Looking to invest your money in the stock market? While leaving your money there for a few years can yield a ten percent return, real traders know that actively trading and using derivatives is the way to make a significant profit while minimizing risk.
Derivatives are contracts between two parties that are based on the price of a financial asset, such as a stock or bond. The value of the derivative is derived from the current asset value, but it is not equal to it. Essentially, derivatives allow traders to make calculated hypotheses about whether an asset's price will go up or down.
Successful traders don't gamble. By using technical analysis, we can generally predict when an asset's price will increase or decrease in value. This makes short-term day trades relatively easy. However, predicting long-term results is more difficult, which is why derivative payoffs are often higher.
If you're new to trading, you may be unfamiliar with chart patterns, which are used in technical analysis. These graph shapes can indicate buy and sell activities. Visit Trading 101 to learn more about chart patterns and how they can help you succeed in the stock market.
Understanding the Basics: Put and Call Options
If you're new to trading, it's important to understand stock options, one of the most common derivatives. Options are agreements that allow you to buy or sell a specific security at a predetermined price on or before a particular date. There are two types of options: put and call. Think of the put as an option to sell and the call as an option to buy.
The agreed-upon price at which the underlying security will be bought or sold is called the "strike price." Remember this term as we'll be referring to it again in the sections below. While this may seem elementary to some of you, don't worry as this lesson will become more complex as we progress.
If you're a beginner, take some time to study puts and calls. You can start by checking out our Trading Options section. What we've explained here are just the basics. Tickeron has a comprehensive knowledge base on trading that includes techniques for using options correctly.
Another derivative similar to options is a warrant. Warrants function similarly to options but are issued by companies rather than exchanges. They can be used to hedge against downside risks. Warrants are common in Hong Kong and certain European countries.
Strike Price and Break-Even Prices on Call Options
Looking to trade options? Here's what you need to know: buying an option costs significantly less than purchasing the underlying stock itself. In fact, options are sold in lots of one hundred, meaning that for an option worth $1, you can purchase one hundred shares for just $100. This amount is then added to the current value of those shares to determine the break-even price.
For instance, let's consider buying a call option on XYZ Company. If the stock is currently priced at $10 a share, you could purchase a call option at $1 per share, with a strike price of $11. If the stock reaches $11 before the option's expiration date, you can exercise the option. However, keep in mind that you won't make a profit - you'll only break even.
To be successful in options trading, it's crucial to focus on the break-even price rather than the strike price. When setting up your transaction on your trading platform, make sure to examine both numbers. Seek out strike prices below the asset's current value, with a reasonable options price. With these key considerations in mind, you'll be on your way to making informed decisions in the exciting world of options trading.
Hedging Your Stock Buys with Put Options
Looking to trade options? Don't let fear of losing hold you back. With options, the potential upside is often much greater than the downside. Take the example of XYZ stock: if it goes up to $12 a share, you could make a 100% return on your investment in just a few days. And if it doesn't go your way, the most you can lose is the price you paid for the option.
But what about put options, which allow you to sell a stock at a certain price? Even if you think the stock will go up, it's always wise to have a plan in case things don't go as expected. With a put option, you can limit your potential losses while still benefiting from any gains.
For instance, let's say you buy 100 shares of XYZ at $10 each, spending $1000. Then, you buy a put option with a strike price of $10 as well, costing you $100. If the stock goes down, you can exercise the option and sell it at the strike price, limiting your losses to just $100. And if the stock goes up, you still have the potential for a capital gain on the stock, even if you lose the $100 you spent on the put.
In short, options can be a powerful tool for traders, both for potential gains and for risk management. Don't be afraid to explore your options and find the strategies that work best for you.
The Leverage Advantages of Futures Contracts
Options provide flexibility, allowing you to either exercise them or let them expire and take the loss. Futures contracts come in two sizes: standard contracts with a 250x multiplier, and mini contracts that are traded at one-fifth of that size.
Because futures contracts involve a large obligation and allow traders to buy and sell them for significantly less than their cash value, they offer a high degree of leverage. This leverage can boost profits, but it can also lead to substantial losses.
Corporations often purchase futures contracts to lock in the price of commodities needed for production, while traders use them for speculation and to diversify their trading efforts. Betting on prices to go up is referred to as going "long," while speculating on a decline is known as taking a "short" position.
Simplifying the Math for Derivatives
If you're new to derivatives trading, it's normal to feel a bit overwhelmed by the complexity of it all. However, at its core, derivatives trading is simply a matter of weighing risk versus reward. It's like hedging your bets, ensuring that you're prepared for whatever the market may throw your way. Of course, predicting market trends is never foolproof, but traders often use technical analysis to gain insight into what might happen next.
Consider this scenario: XYZ Company's shares are currently trading at $10 each, but this is below their previous high of $12 from just a month ago. Based on past performance, there was a drop right before that spike. If the stock's previous value was $8, you could be looking at the tail end of a head and shoulders chart pattern, which is a bullish buy indicator. However, this pattern could also be upside down, indicating a bear market instead.
So, what should you do? The answer is to hedge with options. If your analysis indicates that the stock will go up, you can buy the position. At the same time, you can purchase a put option on the current value to minimize potential losses. This way, you'll either lose the price of the put or make money on the stock trade – the math is simple.
While derivatives trading can be daunting, there are ways to manage risk and improve your chances of success. By staying informed and using tools like options, you can make smarter, more informed decisions in the market.
Diversifying a Portfolio by Hedging with Derivatives
Looking to place a bet on a horse race with two favorites? The same principle applies to the current pharmaceutical race to develop a Covid-19 vaccine on Wall Street. With Moderna (MRNA) and AstraZeneca (AZN) leading the way, experts recommend betting on both to increase your chances of success.
Investing in the stock market can be an exciting and potentially lucrative endeavor. Moderna and AstraZeneca are two pharmaceutical companies that have been making headlines recently. Moderna's chart pattern shows several pennants and flags, which can be good indicators for active traders. Meanwhile, AstraZeneca is currently coming out of a second cup and handle formation, and on a slight downslope to enter a third.
However, it's important to keep in mind that investing always comes with a certain level of risk. While successful completion of a working vaccine could potentially launch the winning company's stock into the stratosphere, there are no guarantees. That said, for those who are willing to take the risk, one strategy could be to buy long options on both Moderna and AstraZeneca. This way, if one company's stock does take off, it could result in significant profits, while the other may result in a minimal loss. As always, it's important to do your research and consult with a financial advisor before making any investment decisions.
Hedging for Market-Moving Events
As the United States gears up for a presidential change, experts are bracing for potential market turbulence in November. While technical analysis may not definitively predict this outcome, it's a valid concern that should not be ignored. Fortunately, savvy traders can take proactive measures to safeguard their investments. One option is purchasing put options to hedge against potential losses, while another is investing in S&P Futures contracts for added security.
A similar trend can be observed when comparing Brent Oil (BNO) to electric vehicle (EV) stocks. Historically, when oil prices drop, EV stocks tend to soar. While this correlation may seem anecdotal, it's a phenomenon worth exploring for traders looking to diversify their portfolio. It's worth noting that while oil stocks are often favored by day traders, EV stocks could serve as a hedge against potential losses.
The unprecedented global pandemic of 2020 caused economic turmoil and strained healthcare systems worldwide. While this presented new challenges for hospitals and healthcare providers, it also created unique opportunities for traders who capitalized on market volatility. For example, call option holders on Amazon, Netflix, and Shopify were able to make millions during the pandemic-induced shutdown. With the market constantly in flux, it's essential for traders to remain vigilant, adaptable, and open to new possibilities.
Learn More about Derivatives at Tickeron
If we've done our job correctly, you're now ready to delve deeper into the world of derivatives. This article serves as a starting point, but it only scratches the surface of what you can accomplish by trading options, futures, and warrants.
For a more comprehensive understanding, we recommend reading our section on trading options. As a beginner, it's crucial to review and digest all the material in that section before venturing into this market. However, with proper preparation, trading options can be a lucrative endeavor. So, get started with the basics and unlock the potential for great returns.
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The RSI Indicator for AAPL moved out of oversold territory on March 19, 2025. This could be a sign that the stock is shifting from a downward trend to an upward trend. Traders may want to buy the stock or call options. The A.I.dvisor looked at 23 similar instances when the indicator left oversold territory. In of the 23 cases the stock moved higher. This puts the odds of a move higher at .
The Momentum Indicator moved above the 0 level on March 25, 2025. You may want to consider a long position or call options on AAPL as a result. In of 69 past instances where the momentum indicator moved above 0, the stock continued to climb. The odds of a continued upward trend are .
The Moving Average Convergence Divergence (MACD) for AAPL just turned positive on March 25, 2025. Looking at past instances where AAPL's MACD turned positive, the stock continued to rise in of 45 cases over the following month. The odds of a continued upward trend are .
Following a 3-day Advance, the price is estimated to grow further. Considering data from situations where AAPL advanced for three days, in of 348 cases, the price rose further within the following month. The odds of a continued upward trend are .
AAPL may jump back above the lower band and head toward the middle band. Traders may consider buying the stock or exploring call options.
The Aroon Indicator entered an Uptrend today. In of 366 cases where AAPL Aroon's Indicator entered an Uptrend, the price rose further within the following month. The odds of a continued Uptrend are .
The Stochastic Oscillator entered the overbought zone. Expect a price pull-back in the foreseeable future.
AAPL moved below its 50-day moving average on March 10, 2025 date and that indicates a change from an upward trend to a downward trend.
The 10-day moving average for AAPL crossed bearishly below the 50-day moving average on March 10, 2025. This indicates that the trend has shifted lower and could be considered a sell signal. In of 18 past instances when the 10-day crossed below the 50-day, the stock continued to move higher over the following month. The odds of a continued downward trend are .
Following a 3-day decline, the stock is projected to fall further. Considering past instances where AAPL declined for three days, the price rose further in of 62 cases within the following month. The odds of a continued downward trend are .
The Tickeron Profit vs. Risk Rating rating for this company is (best 1 - 100 worst), indicating low risk on high returns. The average Profit vs. Risk Rating rating for the industry is 82, placing this stock better than average.
The Tickeron SMR rating for this company is (best 1 - 100 worst), indicating very strong sales and a profitable business model. SMR (Sales, Margin, Return on Equity) rating is based on comparative analysis of weighted Sales, Income Margin and Return on Equity values compared against S&P 500 index constituents. The weighted SMR value is a proprietary formula developed by Tickeron and represents an overall profitability measure for a stock.
The Tickeron PE Growth Rating for this company is (best 1 - 100 worst), pointing to outstanding earnings growth. The PE Growth rating is based on a comparative analysis of stock PE ratio increase over the last 12 months compared against S&P 500 index constituents.
The Tickeron Seasonality Score of (best 1 - 100 worst) indicates that the company is fair valued in the industry. The Tickeron Seasonality score describes the variance of predictable price changes around the same period every calendar year. These changes can be tied to a specific month, quarter, holiday or vacation period, as well as a meteorological or growing season.
The Tickeron Price Growth Rating for this company is (best 1 - 100 worst), indicating fairly steady price growth. AAPL’s price grows at a lower rate over the last 12 months as compared to S&P 500 index constituents.
The Tickeron Valuation Rating of (best 1 - 100 worst) indicates that the company is significantly overvalued in the industry. This rating compares market capitalization estimated by our proprietary formula with the current market capitalization. This rating is based on the following metrics, as compared to industry averages: P/B Ratio (35.461) is normal, around the industry mean (90.559). P/E Ratio (26.429) is within average values for comparable stocks, (41.858). Projected Growth (PEG Ratio) (2.092) is also within normal values, averaging (1.781). Dividend Yield (0.006) settles around the average of (0.095) among similar stocks. P/S Ratio (6.925) is also within normal values, averaging (78.268).
The average fundamental analysis ratings, where 1 is best and 100 is worst, are as follows
a manufacturer of mobile communication, media devices, personal computers, and portable digital music players
Industry ElectronicsAppliances