Top 5 Ways To Make Money Trading Options

There are lots of ways to make money trading options, but not all of them are favorable based on your risk tolerance. Some options trading strategy have minimum risk, others can get you into financial trouble if you’re not careful

In this article, we will share with you the top 5 ways to make money trading options. This article will help you select option trading strategy to work with as an active or casual trader. If you’re someone who wants to use the options market as a ticket to wealth accumulation. Let’s get started:

1. Covered Call

If you think a stock is going up in price, but do not have time or resources to buy shares, you can buy a covered call. This strategy involves selling or writing an option contract at a predetermined price the strike price and date until expiration date.

You shall receive a premium for writing that option. In this option you risk being assigned an exercise notice if your broker decides it wants to buy your stock and sell it short through its call position.

2. Married Put

A Married Put strategy involves buying an at-the-money put option while simultaneously selling an out-of-the-money call option of a higher strike. This creates a synthetic long position in a stock.

It’s called married because it’s similar to owning stock and a married put both create synthetic long positions in the stock market.

The basic idea behind a married put is that you want to buy some shares, but only if they’re cheap enough. And what do we mean by cheap? Well, we mean cheap relative to their intrinsic value, which is just another way of saying that we want to buy shares if their price goes down.

If you think about it for a second, you’ll realize that all investors are trying to get stocks on sale all of the time! So why not try and force some sales?

3. Bull Call Spread

The bull call spread can be viewed as a bullish version of the bull put spread. In fact, it’s exactly what it sounds like.

An investor will sell one call while buying another with a higher strike price, both with identical expiration dates.

If he has done his work correctly, and if he can sell enough contracts of these spreads, there’s a significant chance that he will see at least some profit on them when they expire.

This is because he is selling something (the first contract) for more than its market value, but buying something else the second contract for less than its market value.

When all is said and done, assuming that everything goes according to plan, he should have made a small profit off of each contract sold assuming that nothing unexpected happens between now and then.

4. Bear Put Spread

A bear put spread is a strategy used by investors who expect a stock price to fall, but want more capital than a short sale would allow. Investors execute bear put spreads by selling a higher strike in-the-money put option and simultaneously buying another lower strike out of the money put option with an expiration date further out.

This strategy allows investors to benefit from a falling stock price without having as much capital tied up in their trade as they would have if they were shorting shares.

For example, let’s say you own 100 shares of ABC stock that are currently valued at $50 per share. You also believe that ABC will fall in value over time, so you decide to sell one March 50 put for $4 per share and buy one March 45 put for $1 per share for a net cost of $3 per share.

If ABC falls below $45 before March expiration then your entire investment will be protected because your long position will offset your short position at no additional cost.

5. Protective Collar

A protective collar is an option strategy that involves buying and selling (or writing) puts and calls on an underlying security at a predetermined ratio.

This strategy works in a range-bound market, so you want to buy out-of-the-money put options and sell or write, in-the-money call options at an appropriate ratio.

As soon as there’s a sign of potential for outperformance, you can close out your position by selling back your original call option and buying back your put option.

The risk with this strategy is limited to how much you invest in each option; however, if there’s no volatility or performance beyond what was expected, then your trade will be unprofitable.

FAQ

When Should You Buy Options?

When you are entering a trade, you will have to decide whether or not it’s better to buy an option or just go ahead and place your trade. In some cases, it’s best just to enter a trade with your underlying security.

But in others, there are times when buying an option is cheaper and more profitable than going through with a stock transaction.

Depending on what you’re trading, reading about when you should buy options can help you decide which way works best for your next transaction.

Can you get rich on options?

If you have a knack for identifying trade opportunities, and if you can do it consistently over a period of time, then perhaps yes. Most option traders don’t get rich in their first year or even over their lifetime.

The majority of successful option traders have many years of experience under their belt before they become consistently profitable. However, that doesn’t mean a beginner investor can’t make money right away.

Can I become a millionaire trading options?

You can, but it won’t be easy. It will require a high tolerance for risk, and you’ll need access to considerable capital. A successful options trader must have these three things:

1) Vast experience with stocks

2) Astute technical skill

3) Patience.

If you lack any one of those components, consider investing in mutual funds or exchange-traded funds instead.

Conclusion

In conclusion, many of us dream about earning a good living by working from home. Howeever we’re too lazy or lack skills and knowledge to get started.

Meanwhile, it is possible to earn thousands of dollars each month with option trading and build a business around it.

It is important that you don’t quit your day job as soon as you begin making money. Just remember to always stay level-headed and be ready for any bump in your road.