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 March 2nd, 2011 at 3:02am
I've not bought the ebook ezy options sells so I cannot comment. Two good video courses on options are TradingOlogy and Option Boost - online video series.
Dave March 2nd, 2011 at 2:00am
What is your opinion on www.ezyoptions.com? What are some good cheap options trading courses?
Peter February 15th, 2011 at 10:48pm
You mean like a Long Condor or Short Condor?
jan February 15th, 2011 at 2:10pm
thanks peter. one more question. is there such a strategy where you go long and short call and put at the same time? for example when you wait a big move in the price of gold so you buy and sell all four of them for the same trigger price and wait for the outcome?
Peter February 14th, 2011 at 4:15pm
Hi Jan,
Here are some option recommendation services;
Option Sizzle
Index Option Trader
Call Writer
Peter February 7th, 2011 at 6:19pm
Hi Sandy,
Your broker should provide a platform with options functionality. However, if you prefer standalone software for analysis you could try optionvue.com or Omni Trader.
Sandy February 3rd, 2011 at 3:07am
Your site is very informative.Thanks. Could you kindly give some advice on cost effective software packages that can be used in stocks/options? I am new at this.
Peter January 31st, 2011 at 10:30pm
Hi Gerry,
If you own the stock and sell a call and a put at the same strike (i.e. a short straddle) the payoff profile is the same as that of a covered call.
JPD January 31st, 2011 at 12:03pm
Gerry:
You may want to go through whatever theoretical courses that you have taken a few more times.
Over time, you will lose your shirt. For example, MSFT was selling for around 28.5 the time of your post. Let's say you sold 29 Feb 2011 options. On 28 Jan MSFT hit 29.45 intraday -- your put options might be called away for a $45 loss per contract. Two days later when the price ratched down to 27.50 intraday -- your call options might be called away for a $150 loss per contract.
Gerry December 17th, 2010 at 11:29am
Hi , I have some questions relating to options , which I dont seem to find answers to , maybe you could help. If I own stock , say MSFT , and sell a call option for strike price 29 , pocket the premium ( I understand this obliges me to sell the share at 29) . Then if I sell put option for strike price 29 , pocket the premium ( I understand this will oblige me to buy share at 29 ). Is this a viable strategy ? I cannot see a down side but I have only theoratical experience with options. Thanks all
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