People want to start making money fast. The best strategy to use for that goal is trading options. When most people think of options they assume that there risky. Which in fact, they are for those who don’t trade them correctly.
Stock options are used to create leverage and control risk. The strategies I learned from my mentors are profitable and simple once you get the hang of them.
There are two types of options, calls and puts. There are also two things you can do with any option, either buy it or sell it. The most basic strategy for using options is called a covered call. The strategy is composed of two different positions.
If you were long underlying xyz which is trading at $15.00 you would sell a call option against it and collect money in your account for selling that option.
Option Selling
There are so many ways to make extra money. Trading options is the one that can really change your life. There are so many situations you can put yourself in through 70trades review options that give you a mathematical edge.
Most people think trading options is risky. The reason is most people lose money who trade options! 80% of options expire worthless. So, who’s making all of the money? The people who are buying those options or those who are selling them.
The reason people say that options are risky is because they don’t understand them. If they did they would have a much different opinion. Just ask a successful market maker what he or she thinks about options. Market makers that I follow know a lot of ways to make extra money.
They are going to tell a completely different story. Options reduce risk and maximize profits if traded correctly. In this page I will show you some of my favorite strategies that put me on the winning side. The side where I have the mathematical advantage.
Positive time decay means that every day that passes option premiums decay or erode. In other words if stock xyz is trading at $20 today and the $20 call is trading at $1.95 then a day later all other things being equal that option will be trading for less than $1.95 because there is less time for it to be worth something.
There are a few important parts to my overall trading plan.
- Price and plan for entering
- Choosing the correct strategy
- Plan for exiting the trade
- Position Size
When I was looking for ways to make extra money I began trading. The problem I had as a beginner with my trading was I learned all of these strategies and started trading them but I didn’t have a plan for exiting and managing the positions. That part is just as important as the actual strategy.
For example, one of the strategies I began trading to make extra money is called a bull put spread. The trade is made on a stock you think is going to go up. I would collect $2.00 on a $5.00 wide spread. Then I would simply put it on and let it on and let it go with no exit plan. I wanted to find ways to make extra money but I was losing $3.00 on my losing trades using this strategy with no plan.
Some of these would expire worthless and I would make the $2.00 but some would go against me and I would take the max loss. Now I learned how to manage those positions and make the $2.00 on my winners consistently and only lose $1.00 or less at most! Trades that take on too much risk compared to reward aren’t going to work over time.
Controlling risk is the most important part of trading. It’s essential to make good consistent gains but it’s more important to have very small losers compared to your potential gains on your winning trades.
The best advice I can give to beginning traders is the following points.
- Find as many successful traders who have been around awhile and learn exactly how they trade.
- Learn as much as you can about each of their trading styles because what one person does might not work for you and vice versa.
- Learn strategies that make sense! If you’re going to buy options make sure they’re deep in the money.
- Have a plan to get out and minimize risk. In other words, know what the worst case scenario is before you even enter the trade.
- Make sure you can make enough on each trade to justify being in the position. In other words, if your think there is a 50% chance you will win a particular trade and you can make twice as much as you’re risking, than that makes sense!
- Learn position sizing! Never ever risk more then 3-5% of your portfolio on any one trade. I never risk more than 2% and that is very rare. I usually risk.5% of my account per trade.
