Registered User
Joined: 3/16/2005
Posts: 36
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I am currently using Ameritrade to trade options, and actually I am new to this, and have limited amount of capital. I learned that covered calls are the most basic stategy. What do you guys recommend?
thank you
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Registered User
Joined: 12/19/2004
Posts: 457
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First, I recommend a new option broker. If you want to do anything more complex then buy calls or puts, you will have to use Ameritrade's telephone order system. That is going to increase your commissions significantly.
Second, you need to get spread approval. Without it, you are only going to be increasing your commission costs if you decide to do covered calls. With Ameritrade, you can enter a buy write order via the net, but if you wish to adjust the position, you will have to enter 2 separate orders--one to close the option position, the second to open a new one. Of course, they charge for each one, as far as I know.
Spread trading is very helpful when you want to lower the risk on an initial position, or an already profitable position. Ameritrade makes options trading very difficult.
I don't even bother with my ameritrade account. I moved most of my money over to OptionsXpress. They have better data, and better web order entry methods.
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Registered User
Joined: 3/9/2005
Posts: 71
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Hedging your plays is very wise. Spread trades are needed to do that. Look at NFI 2004 in March - April. You do not want to be without a known limited bottom or top if it goes against you. Things happen way too fast in the market without any warning. If you buy NFI at 58 +/- in March 11th or so, write a covered call and wake up on April 14th (stock now around 38 +/-) wondering how much you are going to make, I suggest calling someone for anxiety attack help first! This is why I do not do "covered calls". Do not let taxicab drivers persuade you to - NEVER! They will not appologize for damages either...guaranteed! A spread trade type situation will define the limited or max loss / gain. There are two main type to understand, beaR call or beaR put and Bull call or Bull put.
These kind of strategies I have found to be most often useful. There are about 26 main theory option strategies and these are just a few of them. The understanding of these strategies should not cost to learn about them so watchout is someone wants to sell you a $2000 dollar video package on them.
Rob
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