Uncovered Options Trading System
Ask: Ask is the price level of an offer, as in bid-ask spread. The ask price is a price at which that a trader is willing to sell an owned conmoddity.
Bid: Bid is an expression of willingness to buy a commodity at a given price. This is an offer to buy a specific quantity of a commodity at a stated price. Bid is opposite to Ask. Bid price is the price level at which a trader is ready to buy an offered commodity.
Call: There are three meaning of the "Call" term. It could be:
1) An option contract giving the buyer the right but not the obligation to purchase a commodity or other asset or to enter into a long futures position;
2) a period at the opening and the close of some futures markets in which the price for each futures contract is established by auction;
3) the requirement that a financial instrument be returned to the issuer prior to maturity, with principal and accrued interest paid off upon return.
Day Trader: A trader who takes positions and then offsets them during the same trading session prior to the close of trading.
Liquidity: Liquidity (Liquid Market) is a characteristic of a security or commodity market with enough units outstanding and enough buyers and sellers to allow large transactions without a substantial change in price.
Low: Low is the lowest price of the day for a particular futures or options on futures contract.
Offer: Offer is an indication of willingness to sell futures contract at a given price. Offer is opposite of bid, the price level of the offer may be referred to as the ask.
Position Trader: Position Trader is a trader who either buys or sells contracts and holds them for an extended period of time, as distinguished from a day trader. Position Trader will normally initiate and offset a futures position within a single trading session.
Ring: Ring is a circular area on the trading floor of an exchange where traders and brokers stand while executing futures trades. Some exchanges use pits rather than rings.
Short: Short (shorting) is the selling side of an open futures contract.
Spread: Spread (Also referred to as Straddle) is the purchase of one futures delivery month against the sale of another futures delivery month of the same commodity; the purchase of one delivery month of one commodity against the sale of that same delivery month of a different commodity; or the purchase of one commodity in one market against the sale of the commodity in another market, to take advantage of a profit from a change in price relationships. The term spread is also used to refer to the difference between the price of a futures month and the price of another month of the same commodity. A spread can also apply to options.
A spread is the simultaneous purchase and sale of the same or similar commodity, in different or the same contract months. Spread trading is usually considered to be a lower risk strategy than an outright long or short futures position, and therefore margin requirements are usually less.
Not only can spreads be utilized in futures markets, but options provide even more opportunities for successful spread trading. With so many variables including strike prices, trading months, and different markets available, the permutations and combinations of option strategies are tremendous.
Some of the advantages of spreads are:
- require smaller margin deposits;
- lower risk
- seasonal patterns exist among spread relationships.
Transaction: Transaction is an entry or liquidation of a trade.
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Naked options trading is very risky - many people lose money trading them. It is recommended contacting your broker or investment professional to find out about trading risk and margin requirements before getting involved into trading uncovered options.