How can I successfully earn money by trading options
Whether it is NIFTY of India, NASDAQ and Dow Jone of USA, there is always interest in how money is made by trading options. You can track my performance too and see how I make and lose money on the way.
How can I successfully earn money by trading options?
The important thing is to find your "edge". In OptionAlpha, their edge is trading the right strategy based on the Implied Volatility (IV). When IV is high, options price is usually higher than normal and vice versa. So OptionAlpha's strategy is to sell options when IV is high and vice versa.
Options allow different strategies for different kinds of profit potential and risk.
In this article, you will find out the general setup that you need before trading your money away. One thing should be in your mind that options trading needs high precision, vast knowledge, and full attention. Patience and dedication are also much-needed in options trading.
Which is the best setup which can make money most of the time?
The first thing you have to do is found someone who has done this in the past. What does it mean, and how can it help? See OptionAlpha, TastyTrade who has been in the industry for many years.
A person who has made money by using trade options in the past can help you in the best possible manner. As all of us know that, stock trading is risky, and options trading is riskier than stock trading.
It is better to use trading options instead of an intraday method (which we also covered). The intraday method requires researching, analyzing, and training. So, if you want to save time, it is better to stay away from the intraday method.
Stock options are better for trading as a side income. So, does the expert you know shared what's the best strategy which can make money most of the time?
Factors You Need To Learn About
In options trading, you can’t ignore any factor, including the greeks (delta, gamma, theta, gamma). So, while using trading options, keep the following factors in mind.
Options trading is different than stock trading and options expire after a specific time period. So, if your option is not trading In-The-Money (ITM), your options will expire worthlessly.
So, in such cases, if you know that it will take 20 days to seek 500 points movements and your options have only left 10 days in expiry, then what should you do? Some experts recommend doubling down but most suggest to move on as it is not realistic to keep winning in options.
Unlike hourly work, you cannot keep trading options all day long and keep making money. So try to come up with a frequency that is acceptable. It can be twice a week (Tues/Thursday) or even once a week. Don’t take any position till that time and resist the urge.
When the time comes, then trade the cycle. For cycles, check the charts and all your position to determine the next action.
According to Gann’s methods, you will rarely see the top spikes. It means there would be a distribution phase when lots of sideways movement takes place. So, you shouldn’t be stuck in the sideways movements and be aware of the top.
You must understand that the trade is in sideways for 60-70% of the time. So, when you are trading in options on the buying side, be disciplined. When the market is sideways, you will have to keep patience.
It is a very effective but simple method. Check on the index charts. If the market is in bearish mode, check if the high made is lower than the previous high, then if the index starts to move down, and it breaks the previous low. What does it mean?
It simply means the overall trend is down and don't be surprised if your portfolio follows the index. Just stay calm and follow your strategies.
It is the most important thing that you need to ask yourself how much bad emotions you can get from trading. The decisions we make in a hurry have most of the time proved to be wrong. No one knows about your temperament better than you. So, if you are temperamentally strong, you can make your mind about trade just a few days before.
But if you are weak in decision making, then start thinking about a plan beforehand. I have seen many people that spend all day on calculations, but at the end of the day, they are not able to gain any profit.
Everyone wants to be rich and wants to earn lots of money. Yes, they can earn by options trading. But it is not as easy as everyone thinks. Stock trading is different than options trading. In options trading, you can make money at a rapid pace, but the risk involved in options trading is more than stock trading. In options trading, you may end up losing all your money in a single contract.
Trading options of NIFTY or NASDAQ can be used instead of intraday trading. NIFTY trading options are simple and can save you lots of time. Using NIFTY options, you can make lots of profit at the cost of limited risk.
Using this strategy, it will ensure that you are not putting your too much capital at risk. However, you still need to look at weekly charts and observe the flow of the market. Wait for the trade-able cycle, and don’t do trades in a rush. Understand your strengths and weaknesses. If you are strong enough, you can make good decisions. Remember, the trading market doesn’t stay on the top all the time; in fact, it remains sideways most of the time. (probably not now if you are interested and reading this).
Sky Hoon. Read Full Bio
Website Owner, Twitter-er
He has been trading since 2008. He started this blog to share the journey about option trading. He dabbled in stocks, bitcoin, ethereum (in Celsius Network), ETF (lazy Dollar Cost Averaging) and also built websites for fun. He used this as a platform to share my experiences and mistakes in trading, especially options which I just picked up.