In this day and age, options trading can seem like a great way to quickly earn a lot of money with little risk. However, most retail traders don’t know how to use these tools correctly and lose all their money in the long run.
The most significant way to learn is by reading articles written by seasoned professionals. Before looking for any resources on buying stock options, you should first look at exactly what an option is.
What is an option?
An option contract gives one buyer (the holder) the right but not the obligation to purchase or sell 100 shares of underlying stocks at a set price (the strike price) on or before the expiration date, which ranges from 1 month to up to one year.
That means that if you are buying an option, there is no guarantee that the underlying security price will be above or below your strike price when the expiration day comes. When it all boils down to it, options trading involves having the ability and foresight to read market trends and predict what might happen in the short term future.
If you’re not good at looking into these kinds of things, then opt for safer trading opportunities such as Forex or buy/hold stock positions instead. For people who understand how options work and want to start making money quickly in this business without losing their shirt, keep reading below.
Tips on how to make money in this business
Here are some valuable tips to help you make money when trading options.
1. Exercise patience and discipline
It is an advantage that most retail traders lack because they see their options to make it rich very quickly. You have to be patient and disciplined if you want to win with options trading. Even if you have a good position on an option contract, the only thing that will allow you to earn money is time.
No matter what market conditions exist or how many news events happen that might affect price movements, leave your positions alone until expiration day arrives and then take whatever happens next.
2. Learn from the best
Identify the top option professionals in forums, groups and other community websites such as Reddit and use those people as mentors for your strategy development process.
Over time you can connect with these people and offer them something (such as a small fee in return for tutoring or mentoring) if you find that they are willing to help.
3. Trade stock options
It is not the same as trading stocks (such as Apple, Google and Exxon), but instead means trading contract positions of standard stock options, which any US citizen can quickly get their hands on.
Generally speaking, most options contracts expire after around 30 days, giving you plenty of time to make money without worrying about staying up all night long while monitoring your positions.
4. Look at charts daily
You must identify all relevant news events that might affect price movement on the market before ever establishing any new option position. This way, you will be able to maximize your gains by closing your positions before any bad news happens.
5. Do not trade options very close to expiration
It would be best if you never held on to an option position that’s drawing near its expiration date because there is too much uncertainty at that time. For this reason, it’s best to avoid all trades which are close to expiry.
6. Understand how margin works
The main thing about buying stock options is that you need money upfront (known as margin). It means your broker will loan you money based on their internal risk assessment of your account and assets which you hold.
It would help if you now had a better understanding of how to get started with options trading and why it might be worth getting involved with right now. The truth is that this kind of trading is not for everybody, but if you’re interested in building a solid income from trading, then give it a try.
Just be sure to have patience and discipline because that will ultimately help you win this game. For more information, click here to contact professionals in the trading business.