Q&A  |  JUN 2005

Q&A by Don Bright

Stocks & Commodities V. 23:6 (82): Q&A by Don Bright SINCE YOU ASKED Confused about some aspect of trading? Professional trader Don Bright of Bright Trading (www.stocktrading.com), an equity trading corporation, answers a few of your questions. To submit a question, post your question to our website at http:// Message-Boards.Traders.com. Answers will be posted there, and selected questions will appear in a future issue of S&C. PRACTICAL ADVICE FOR NEW OPTIONS TRADERS Q: I recently started to look at options trading and am considering LEAPS in particular. As with everything else, I’m learning that “the devil is in the details”; we might have a general understanding of things, but actually getting into the market is a different matter altogether. Can you give me practical advice on what to do to trade options? I would greatly appreciate it if you could give me some pointers on what dangers I should expect, such as not getting my position filled by a broker.—Jamie A: First, you need to learn the valuation principles of conversions and reverse conversions; they tend to trade at or near a fair value based on interest rates, dividends, and days until expiration. Don’t get swayed by over- or undervalued calls or puts when compared to simple historical volatility.o Floor traders, along with the major firms, are among the most savvy traders on the planet — and they have the best overall tools. They have the ability to “cross-instrument” hedge at all times (that is, lay off interest risk via currency variables, and so on), as well as “cross-market” hedge with the equity futures (such as a basket of stocks/options and futures).

by Don Bright