Your Three Top Questions This Week – Answered

Every month or so, I like to spend some time answering all of the great questions you ask me.

But this week, you asked me three particular questions that could make or break your trades.

And since we’re looking at a major shift in the markets next week, it’s important we talk about them right now.

So let’s get to it…


1. What type of option trades require margin?

When it comes to calls or puts, anything you’re shorting requires margin. Selling calls requires more margin than selling puts. Ratio spreads where you sell more contracts than you bought also requires margin.

2. What does it take to become a round lot investor?

A round lot investor buys 100 shares of stock. So if you wanted to be a round lot investor on, say, The Priceline Group Inc. (NASDAQ: PCLN), it’d cost you $146,000.

Now I’m not sure how much you’d be willing to spend to become a round lot trader, but you could consider options as a far less expensive – and less risky – alternative. Remember, just one options contract lets you control 100 shares of stock.

3. Your article on CPB was very interesting. What types of ways could you play the long put you mentioned?

The answer really depends on what your target is. Remember, your target is the price at which you need the stock to hit to make your trade profitable. Put options that expire three to six months from now would make the most sense right now due to the lower volatility and time until expiration. But you’ll want to set your target and know your risk before placing your trade.

Tom Gentile
America’s #1 Trader

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