Options Trading

Option Trading Overview

An option is a contract that allows the buyer the right to buy or sell an asset within a specific time period. If the asset doesn’t perform as anticipated, the trader can let the option expire without being obligated to purchase the asset outright. Options are versatile securities that can be an alternative to trading equities or used as a mechanism to mitigate risk in an equity position. Day trading options caters to many different types of traders, as options can be as speculative or conservative as the trader’s strategy needs them to be.

 

About the Options Marketplace and Options Trading Strategies

The options market’s versatile appeal generates volume. The global options market saw over 5.6 billion options contracts traded or cleared in the first six months of 2012. Day trading options only makes up a small portion of the global market. But to those who choose to day trade options, they usually make up a valuable piece of their overall investment strategy. Those looking to start day trading options do so to either:

  • Speculate: These traders are looking to profit of the price movement of the underlying asset. Day trading options allows traders to invest in the asset’s increase or decrease in value and move hundreds of shares with a single options contract. The problem lies in all the moving parts: a successful options deal needs the trader to identify what asset will move, by how much, and when will the movement take place.
  • Or Hedge: Day trading options, for many traders, is an insurance policy. Traders can buy an options contract to insure their investments against losses. By entering into an options contract that counters their investment, the trader makes a small investment to drastically limit the downside. Since traders aren’t under an obligation to purchase under an option contract, it’s a cost-effective way to manage risk.

 

Wall Street Trading’s Approach to Options Trading

Wall Street Trading’s day trading school teaches traders to capitalize on market volatility through the versatility of options. Our traders will learn how to protect their equity position from losses by hedging with options. Our traders learn options trading strategies that maximize profits by taking advantage of sudden moves in the markets and indexes. Any day trading school needs to show traders how to use options to generate and protect profits, and that’s exactly what we do!

 

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You should consider the following points before engaging in a day-trading strategy. For purposes of this notice, a “day-trading strategy” means an overall trading strategy characterized by the regular transmission by a customer of intra-day orders to effect both purchase and sale transactions in the same security or securities.

Day trading generally is not appropriate for someone of limited resources and limited investment or trading experience and low risk tolerance. You should be prepared to lose all of the funds that you use for day trading. In particular, you should not fund day-trading activities with retirement savings, student loans, second mortgages, emergency funds, funds set aside for purposes such as education or home ownership, or funds required to meet your living expenses.

You should be wary of advertisements or other statements that emphasize the potential for large profits in day trading. Day trading can also lead to large and immediate financial losses.

Day trading requires in-depth knowledge of the securities markets and trading techniques and strategies. In attempting to profit through day trading, you must compete with other professional, licensed traders employed by securities firms. You should have appropriate experience before engaging in day trading.

You should be familiar with a securities firm’s business practices, including the operation of the firm’s order execution systems and procedures. Under certain market conditions, you may find it difficult or impossible to liquidate a position quickly at a reasonable price. This can occur, for example, when the market for a stock suddenly drops, or if trading is halted due to recent news events or unusual trading activity. The more volatile a stock is, the greater the likelihood that problems may be encountered in executing a transaction. In addition to normal market risks, you may experience losses due to system failures.

Day trading involves aggressive trading, and generally you will pay commissions on each trade. The total daily trading fees that you pay on your trades will add to your losses or significantly reduce your earnings.

When you day trade with funds borrowed from a firm or someone else, you can lose more than the funds you originally placed at risk. A decline in the value of the securities that are purchased may require you to provide additional funds to the firm to avoid the forced sale of those securities or other securities in your account. Short selling as part of your day-trading strategy also may lead to extraordinary loses, because you may have to purchase a stock at a very high price in order to cover a short position.

All proprietary traders must submit fingerprints and Form U4 (Uniform Application for Securities Industry Registration or Transfer), and have trading privileges as an associated person of WTS Proprietary Trading Group, LLC.  Before beginning to trade, all traders must have either a Series 56 or Series 7 license. WTS will sponsor traders to get a license.

There are special risks associated with uncovered option writing that expose the investor to potentially significant losses. The writer of an uncovered call may incur large losses if the value of the underlying security exceeds the exercise price; and the writer of an uncovered put may incur large losses if the value of the underlying security declines below the exercise price. Uncovered option writing is not suitable for everyone. The strategy is only for the knowledgeable investor who understands the risks, has the financial capacity and willingness to incur potentially substantial losses, and has sufficient liquid assets to meet applicable margin requirements.

Proprietary traders may be required to make initial capital contributions in order to become a Class C Member of WTS Proprietary Trading Group, LLC. There is no guarantee that the trader will be successful and these capital contributions may be lost.

Proprietary traders are not customarily paid any salaried compensation. Instead, traders are entitled to distributions based upon profits from their trading – pursuant to their Class C interests in the firm.