Options allow us to control decent size positions for as little as a few hundred dollars. Imagine controlling one hundred shares of the stock Google for a fraction of the cost of actually owning the shares. Minimal Time: Unlike day traders, you are not sitting in front of your monitor watching all the flashing quotes.

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You can view your charts once a day and decide if there is any options trade setting up. This is perfect for someone that is busy with another job, family commitments or even enjoying retirement. Trading for a living does not have to mean living to trade. That is one of the major drawbacks of day trading but is one of the many benefits of options trading. Profit In Many Market Conditions: Options are the only instrument available that will allow you to profit from up, down, or sideways moving markets.

This is powerful because it allows us to profit regardless of what the market is doing. This is very important for a trader looking to make a living from the markets and trading full time. Limited Risk: Your risk is limited to the cost of the option. You can set up strategies where the risk of loss is minimized but the trade potential is extremely high. Every trader will tell you that capital preservation is job 1 for any trader. You can make money on premiums if you are an options seller.

Many professional options traders who make living trading these markets do so by banking the premiums by selling options.

Put Options: What They Are and How They Work

Getting involved in the options market is not a difficult process. Of course, you have to find an online broker and have the funds available to trade but you can fit how to become an options trader into 3 different areas:. The buyer pays this premium for the right to sell you shares of stock, any time before expiration, at the strike price. The premium you receive allows you to lower your overall purchase price if you get assigned the shares. But what happens if you are not assigned the shares on or before expiration? You keep the premium. While your intention may have been to own the stock, at least you received some incentive for waiting around for the stock to drop in price.

Setting aside the cash for this transaction ahead of time allows you to prepare for this scenario. Remember that 1 put option contract equals shares of the underlying stock. Selling a put option allows you to collect a premium from the put buyer. Regardless of what happens later on in the trade, as the put seller, you always get to keep the premium that is paid up front. With cash-covered puts, the profit potential has 2 components: the option trade, and if the stock gets assigned. The most you can make from the option trade is the premium. If the stock is assigned and you are given ownership, your upside is potentially unlimited if the stock moves higher.

You can see how the risk involved with a cash-covered put differs from using a limit order to buy a stock. To learn more about put options and how they work, take a minute to watch a short video on Selling puts.

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Use this educational tool to help you learn about a variety of options strategies. Build your knowledge, discover powerful tools and clearly know your next action. Options trading entails significant risk and is not appropriate for all investors.

Certain complex options strategies carry additional risk. Before trading options, please read Characteristics and Risks of Standardized Options.

But, can you get rich trading options? The answer, unequivocally, is yes, you can get rich trading options. The obvious next question then is, how can I get rich trading options? Since an option contract represents shares of the underlying stock, you can profit from controlling a lot more shares of your favorite growth stock than you would if you were to purchase individual shares with the same amount of cash. When your chosen stock flies to the moon, sell your options for a massive profit. Rinse and repeat and before you know it, you will be buying that mansion you have had your eyes on since forever.

There are other ways as well. If you expect a company to declare bankruptcy, but no one else seems to know about it, then you can buy puts. When your expectation is realized and the underlying stock goes to zero or close to it , sell the puts and pocket your winnings. The more volatile the underlying stock, the more the puts will sell for and the larger your gain will be. The key here is to use all of your buying power so that you win the maximum amount on each trade. Use one or all of these strategies repeatedly until you are rich.

How to Make Money Through Options Trading

Before you know it, you will be moving into that mansion by the lake that you have always had your eyes on. Easy, right? Well, maybe not so easy…. There is one element that each of these so-called strategies have in common: they are more akin to gambling than to trading.

What is Options Trading?

In fact, if you are not careful, you are far more likely to go broke trading options than you are to get rich. There is a very good reason that the U. S Securities and Exchange Commission has qualification rules in place for investors who want to trade options as there is a lot of risk involved. They want to make sure you have enough investing or trading experience to hopefully make good decisions when it comes to options.

Does all this mean that you cannot get rich with options? Not at all. What it does mean, however, is that you are not likely to get rich fast or easily with options unless you are very lucky, but luck has no role to play in responsible stock or options trading. It turns out that the question we asked above about how to get rich with options is the wrong question.

The real question you should be asking yourself is, how do I remove luck from my options trading? Or put another way, how do you reduce risk in trading options? To accomplish that, there are three interrelated things that I recommend you do. First, throw out your crystal ball and educate yourself.