Options are a great way to trade – IF you know what you’re doing
If you trade for any period of time, you will eventually begin to hear about “options.” Options can create spectacular returns for traders on the right side of the right trend at the right time. However, I’ve noticed that most traders only partially understand OPTIONS – this is dangerous. We’ve created a four-part series, Options Trading for Beginners, to review the basic options building blocks and strategies that lay the foundation for what options are and how they work so that traders of any skill level can understand the risks, potential rewards, and realities of this trading style.
We broke out the four parts into a simple matrix. Here’s a quick introduction to each topic.
- Buying Call Options: A Call Option gives the buyer the right, but not the obligation, to own the underlying asset between now and an expiration date in exchange for paying a premium. As the buyer of the option, you have theoretically unlimited profit potential. This is because the stock can theoretically go to infinity. (Read more)
- Buying Put Options: In the distant past, there were not many ways a trader could monetize a falling market. But one technique traders can use is buying put options. A put option is the right, but not the obligation, to sell the underlying stock at an agreed upon price between now and an expiration date, in exchange for a premium which is paid to the Put Option Seller (Creator). Traders buy put options in anticipation of a price decline of the underlying asset. Put options trade on stocks, futures, forex, and cryptocurrencies. (Read more)
- Selling Call Options: The seller of an option is the creator of the option. Whenever an option is created, the creator is obligated to perform by the terms of the contract unless they liquidate the position before the expiration date. In exchange for creating the OPTION the seller receives a premium. Their obligation exists only for the term and life of the option. It’s kind of like an insurance company. The insurance company creates an insurance policy. They receive the premium and they are obligated by the terms of the contract. Customers who purchase insurance acquire the peace of mind that they have protection should something go wrong. (Read more)
- Selling Puts Options: Hedge funds consistently achieve superior returns in part by using options as a risk management tool. In this article, we look at the strategy of selling put options to collect a premium. A put option gives the buyer of the option, the right but not the obligation to sell a security at a specific price until a certain expiration date for a premium that they pay to the creator of the option. The seller or creator of that option receives the premium and they have an obligation to purchase the shares at the agreed upon strike price should the buyer exercise that option. (Read more)
We are dedicated to helping traders learn everything they can about the art of trading. Our website is full of helpful information, resources, and videos! And, don’t miss our YouTube channel too!
My team thrives on celebrating your successes but we’re also here for you when there are challenges. Our series on Options is just one example of how we continue to work to help you be the best trader you can be. There’s a lot of volatility in the markets right now – it’s crucial that you have the edge of our predictive forecasts to help you navigate the choppy waters of the markets.
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