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Essential Option Strategies by J. Kinahan

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Chapter 1The Opening Bell

At 9:30 a.m. (EST) on every business day, a bell at the New York Stock Exchange sounds, and trading on the exchange floor begins. Investors buy and sell stocks like jockeys scrambling for positions at the Kentucky Derby. News flow drives the buying and selling decisions from one day to the next.

When the day's news doesn't deviate too much from expectations, the result is typically orderly and normal market action. However, when unexpected events result in dramatic changes in the expectations, large price moves and fast trading ensue. In other words, the day's news events can result in changes in investor sentiment and result in higher or lower levels of market volatility.

It can seem overwhelming. I remember when I left the trading floors after twenty-one years at the Chicago Board Options Exchange (CBOE). My focus shifted from a small number of instruments to a huge universe of different opportunities. I started trading in markets that were unknown to me. The results were horrible. Over time, I realized that it was better to keep a laserlike focus on markets that I understood and believed in. It is simply impossible to track the moves of every different market, much less trade them all effectively.

Moreover, the importance of news events will also vary from one investor to the next. A large pension fund taking positions in a widely held stock like Apple (AAPL) or General Electric (GE) for a longer-term portfolio isn't likely to react to a news report ...

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