An option is a financial instrument that you can use for many different purposes, as protection against an expected move in an underlying instrument such as a stock, as a way to use leverage to control more stocks than you want to buy outright, as a way to use your existing investments to earn additional cash; and many other uses.
But, can you get rich trading options? The answer is, clearly, yes, you can get rich trading options.
If you’re like most people reading this article, this is probably the answer you were hoping for.
The obvious next question is, how can I get rich trading options?
Here’s what you can do if you have cash but not a lot of purchasing power: The option will completely skyrocket before it expires, probably after the next week’s earnings report.
Since one option contract represents 100 shares of the underlying stock, you can benefit from controlling a lot more shares of your preferred growth stock if you purchase individual shares with the same amount of cash.
When your chosen stock hits the moon, sell your options for a massive profit. Rinse and repeat and before you know it, you’ll be buying the mansion you’ve always had your eye on.
What are the options?
Straightforward Definition – An option is a direct financial derivative. This legal contract gives you the right to buy or sell the asset during or within a per-determined date (exercise date).
If you are the seller, you are obliged to fulfill the terms of the transaction. These will be either to sell or to buy if the buyer chooses to ‘exercise’ the option before the expiration date.
Options for day trading in multiple markets. You can get stock options, ETF options, futures options and more. These traditional options are also known as ‘vanilla substitutes’.
1) Profit making
Many factors go into the price of an option. A trader cannot simply “buy a call” and expect to make money when the stock price rises. Much more is involved.
The problem is that new traders are unaware of all the other factors that affect whether the trade will make a profit or lose money.
2) Holding for a long time
When buying options, do not plan to hold them until expiration. Options are wasting assets and your plan should include exiting the trade as soon as it is possible.
It is easy to fall in love with a profitable options trade and stick to it looking for huge profits.
Don’t let this happen. Sometimes you make the target profit. Other times it means giving up the trade and selling the options while they still have value.
If the stock price reaches your target (or gets close to that target price), it’s time to take your profit and sell the option.
Benefits of options trading
1-Great leverage while trading options.
2-Minimum time required for trading.
3-Profit in many different market states.
4-The risk is limited.
1) Leverage
You can take advantage of great leverage when they trade through their online broker.
As retail traders we only have access to limited funds, so we need to make sure we make good use of those funds and leverage is a method we can use to do this.
Options allow us to control a decent sized position for a few hundred dollars.
Imagine controlling a hundred shares of Google stock for a fraction of the cost of actually owning the shares. That’s exactly what stock options traders are able to do.
2) Minimum Time
Unlike day traders, you are not sitting in front of your monitor watching all the glowing quotes.
You can view your charts once a day and decide if an options trade is in place.
It is perfect for someone who is enjoying another job, family commitments or retirement. Business to live does not mean to live for business.
This is one of the major drawbacks of day trading, but one of the many benefits of options trading.
3) Advantages in Multiple Market Conditions
Options are the only available instrument that will allow you to profit from up, down, or sideways markets.
It is powerful because it allows us to make profits regardless of the market.
This is very important for a trader who wants to make a living from the markets and trade full time.
4) Limited Risk
Your risk is limited to the cost of the option. You can create strategies where the risk of loss is minimal but the trading potential is high.
Every trader will tell you that capital protection is job #1 for any trader.
If you are an option seller then you can make money on premium. Many professional options traders who trade these markets for a living are banking the premium by selling options.
Alternatives can succeed where other areas fail
While some areas of the market fail, options can succeed. This is partly because you do not have to exercise your option to profit from it. Also, volatility itself can be profitable.
Mutually beneficial
Although options are often made on stocks, combine the two and they can bring you more profits.
This is because you can sell your option to make income on the shares you already own.
Intraday options trading is multifaceted and brings with it huge profit potential. The best part though is the accessibility.
You can start day trading with options from anywhere in the world. All you need is an internet connection.
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