The Basics of Options Profitability

I rarely close my short positions! Understand the sector to which the stock belongs. American options let an investor exercise an option any time before the maturity date. The call writer has the obligation to sell the stock to the call option holder if the stock price rises above the exercise price. A number of people will be more than happy to give you the former and tell you that you can make quick bucks with risk-free options trading if you just follow their foolproof trading strategies! Personally, if I had such a strategy, I would invest my modest savings into it, multiply the money over and over till I was a billionaire, buy a small island and retire peacefully before I turned

A Simple Guide To Making Money With Options. June and demystify options so that you can use them to amplify your profit potential and limit the downside. the option expires, IBM is trading.

Basics of Option Profitability

If the answer was — You can not trade Option profitably at all, then nobody will be venturing into option trades. Options are leveraged products. Their price moves as per the price movement of the underlying asset. Here we are talking about stock market options, so the underlying would be either a stock or Index.

It reacts to the volatility of the stock price movement within the expiry period. The combination of all these factors make Option Pricing a little complicated, but Option trading a bit more exciting. I have seen here at Quora as well as in personal interaction with many traders that they pay too much attention to the technical aspects of trading. These details matter to some extent.

But there is absolutely no need to get obsessed by them. It is the price action and intelligent trades which make money not the theory of trading. To be a good driver you do not have to be an automobile engineer. Follow the traffic rules, drive safely and you are a good driver. And if you are an automobile engineer, that does not automatically make you a good driver. You also have to follow same traffic rules and drive safely.

Only advantage is that in the event of a breakdown, you can do repairs yourself. Trading is like driving. Follow the rules of safe trading. Too much study may actually make you feel inadequate, because there is so much to study. Meaning, nobody became wise by reading hundred of books. This possibility of very high gains attracts traders to options and makes trading exciting.

It was option expiry day, being the last Thursday of the month. Market had opened higher and then crashed around noon time. This Option opened at Rs. The Option could have been bought for Rs. Pramod Kumar's answer to What is your experience with trading options? I started off investing in stocks.

Then, before I could realize, I was trading stocks. I traded stocks for many years. They always sounded very expensive to me. Option premiums are generally so rich I couldn't justify putting money on long option positions.

Initially, I played options by buying a few times but overall I lost money in options long positions. Most option prices decay too fast and they are more likely to expire worthless than to give you "unlimited" profit! I take unlimited risk or loss potential against limited profit potential! First I take a view on a stock or the market. If I think a stock is about to form a bottom, I sell put options.

If I think a stock is about to form a top, I sell call options. I collect the premium. Many times, the options expire and I keep the money: Sometimes the buyers exercise them and I end up with a long or short position in the stock which is fine with me as I already had a bullish or bearish view on that security.

I rarely close my short positions! They expire worth less or end up in a long or short position for me. It is a Monday to Friday game and for me the premiums are too attractive. How profitable is options trading? I am too busy to run numbers or do analysis on my positions ; However, around 2 years back, I decided to see if I can buy a Tesla car trading TSLA stocks!

My then 7 year old son was very much interested in a Tesla! He was a big fan. Anyway, I started trading TSLA stock, most of the positions were options trading, and to be honest with my son about our deal, I created a blog and logged my trades! I think god also wanted a Tesla for my son or we were just too lucky, the trading went well. I think better then my general options trading.

However, you can look at my blog and go through the posts. Remember, this was all trading and not investing and most positions were options trading! Also, please remember, I am just trying to answer this question with some relevant real life data and by no means, I am telling you to start trading options!

Trading options or stocks is very very risky business and is not for every one. There is no magic wand that can work profitably for every trader. In option trading you have high probability of profit. The profit is not certain, you always expect as much as you can,but the loss is only the amount you invested,not more than that.

Just check the best trading option tips before investing in options. That is why the line in the call option payoff diagram above is flat if the closing price is at or below the strike price.

Also note that call options that are set to expire in 1 year or more in the future are called LEAPs and can be a more cost effective way to investing in your favorite stocks. Always remember that in order for you to buy this YHOO October 40 call option, there has to be someone that is willing to sell you that call option.

People buy stocks and call options believing their market price will increase, while sellers believe just as strongly that the price will decline. One of you will be right and the other will be wrong. You can be either a buyer or seller of call options. We will return to this topic in a bit. The second thing you must remember is that a "call option" gives you the right to buy a stock at a certain price by a certain date; and a "put option" gives you the right to sell a stock at a certain price by a certain date.

You can remember the difference easily by thinking a "call option" allows you to call the stock away from someone, and a "put option" allows you to put the stock sell it to someone. See my Review of the Best Option Brokers. Also, this strategy can be used to take advantage of increase in the implied volatility of the options. As we learnt that the impact of the volatility on the option price increases as time left to expiry increases.

Therefore, in calendar spread, increase in implied volatility will have positive impact on the strategy and decrease in implied volatility will have negative impact. So, a calendar spread is created to take advantage of the short-term time decay and the increase in implied volatility. Suppose the Nifty Index is trading at points.

Now, for the long Jan call, the time value or theta will have a negative effect on the option price and the option will lose money. Also, depending on the implied volatility, the price of Nifty Jan strike call will be different in different scenarios as discussed below. Since there are only 30 days left for the Nifty Jan call option to expire and the implied volatility has decreased, so, the price of long call option also decreases.

The overall profit and loss of the strategy will depend on the loss on the long call. If the implied volatility remained the same, we can lose money only due to the theta. When the implied volatility increased slightly, it may cancel out the effect of theta on the long call.

If the volatility increased too much, it may surpass the premium eaten by the theta or time value and we can potentially make a good profit.

This is the best situation where we can profit from both long call and short call. I think, I can answer this with a Bang of an experience. I would like to start with a Video created for my Youtube Subsribers:. Watch this video to understand what makes you a Trader and not a Gambler. Later Understand the way Fibonacci Retracement and know how it can make money for You. Later understand the Candlesticks and Basics of Technical Analysis. Later I leave the ball rolling in your court. Figure a Strategy for yourself.

Here is the strategy which can make easy money regularly with technical analysis. Sorry I can't give today's illustration because Bank Nifty was in a tight range in today's session. Don't forget to subscribe to my YouTube channel. You could follow any of the above or a mix of both to earn money trading options. I personally use the second methods as I am able to consistently get better returns compared to using option strategies.

But then I know people who make similar returns using option strategies. So I guess it boils down to what suits you and where do you see an edge for yourself. In Opentrade platform there are some good Nifty options traders. First lets see how opentrade works:. This star has big capital and also comes with 15 years trading experience. Opentrade - Hope this can help to find some good Nifty options traders.

Would you like to hear the sugar-coated lie or the cold hard truth? A number of people will be more than happy to give you the former and tell you that you can make quick bucks with risk-free options trading if you just follow their foolproof trading strategies! Personally, if I had such a strategy, I would invest my modest savings into it, multiply the money over and over till I was a billionaire, buy a small island and retire peacefully before I turned

How To Make Money Trading Call Options

The Basics of Options Profitability A call option writer stands to make a profit if the underlying stock stays below the strike price. Option Trading Tips. Watch video · Options traders have been turning deal chatter into quick profits. "Options volume ran hot right at the end of the trading day, with call volume running two times that of put volume," options. Call and Put Option Trading Tip: Finally, note from the graph below that the main advantage that call options have over put options is that the profit potential is unlimited! If the stock goes up to $1, per share then these YHOO $40 call options would be in the money $!