Options Trading Tutorial

How and what do you need to know to start playing in stock options market?

What are the pitfalls, benefits, capital required, investment knowledge, to be able to play in stock options market to be relatively safe.

Public Comments

1. very difficult to "play" in the options market. most players lose money. the safe area is to write covered calls, which means you own the underlying stock and sell an option to someone else that lets them buy the stock away from you at the strike price. proper use of this technique is a conservative way to boost your market returns. the purchase of calls is highly speculative and will most likely result in loss of your cash.
2. Before you trade stock options you need to be a proven money maker in the stock market. Unless you can anticipate stock movements, you have no chance trading stock options. The way I trade stocks, I cut my losses short at about 7% Several years ago I decided to take that 7% and put it in call options 3 to 6 months out instead of 100% in shares. Your risk is clearly defined, and you are offered some protection from events such as market closures or gap downs. I would never risk more than 1% of my entire portfolio on an option position. Spreads, straddles, and the ability to hedge are other benefits of options. Only trade stock options if you are an accomplished stock trader. You could lose alot of money. Writing options is statistically a losing proposition in the long run. The risk / reward is clearly unfavorable.