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 311

but you must also maintain enough funds (in cash or stocks) in your account to cover the potential losses as a result of writing puts. Check with your broker for qualification specifics. Many brokers, however, do not allow writing naked calls. It is easy to see why. Again with naked puts, the loss stops if by some chance the underlying stock plunges to $0. With naked calls, however, the potential loss is unlimited, as there is no limit on how high the underlying stock could go.

Trading Options - Order Specifications

What items do you need to specify for your broker in order to trade an option? First, you must know what option you want to trade. For that you would either need to know the option's symbol or at least the option's specs. When you want to trade a Ford stock, you may refer to it as Ford or just F. For Ford options though, as an example, you could say Ford January 50 call or FAJ. If you are trading online you would most likely need to provide the symbol, but your broker's Web site would certainly provide you with an easy way to find the option symbols you want to trade. The following is a list of what you need to specify to enter an option order:

Type Of Trade - There are four types:
  • Buy Open - you want to buy call or put options (going long).
  • Sell Open - you want to write call or put options (going short).
  • Buy Close - you want to settle some or all options you had previously written (using sell open) by buying them.
  • Sell Close - you want to settle some or all options you had previously bought (using buy open) by selling them.

So if you are just buying and selling options you would specify buy open and sell close. If you want to write options, you would specify sell open. And if you wanted to settle your written options, you would specify buy close.


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    Table of Contents Copyright and Disclaimer Foreword Money
    Bonds Futures Stocks Options
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