of the time decay that is inherent in short term options. - 23208
George Soros is a famous name in the world of investing. He had always believed in contrarian investing. Contrarian investing means doing exactly opposite of what the crowd is doing. George Soros had this intuition that the Bank of England would be forced to devalue British Pound. So he bought call options on German Marks and put options on British Pound. He made a bet of $10 Billion by leveraging all the assets in his hedge fund.
Bank of England had made a number of public statements regarding its intention of staying within the EMU. However, within a few days of the speculative attack on the British Pound, Bank of England was brought to its knees as it was unable to sustain the immense selling pressure on the British Pound. Bank of England was forced to devalue British Pound in view of the speculative attack on the British Pound.
In a matter of a few days, George Soros made a cool $1 Billion profit on his bet. Can you make such a bet? Maybe not but this one example show the immense power options have if used correctly. Options are risky; there should be no doubt about it.
Most people who trade options lose money, plain and simple. Options give you the right to buy or sell an underlying security like stocks, futures, commodities or currencies at a price before a certain date. This price is known as the Strike Price. This date is known as the Expiry Date. However, in European Style options you can only buy or sell on the expiry date not before that.
Trading options without training is risky. You need to learn the Options Greeks. One of the important things that you need to learn while trading options is the importance of time factor. Time factor is very important when valuing an option. Further out the options contract is from expiration, you will have to pay a higher premium. As the options contract approaches the expiration date and if it is out of money, it loses its value very fast.
LEAP options are basically long term options. Leap options can help you profit over the long haul. You can use LEAP options in options strategies like the covered calls, straddles, spreads and so on. LEAP stands for long term equity anticipation. It basically means that the option is much like the regular option except that the timeframe to expire is greater than 1 year.
LEAP options are risky because the option writer usually demands a hefty premium for taking on the long term risk. However, LEAP options can be incredibly profitable if used correctly. The buyer of the LEAP options has the right to exercise the option prior to expiration should the price of the underlying stock move in the money.
See, closer the out of money option is to expiration, faster its value drops. What this means is that the buyer of the options loses the premium that was paid for getting the right to buy or sell the underlying security. LEAP options can be a great trading vehicle for swing traders as they mitigate some of the time decay that is inherent in short term options. - 23208
About the Author:
Mr. Ahmad Hassam is a Harvard University Graduate. Learn Candlestick Charting! Know Fibonacci Retracement!
posted by X - Men @ 1:36 AM
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