Option Trading is a very useful tool for stock market or commodity investors.
You can use options for hedging to protect existing positions or write options to produce cash income.
Option buyers are exposed to limited risk since the maximum loss they can suffer is the up-front premium they have to pay to buy the option.
The option writers profit is limited to the up-front premium they receive while losses are theoretically unlimited for call options and can greatly exceed the up-front premium gained.
Covered call writing does limit the risk exposure for novice option writers.

in (2) above the put sale more or less pays for the buy of the call spread.
This trade added to an earlier buy trade of VOD 190C/210C so that I am now long VOD dec 190C/220C (among other VOD option positions ).
Obviously feeling bullish about VOD prospects over this time frame and price range .

The shadow of the US debt ceiling is overhanging the market at the moment .
Hence it seems a bit more risky to take on new derivative positions before the 17th October deadline . It could go either way: further declines or a sudden snap-back relief rally.
I wonder if the President can override the debt limit by declaring a national emergency. After all he seems to be able to start a war single-handedly.
Anybody here have an insight of the legal position and what powers the US president can evoke ?

Options can add considerable extra flexibility to the trading of stock market investors.
It is therefore surprising that so few people make use of this extra facility.
As an example , consider an investor planning an investment in SSE which closed today at 1451. He does not wish to commit his funds now since he is worried about the outcome of the US debt problem in October . Also he does not wish to tie up a lot of money since the next ex-divi date only comes in Jan 2014.
Instead of buying 1000 shares now at a cost of £14510 he can buy a 1400 strike call option for December which is quoted at a premium range of 71.5 to 81.5 . A hopeful bid to buy one call option at 78 will probably get filled and buy the option at a cost of £780 . That cost includes the intrinsic value of £510 at todays price plus £270 extra cost for the time value. Now the investor has over two month to exercise that option if and when it suits him . If the US debt crisis gets resolved and as the January dividend draws nearer the spot price for buying SSE shares could rally well above 1400 , perhaps regaining previous high values of 1600 or thereabouts . He can then buy the shares at a favourable price and hold for the dividend or he can sell his option at a profit. On the other hand, the worst case scenario would be if the SSE share price falls heavily contrary to his earlier expectation. His maximum loss then is £780 , probably less than if he had bought the shares.
Option trading gives extra choices of managing your investments !

The Dow , having led the ftse lower by its close staged a moderate recovery later.
Poor august UK manufacturing data also weighed on London .
If you feel confident that the US mini-crisis will be resolved in the next 10 days you can buy a FTSE100 call option at 6300 strike for around 85 premium . Would not need a big bounce to bring that into profit. Not my choice or recommendation though !

Accompanying the strong up-trend in share price of VOD is an increase in option trading for VOD.
I contributed to that by buying dec 210Calls/220Calls and sold dec 215puts at a net 4 debit per strategy .
I anticipate the uptrend to continue as the sale of the verizon stake and big special dividend approaches .