How to Trade Options: Making Your First Options Trade

How to make money on tos

How to Make Money Safely With Stock Options Author: Glenn Stok writes about investment and risk-control strategies that he has perfected during 45 years trading stocks, options, and futures.

Consider exploring a covered call options trade. By Scott Connor November 7, 5 min read 5 min read Key Takeaways Selling covered calls could help generate income from stocks you already own Selecting strikes and expiration dates depends on the desired risk and reward trade-off of the position Take a step-by-step look at how to trade a covered call So you own a bunch of stocks in your portfolio.

Photo by Fran Hogan on Unsplash This article is for those who have at least some experience with options trading and willing to learn something new. After 45 years of trading stocks and options, I found the most dependable method of managing trades is with the ThinkOrSwim platform that's included with a TD Ameritrade account.

They make it easy to handle the types of strategies I will be discussing in this article. ThinkOrSwim shows all the critical market information that helps increase the odds of finding successful trades.

But selling premium is just that! You sell premium by selling options on stocks with high volatility. Don't worry if that seems to be a foreign language to you.

I'll explain "premium" and "volatility" as we go on.

How to Make Money Safely With Stock Options

You might be wondering why people are willing to buy that option from you. The buyer is hoping the underlying stock will move swiftly in the direction they think it will, in which case they make a quick profit. The problem with that strategy is that his or her timing might be off. They have to be right within a short period because the option loses value as it gets closer to expiration if the stock doesn't move as hoped.

But how to make money on tos helps you, as the seller.

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Their loss is your gain. That's why you are better off being on the selling side of the trade.

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See my point? ThinkOrSwim provides all the tools to manage trades with selling premium using various options strategies.

 - Разница между U235 и U238. Должно быть что-то самое простое. Техник в оперативном штабе начал отсчет: - Пять. Четыре.

It even helps find the best spread I'll explain that in a moment to increase the probability of profit POP. So, with that preliminary explanation, let's get into the nitty-gritty. It can only go up or down.

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On the other hand, stock options provide the opportunity to improve the odds since there is more than one way to have a profitable trade. With the proper strategy, you can be wrong in predicting the direction and still make money. Uneducated traders think that options are dangerous and give you a chance to lose all their money.

They say options lose value quickly and expire worthless. When one knows how options work, they can make money with much less risk than with stocks.

I assure you. I know you can do that. I will only be using the "Spread Trade" strategy in this article since my focus here is on the rules of success rather than the types of strategies.

Rules For Trading Options Successfully I learned some rules that made all the difference with my success. When you follow these rules, you'll improve your chance of profit considerably: Sell options when Implied Volatility Percentile is high.

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Buy options when IV Percentile is low. Define your risk when entering a trade. Manage winners mechanically, not emotionally.

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I'll explain all that as we move on. How You Sell Option Premium The idea is to sell worthless options to people who are willing to pay a premium for them. Additionally, when you buy a stock, you are risking all your money.

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But you can sell options with a defined-risk strategy. Let's get into that. You define the risk by buying an option further out of the money for much less than the premium received. An analogy will make this clear: You sell an option to someone who wants to buy it for one of two reasons: They think it will move in their direction how to make money on tos a certain amount within a specific time.

That is pure gambling. And YOU are the house.

How to Trade Options: Making Your First Options Trade

They buy a PUT option as insurance against loss on a stock they own. Or they buy a CALL option as insurance to be able to buy a stock at a particular price.

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Either way, you are selling insurance, and you keep the premium if things don't favor the buyer. Stay in the game even when you are wrong! What I am talking about is selling option premium. Another mistake uneducated traders make is selling options thinking they get to keep all the money when the option expires worthless. That works only until the day that you bet wrong and get a margin call from your broker.

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On the other hand, selling with defined risk allows you to stay in the game even when you are wrong. You can never get a margin call because you have established how much you risk when you enter the trade. So, staying in the game offers a great opportunity. When you are wrong, you can roll a losing trade forward another month, sometimes with a credit. That credit reduces your cost-basis. You need to look for a stock that has options trading with an Implied Volatility Percentile higher than the average for that stock.

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