I can t make money on options what to do, Making Your First Option Trade
Print My subscribers and I have made a lot of money trading options this year.
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Which begs the question: who is on the losing end of these trades? My Cabot Options Traders have had some monster winners trading options in recent years with huge paydays.
How is that cost covered? As a former market maker on the Chicago Board of Options Exchange I can tell you I was theoretically on the wrong end of many trades like this one.
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However, if I hedged the trade properly, there is a great chance that I would break even, or even make money on a I can t make money on options what to do like this. For example, assuming the Cabot subscriber bought 10 calls from me, the market maker, I would instantly hedge the trade.
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I could do this two ways. The first way is to buy the stock in question. So if I sold 10 calls bearish position I might buy shares bullish positionwhich would leave my position net neutral. As the stock shot higher I would lose money on the call sale, but I would make money on the stock position.
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Or, instead of buying the stock, I might buy 10 other calls to hedge the position. Because of these hedges trading options, the loss for the market maker on such a call sale is not a forgone conclusion.
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What or who is the market maker, some hedge fund or what? How does that entity make money?
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I assume they have to make money or there would be no sense in doing this, right? For the 10 years I was that market maker on the CBOE, it was my job to make markets for you to trade on.
In every trade, I was trying to make money on the spread between the bid and ask of an option. And I wanted to do this thousands of times a day. Think of me as a casino. Is there only one Market Maker for all of the brokerage houses?
However, back in the day there were lots of small trading groups who had market makers on the floor as well as some big firms. For example, my trading firm was run by two trading floor veterans. They hired me right out of college to learn how to make markets.
They backed another five traders like myself to make markets. I would later join a much bigger trading firm to make markets electronically. As the years passed, the computers took over, and the markets on trading options tightened.
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My edge in being a market maker was disappearing. And because of that I left the trading floor.
However, it is not that easy.
That was the case for most market makers. And because of that, the markets you are trading off when you buy a stock or option are almost certainly made by computers from large trading firms.
What other questions do you have about trading options?
Leave a comment below. He uses calls, puts and covered calls to guide investors to quick profits while always controlling risk.