5 Ways Options Help You Trade More Effectively
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Show me more →Guaranteed Maximum Loss Strategies
Unlike stocks, when you buy an option contract all you can lose is the upfront premium you paid for the position. It doesn't matter how far the market falls, your losses are guaranteed to be no more than your initial investment.
AND, if you're the buyer of an option you have limitless gains as the market moves in your direction, just like buying stocks.
Each Way Directional Strategies
Not sure which way a stock is heading — just that it will make a large move up or down? Here is where you use options.
Combining a call and a put together means you profit from a movement in either direction.
Example strategies: Long Straddle and Long Strangle.
Profit When a Stock Goes Sideways
Imagine being able to make money if the stock does nothing!
This is a favourite strategy of those looking for regular monthly income — and the feature strategy used in the members area videos.
As long as the stock stays inside the strike levels, you're making money. Plus, you can set these up so that your losses are limited too.
Example strategies: Iron Condor and Double Calendar.
Get Paid for Limit Orders
Stock price just a little high, yet you're still interested in buying? You can use options to get paid to place a limit order below the market.
A short put option does this. If the stock stays above your strike price your profit is the premium received. If it drops below, you buy the stock anyway.
You can keep repeating this over and over — keeping the premium each time and applying unused capital to other trades.
Watch and learn how to trade options profitably in our members area
Learn more →Popular Options 101 Articles
Option Premium
Understand the two components that make up an option price — intrinsic value and extrinsic value.
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Calls vs Puts
Buy calls and profit when prices rise. Buy puts and profit when they fall. But what happens when you sell instead?
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Put Call Ratio
Discover how option volumes can help you forecast the direction of the underlying stock.
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106 Comments
Bill November 4th, 2012 at 9:10am
I am currently using TradersHelpDesk trading method to trade options. I am happy with it...does this stand alone method or do I need to do complicated things?
Peter October 29th, 2012 at 4:29am
Hi Sally,
"Buy to open" is when you establish a new position in a security. In your case, you would have initially been flat (no position) and after "bought to open" would be long a put option.
Sally October 26th, 2012 at 5:29am
Hi,
I'm new to option trading. Someone please explain What is Bought to Open Put?
Peter August 14th, 2012 at 10:52pm
Hi James,
Mmm...this is just a spread bet between two stocks. So, you would want to go long Total and short Shell?
Using options to do this (instead of the stocks outright) would be to use synthetics. I.e. long synthetic on Total and short synthetic on Shell.
E.g. long call + short put (same strike) on Total and short call + long put on Shell (same strike).
Not sure if there are any other strategies suited for this?
james August 14th, 2012 at 3:50pm
please can you explain to me the right strategy to use if I know that the market will move in favor of one stock. eg if I know that Total plc will outperform Shell by December. Thanks you are great.
Peter July 30th, 2012 at 5:28am
Hi Satish,
1. Yes
2. Most likely - it depends on the broker. Interactive Brokers, for example, allows you define your account in another currency. You can also perform foreign currency transactions within your account for other countries that they support.
For your other questions, you will need to read up on the relevant tax treaties between India and the US;
India and US Tax Treaty
Satish July 29th, 2012 at 8:58pm
Hi,
Iam a Resident of the India -Bangalore.I have few queries before
investing in US Stock Market Equities.
1.Can I invest Indian money for US Options Trading or in US Stocks ?
2.Once the Indian money is funded to the Brokerage account,will it be
appeared as US dollars ?
3.IF I pay Tax on US Stocks and Options thru online Brokerage
Account ,who located at US,
Do again I have to Pay Tax in India ?
4.When is the Declaration of Income Tax is done at India for April
2012-Marxh 2013 year ???
5.How do Tax regulations apply at India for US stocks and Options ?
Would be greatful if u get me this information.
Venkatesh July 7th, 2012 at 4:07am
Hi Peter, Your tutorials and the excel files you have given are immensely useful. And you do all this for free. God bless you. :)
JB April 15th, 2012 at 3:21pm
Thanks for the fantastic site. I never click banner ads but I do on this page with the hopes that it helps maintain this great resource.
Peter March 29th, 2012 at 11:43pm
Hi Wayne,
If you sell the option back before the expiration date then it is a manual transaction - i.e. you decide to execute it and place the order yourself (or have a broker do it).
If the option expires and it is in-the-money then the sale of the option is automatic.
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