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Chapter 1. Introduction to Options > Chapter 1 Major Learning Points

Chapter 1 Major Learning Points

Remember the six major prerequisites:

  • patience

  • perseverance

  • knowledge

  • honesty

  • pre-planning

  • discipline

Start to build a plan. The plan should encompass the following:

1.What stocks or other assets should I be considering for successful trading?
2.What direction do I feel comfortable trading in (up or down)? Could I consider trading put options if a stock or the market is falling?
3.Have I checked the news items for the particular asset I am trading? Are quarterly or other results out soon? Is there a major announcement from the government out soon? Could these announcements affect my trade? Can I use them to enhance my position, or shall I wait until the announcements are made?
4.Do I want to check whether this company makes money and other Fundamental Analysis?
5.Have I checked the graphs and done any Technical Analysis? Am I missing something obvious like a basic Double Top or Triple Top chart pattern?
6.What strategy and risk profile do I feel comfortable with trading?
7.For each trade, what is my entry point, exit point, and time of exit?
8.Do I know my Risk, Reward, and Break-even Points?
9.What price am I looking for to execute my trade?
10.Where do I take my profits, and where is my STOP LOSS?

We’ll review this list as we go along every chapter. So far, the main questions you should be able to start to consider are those in bold. By the end of the book, you’ll be able to answer all of them and begin to build your own plan.

You have now learned what the essential risk profiles look like and what they mean to you in terms of maximum risk and reward.

Buy assetPurchase priceUnlimitedPurchase price
Sell assetUnlimitedShort sale priceShort sale price
Buy callCall premiumUnlimitedStrike Price plus call premium paid
Sell callUnlimitedLimited to the call premium receivedStrike Price plus call premium paid
Buy putPut premiumStrike Price less put premium paidStrike Price less put premium paid
Sell putStrike Price less put premium receivedLimited to the put premium receivedStrike Price less put premium paid

We can now progress to Chapter 2, “Into the Marketplace,” where we start to explore the reality of trading options with real numbers.

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