Options trading provides you with leverage like you wouldn’t believe. Buy calls and control hundreds, even thousands of shares at a fraction of what it would cost you to own them outright. That sounds like a great idea, but you’re talking about a risk that is unknown to you just yet if you haven’t lived it already. What type of options trading are you looking to do?
No matter what options you buy or sell, they are able to be traded on the open market. Writing covered calls is more of an insurance strategy on positions you already have, but even those options can be traded. If you sell some covered calls on an underlying position, you can always buy them back at a profit later on down the road.
There are even advantages to trading those types of options, albeit at a slower pace. You may want to book the profits that are on the table, moving the equity to another position. Time and performance are the two factors that influence the pricing of a stock market option.
Buying calls was mentioned earlier as a way to leverage your funds and control more shares of a company’s stock. Yet you can do the same thing when you buy puts. It depends on whether or not you want to hold a bearish or bullish position on a company. Some people do both, as a strategy.
For example, it was announced today that a whale of a trader placed bearish options trade in a $3m bet against Apple. But if you dive into the details, he actually placed both bearish and bullish trades, two of each. It was just that the total of them equaled him entering into a bearish position that signaled he expects Apple to slide about 10 percent in the coming months.
There is a lot to learn when you’re trading options. I recently saw an analyst post about writing covered calls on Twitter stock, in the money covered calls. His reasoning was that Twitter had been on a downtrend lately, and he said the options were priced in a way that you could expect above average returns in the coming months. I did take a look at his theory and the premiums being paid out. I had other moves to make, but it did look like he was onto something.
Stocks can be expensive, so many people don’t make it to the level that allows them to own 100 block shares of companies and write covered calls. When you do get there, you can make more money. That said, a whole world of options trading is still open to you.
Now with less money, you can buy calls and puts, trading them. But you really need to get to the next level and have a lot of money before you start tackling positions like that in the stock market. So it’s like a catch 22 for inexperienced and small-time traders. It kind of equates to the notion that the more money you have, the more money you’re able to make.
That’s not just about balances and compound interest. It’s about the options that are available to you, in this case stock market options. You really do have more tools available to you when you have more money to put in the market. Plus you’re more experienced by that point, so you have a better chance of making the right trades.
Yet the stock market is still unforgiving, and it can really show you a loss at any given time. That’s why you see these big time traders coming at the market from both sides. They might even sell puts and sell covered calls on the same security like the guy trading options on Apple did.
The best you can do is learn and build. Don’t try to tackle the entire options market at once. I’ll tell you where I’m at. I keep learning about all of it, but I’m at the point where I’m accumulating 100 block positions and writing covered calls. If I did that for each stock I have picked in terms of diversification, I would need $100k.
And to move on to the next strategy, I could first entertain writing multiple covered calls for each security at different expiration dates. It’s almost like trading options in terms of buying calls and puts should be left to the people with millions of dollars. You can also visit Trade Ideas Review for more info on this strategy.