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
Peter July 31st, 2011 at 7:06pm
Kind of - but you don't "have" to buy the stock. You have the "option" to buy it. If the option contract is worth more in the market than what you paid for it, then you can simply sell it back and make the same profit then you would if you went and "exercised" the option and purchased and sold the stock.
Gabe July 30th, 2011 at 5:17pm
Hi, I'm very new to options (have been trading stocks for some time, and i'm self taught about everything, i'm only 16) and i'm having some trouble understanding them....when I buy a options contract and everything goes smooth and it hits above the strike price in the allotted time I then have to pay the contract price for the stock (I then own the stock and can sell it [if I please] and the contract is now mute?)
If it doesn't hit above the strike price then I lose all my money that I paid for the *contract*, correct? I don't have to buy any stocks? Obviously we area talking about *call options* here.
Thanks,
Vignesh July 29th, 2011 at 6:06am
Hey..I downloaded your Option trading worksheet. Good work. It is very useful. Thanks for your effort.
Peter June 16th, 2011 at 5:16am
Thanks for the feedback Jean, much appreciated!
jean June 15th, 2011 at 11:27pm
Hi Peter
I am interested to learn options trading but I am a total newbie in this area, and I really am lousy on charts and calculations..
So far I have touched on your introductory notes on 'What, Why and Who Trade Options", you have made it very easy to understand, thank you.
- Jean
Nitin May 14th, 2011 at 12:14am
Thanxxx a Lot Peter For your Help ..Really u r doing a G8 Job....
Peter May 10th, 2011 at 7:06pm
Hi Jason, I've never come across this firm before. They are Australian based so the information would be focused on ASX listed stocks I would imagine. I've never participated in any options course like this so I cannot comment directly - but would like to hear about your experience if you attend. Let me know.
Jason May 10th, 2011 at 1:31am
Hi Peter,
have been looking at doing an options trading course that covers in details charting techniques. Have spoken to several training providers however one of them can be found at http://globaltradingedge.com what are your thoughts are their courses?
Have spoken to past students who have had some good success with writing covered calls. Their strategy involves Elliott Wave, Swing Trading and Fibonacci any thoughts would be greatly appreciated
thanks
Jason
Peter April 7th, 2011 at 8:43pm
Hi Harry, your best bet would be to try option market making firms, however, you'd be hard to find them in India. Both NSE and BSE are order driven markets where there is no official recognition of a market maker. There are firms making markets on options in India, however, their details may be hard to find. I checked the NSE website just now and couldn't find any such firms.
You might want to contact the NSE directly and ask them. Alternatively, you could reach out to your local broker.
Good Luck!
Harry April 6th, 2011 at 1:52pm
I am from India, I did my MBA in finance.In final semister I took Option Strategies as my Project.Now I want to work in this field so what to do now and which companies I should try,can any one help me in this matter?
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