Futures, Forwards, and SPOTS: How the World Can Trade Pork Bellies Without Ever Touching a Pig

Confession: I normally don’t do much research outside of options and long stock.

Not because the other platforms are some terrible place where people are yelling about pork bellies and soybeans, but simply because I don’t really understand it.

So to make up for admitting my weaknesses in finance on my finance blog, I decided to learn.

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Trading Naked: How to Cover Your Assets

I recently had a conversation with a good friend of mine. Our friendship blossomed when he talked about puts one day in our Applied Investments class. My head whipped around to locate the person that was finally speaking my language, and once we did the options trader secret handshake, we became fast friends.

One of our more recent conversations surrounded the economics of options – He said that basically, if you’re on the sell side of a naked option, your margin requirement (collateral) is going to be pretty high.

But I disagree.

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Trading Options: Deriving the Value of a Derivative

One of the biggest questions that I get asked is: “What’s the point of trading options?” I give the usual spiel:

  1. Reduce your cost-basis (how much you pay for a trade)
  2. Increase your profitability (the chance you have to make money)
  3. Increase the number of trades you can make, putting the law of large numbers in your favor
  4. Place neutral, bullish, or bearish trades on the market
  5. Thus, you can make money when the market goes up, down, or all around
  6. Use math and probability to make money
  7. Take control of your financial future
  8. And have fun! 🙂

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