Difference Between Option�s Volume and Open Interest

In stock trading, you measure stock market activity & liquidity by volume. In options trading, there are two measurements: Open Interest & Volume.Unlike in stock trading, whereby there is a fixed number of shares to be traded (i.e. number of outstanding shares), in options trading, new option contracts need to be created when a trade is placed and there is no existing contract yet. When a new expiration month initiated, there is no open interest because there are no option contracts being traded for that month yet. As trading builds up, open interest will also increase. Now, what is Open Interest?Open interest is the total number of option contracts that are still open (i.e. have not yet been exercised, or have not been closed out by an offsetting transaction, or have not expired).Open...

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Links Of The Week

Check out some great posts on the analysis / view of the past week's market action:* Trader Mike provided his perspective & analysis on Thursday�s market sell-off.* Kirk�s Report & Dr. Duru�s opinion on market condition of the past week.And here are some trading educational posts:* How to Trade the Piercing Candlestick Pattern by TAZ Trader.* When Traders Lose Confidence � Part 1 & Part 2 � by Dr. Brett Steenbarg...

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Link: The Fear Of Losing Money

Chris Perruna recently wrote a good article on �The Fear of Losing Money�.I believe all traders, both successful and unsuccessful traders, will have this kind of fear. I think this fear is normal, particularly for those who trade using their own hard-earned money. However, what differentiate between successful and unsuccessful traders are the way they handle it.Like what Chris said in that article:�Many investors fail in this world due to their fear of losing money.Brilliant people continue to fail at trading the markets because of theiremotions, not their intelligence or their work ethic. It�s their psychologicalmake-up��.Successful investors develop systems with expectancies that allow them to negate emotional fear by knowing what can happen if the investment fails. Successful investors...

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Why Trading Psychology Is Very Important

When ones start learning about trading, normally they will focus more on learning trading set-ups, entry and exit strategies, and spend less time on studying the psychological aspect of trading.Until they started real trading, they will realize that trading psychology is in fact one of the most important aspects for trading success, because it concerns the most crucial part of trading � the trader itself.People can learn the same, best trading system. However, the results can be different. What makes the results different from the same trading system is the trader as a part of the system. Trading psychology is what differentiates winners from...

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Good Readings

Here are some good readings for you to check out:* Corey from Afraid To Trade blog demonstrated with a simulator and some examples that �you do not have to be perfect to make a lot of money in the markets. The key is consistently letting your average wins be larger than your average losses�.* Dr. Brett Steenbarger assembled a collection of his great articles in this post. An invaluable trading education for all traders.* Turtle Trader compiled a number of articles on money management, an aspect of trading that is believed to be one of holy grails of trading.* Simply Options Trader also compiled some websites for you to get Sector Rotation information.* Kevin�s great article on what Average True Range (ATR) is and how to use it.* Fresh Trader wrote a series of articles on understanding the...

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5 Tips For A More Effective Virtual / Paper Trading

In the earlier post, we discussed the advantages & disadvantages of virtual / paper trading. Whether paper trading will be useful for you or not depends on how you treat it: will you treat it seriously, or will you do it just for a fun game and/or self-satisfaction.The following are 5 tips for you to have a more effective & fruitful paper trading:1) Develop your trading system and write down the rules of the system in details.Having detailed rules is important, because this will guide you into your decision making process, as well as to pinpoint which part of the system you need to adjust / improve during your trade reviews and to gain...

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Update on PLXS and UTHR

Let�s see what's happened to the stocks with interesting patterns discussed on the other day. Both PLXS and UTHR have done well. But it took patience to wait for the decent entry signals.Hope you can learn something from ...

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Links For Your Reading

Check out the following good readings for the week:* Corey from Afraid To Trade blog has an excellent example on why you should set a stop loss targets and honor them; believe only the market, and not news or your own opinion.* So, you want to know the holy grail of trading? Chris Perruna tells you here.* Wanna learn what stock buyback is and its impacts? Option Pundit shared it in this article.* Interesting opinion & discussion about Stochastics indicator in Move The Market and TAZ Trader blogs.* And another excellent post by Dr. Brett Steenbarger on ten principles of short-term trading.Happy reading!...

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Should You Do Virtual / Paper Trading?

For beginners, before starting real trading, it is recommended that you should prepare yourself first by spending some time to do virtual / paper trading. For those who may be unfamiliar with the term, paper / virtual trading is a trading simulation, where you can �buy� or �sell� a security with real price, but not using real money. You will be given a certain amount of �virtual money� as your �capital�, and you can place a trade through your online broker as if you were really trading.Perhaps you have read many trading books, attended trading courses, and learnt various trading strategies. Through paper trading, you can implement what you have...

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Things To Consider Before You Decide To Take A Trading / Investment Course

When you are interested in learning stock / options trading, you might be considering whether you should take a course or just learn it by yourself. Taking a course might help you to have a jump start in learning. However, some people are better learning it by themselves by reading books or trading websites / blogs. It all depends on your learning style / preference, whether you are the kind of people who can learn on their own, or you are better learning by listening to people (mentors) who teach you in person.As for me, I mentioned before in the previous post that though I attended paid trading courses, I actually learn much more from all the great investment / trading blogs around than what I got from the paid courses. Reading the blogs has helped me tremendously to grow and improve as...

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More Understanding about Options Time Value

As we know, an option�s price comprises of 2 components: Intrinsic Value + Time Value.Assuming all other things remain constant (i.e. no changes in the underlying stock price and volatility), the time-value component of an option is affected by 2 variables (both for Call & Put Options):* Time remaining until expiration.The longer the time to expiration, the more time value the option will have.* The closeness of the option Strike Price to the money.At-The-Money (ATM) options have the maximum level of time value, and the time value decreases as it moves to deeper In-The-Money Options (ITM) and deeper Out-Of-The-Money (OTM) options (like inverted-U...

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Firefox Saves My Days

Few weeks ago, I encountered some problems with New Blogger, such as unable to upload pictures / images in a post, unable to add new page element as the �Add a Page Element� links disappear from the �Layout�, and also cannot edit the existing page element.After spending some times trying to find the solutions in the Blogger Help Group, I managed to fix the problems. One suggestion from the Blogger Help Group to solve such problems is to change the browsers. For instance, if you use Windows IE, try to change to Mozilla Firefox, and vice versa.Normally, I used Windows Internet Explorer (IE) as my browser. When I faced those problems, I change the browser to Mozilla Firefox. Quite often, those problems can be fixed simply by changing the browser to Mozilla Firefox. Although this doesn�t work...

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OPTION GREEKS

Find out more about what each of the Options Greek means and understand further its behaviours / characteristics.Click the following links to read each of the articles on Options Greeks in this blog:1) Option Greeks - Introduction2a) DELTA - Part 12b) DELTA - Part 22c) DELTA - Part 33) GAMMA4) THETA5) VEGA6) RHOOPTIONS GREEK SUMMARY:7) Option Greeks vs. OTM, ATM & ITM Options8) Options Greeks and Position in the Market (Long vs. Short)9) The Impacts of TIME REMAINING TO EXPIRATION on OPTIONS GREEK10) The Impact of IMPLIED VOLATILITY (IV) on OPTIONS GREEKSRelated Topics:* FREE Trading Educational Videos You Should Not Miss* Options Trading Basic � Part 1* Options Trading Basic � Part 2* Understanding Implied Volatility (IV)* Understanding Option�s Time Value* Learning Candlestick Charts*...

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Option Greeks: RHO

Rho is a measure of the change in an option's price due to a change in interest rate. Rho estimates how much the option�s price will change when interest rates changes by 1%.Rho is seldom used because interest rates are normally pretty stable. Therefore, the chance that option�s price will change drastically due to a rise or a drop in interest rate will be quite low.Example:The current price of ABC May 50 Call is $3 with a Rho of +0.03 and interest rate at 5%.If interest rates increase to 6%, the value of ABC May 50 Call will increase to $3.03.If interest rates decrease to 4%, the value of ABC May 50 Call will decrease to $2.97.Rho and the position in the market:Long calls and short puts have positive rho.Short calls and long puts have negative rho.Positive rho means the option price increases...

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