Financial Markets Book Financial Markets For The Rest Of Us
An Easy Guide To Money, Bonds, Futures, Stocks, Options, And Mutual Funds
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by Robert Hashemian

Page 315

    automatically cancelled at the end of the day unless you cancel it before then. Good till cancelled (GTC) orders, however, remain open for a long time (e.g., 30 or 60 days) before they are automatically cancelled. Of course you can always cancel a pending (unexecuted) GTC order at any time prior to the automatic cancellation. Some brokers may only allow day orders on options trading.

Most online brokers allow you to preview your order before the order is actually submitted. Use the preview opportunity to make sure that you haven't made any mistakes as you still have a chance to back out and correct them. Once you submit your order, you may not get a chance to back out.

Combinations

As we learned from our previous discussions when you buy a call option or sell (write) a put option, you can realize a profit when the underlying stock rises in value. Also when you buy a put option or sell (write) a call option, you realize a profit when the underlying stock falls. A question that may come to mind is: can one take a position on both sides in order to realize a profit from a stock's price swings? Let's look at an example. It is early January and Ford is trading at $50, and you believe that it is headed for a volatile period where it may swing a few points on either side of $50. (Perhaps your technical charts are telling you this). One way to profit using this forecast is to buy call options and put options on Ford simultaneously and then sell each as it becomes profitable while Ford goes through its price gyrations. For example, you may decide to by 1 FAJ (January 50 call) contract followed by 1 FMJ (January 50 put). When Ford rises to, let's say, $52 you would sell the FAJ contract at a profit; when Ford falls to, let's say, $48 you would sell the FMJ contract. Regardless of the order in which Ford rises and falls,


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    Table of Contents Copyright and Disclaimer Foreword Money
    Bonds Futures Stocks Options
    Mutual Funds Retirement Final Words Appendix A

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