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The new NASDAQ OMX Alpha Index options are, option traders
first should be familiar with what the Alpha term actually
stands for; According to Investopedia.com, there are two definitions
of Alpha. The first dictionary definition
states that Alpha is "A measure of performance on a risk-adjusted
basis. Alpha takes the volatility (price risk) and compares its
risk-adjusted performance to a benchmark index." This dictionary
definition points out the fact that the performance of any underlying,
or a portfolio, can be compared to something else which always acts as
a benchmark.
The majority of the US Hedge fund managers compare their performance
against the S&P 500. The second Investopedia definition talks a bit
more into the specifics by stating that, "A positive alpha of 1.0
means the fund has
outperformed its benchmark index by 1%. Correspondingly, a similar
negative alpha would indicate an underperformance of 1%." From
this segment it is clear that these calculations are done in
percentages rather than in actual dollar amounts or points.
Lets take a look to the new NASDAQ OMX Alpha Index options.
There are seven tradable Alpha option products. The NASDAQ OMX
thoughts is to have in the near future a total of 19 products and then
later, more options to trade.
This is like the same of the 1970s when call options had a similar
start for option traders to trade. They started with only twelve
optionable products. Then as calls were added to more underlying, puts
came into existence with puts being eventually added to every
optionable product. The seven new players are listed in the table
below.
The NASDAQ OMX Alpha Indexes do not have any backing, nor Bid and Asks.
Their value is calculated by a proprietary formula which can
be found on the NASDAQ OMX Trader website. The NASDAQ OMX Alpha
Indexes are basically a synthetic creation that cannot be bought or
sold by themselves for they exist only in terms of their relationship
to each other, for instance AAPL versus SPY. The options on these
synthetics have the same expiration cycles as standard stock options,
yet like most index options, they settle in cash.
Make sure to gain some experience, paper trade them for a while before
committing any real capital to them. Be safe and stay informed paper
trade them and check with your broker to see if they have them
available.
A
AAPL
Apple Inc
AVSPY
I
IBM
Intl. Business Machines
IVSPY
J
INTC
Intel Corp.
JVSPY
L
GE
General Electric Co.
LVSPY
N
MRK
Merck & Co. Inc.
NVSPY
U
GOOG
Google Inc.
UVSPY
W
WMT
Wal-Mart Stores Com.
WVSPY
Risk management is so crucial when trading Futures and options. Never
risk more than 1% - 2% of your account on any one day trade. If the
risk is too big, try this entry technique of letting the market come
to you after triggering an entry signal. You will be surprised how
many times you actually get filled using this technique. Of course,
there will be times when the market will not pull back and it may
leave without you. Those trades just did not have your money on them
and you must move on to the next trade. When your risk is so limited
and you have the control to set that limit, you will start to become a
much more relaxed trader over time. Make sure to place stop losses and
learn about options before you start to trade them.
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