Product Description Contrary opinion by R. Earl Hadady Facts are unimportant! That, in a nutshell, is what drives the principles of contrary opinion that are at work in various human activities, particularly the markets. A contrary opinion is simply the opposite of what the vast majority of people think the course of events will be. For example, the principles of contrary opinion indicate that if practically everyone believes there is going to be a shortage of crude oil and acts accordingly by buying small cars, restricting their travel and similar measures, an oil glut will occur.
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It will easily save you three years of painful study in the school of hard knocks. Easy to read and informative with little known facts that focus on the principles involved.
Fraser, C. This concise, highly readable account of why contrary opinion theory works is the best ever written. The strike price may be set by reference to the spot price market price of the underlying security or commodity on the day an option is taken out, or it may be fixed at a discount or at a premium. An option that conveys to the owner the right to buy at a specific price is referred to as a call; an option that conveys the right of the owner to sell at a specific price is referred to as a put.
Both are commonly traded, but the call option is more frequently discussed. The seller may grant an option to a buyer as part of another transaction, such as a share issue or as part of an employee incentive scheme, otherwise a buyer would pay a premium to the seller for the option. A call option would normally be exercised only when the strike price is below the market value of the underlying asset, while a put option would normally be exercised only when the strike price is above the market value.
When an option is exercised, the cost to the buyer of the asset acquired is the strike price plus the premium, if any. When the option expiration date passes without the option being exercised, the option expires and the buyer would forfeit the premium to the seller. In any case, the premium is income to the seller, and normally a capital loss to the buyer. The owner of an option may on-sell the option to a third party in a secondary market, in either an over-the-counter transaction or on an options exchange, depending on the option.
The market price of an American-style option normally closely follows that of the underlying stock being the difference between the market price of the stock and the strike price of the option. The actual market price of the option may vary depending on a number of factors, such as a significant option holder may need to sell the option as the expiry date is approaching and does not have the financial resources to exercise the option, or a buyer in the market is trying to amass a large option holding.
The ownership of an option does not generally entitle the holder to any rights associated with the underlying asset, such as voting rights or any income from the underlying asset, such as a dividend.
Contrary Opinion: Using Sentiment to Profit in the Futures Markets / Edition 1
V.6:8 (298-300): Contrary opinion by R. Earl Hadady