SPY (S&P 500 Index Tracking Stock) - SPDRs - Spider - Options Trading and uncovered options

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Information Corner:

Put Options - Put options (or "puts") give you the right, but not the obligation, to sell an underlying security at a specific price for a fixed period of time...

Suggested Exit and Exit Prices.

Suggested Exit Price.

We do not issue signals to indicate when a purchased option should be sold. Instead, at the time a signal is issued, we state a "Suggested Exit Price". When an option trades at or below that price, we buy it to cover our short position.

Depending on the current market situation, we may change a "Suggested Exit Price" after a trade has been opened. For example, if the market goes against our trade, we may raise the exit price in order to reduce losses. By the same token, when the market continues to move in our favor, we may lower a "Suggested Exit Price" in order to increase profits.

We notify all our members about such changes by e-mail and post the new "Suggested Exit Price" on the current signal page.

Question: To close a trade, should a trader always follow your "Suggested Exit Price"?

Not necessarily: If a trader follows our signals, he/she can always choose an exit price that better suits trader's risk tolerance and trading strategy. If a trader has other trading indicators that show the market could continue to move in his/her favor, a trader may decide to choose a lower exit price and thereby increase the probability of achieving larger profits.

Important:

We generally don't recommend setting stop-losses or using limit orders based on our "Suggested Exit Price". The market has a habit of hitting stop-loss orders simply because they exist. If enough stop-loss orders are clustered at a specific price, the market will not hesitate to take them out.

Exit Price.

The exit price is defined as the actual price of an option at the moment a trade is closed.

The exit price is usually equal to the "Suggested Exit Price". It could, however, be substantially lower when a trade is closed when the market opens significantly below the "Suggested Exit Price".

Information Corner:

Buying a call option ("a call") gives you the right, but not the obligation, to purchase an underlying security at a predetermined price for a certain time period. Call options are available in various strikes and expiration dates...

OEX Options - OEX is the ticker symbol for the S&P 100 Index ("Standard and Poors S&P 100 Stock Index"). OEX options allow traders to speculate on the movement of the OEX...

Straddle Options Trading - A straddle may be bought when a trader expects a large market move but is unsure of its probable direction. The strategy is usually applied in a flat market when volatility is low...