Trading Option for Income
Trading options can be risky, but it is so flexible that some used it for income.
If you can adjust to extreme situations such as sudden market movement, income could be generated from options.
Personally, I don't use them yet as I really want to win big rather than win some gradually. Nevertheless, I wish to share what I saw on the web.
In this article, you will find out how to trade options for income. If you want to generate money, then start trading full-time. You can become rich slowly by trading options.
Trading options for income, you will have to keep a few elements in place. When you want to build your portfolio, trading option for income is the first step. If you are genius enough and can perform your trades correctly, then you can generate a handsome amount of money.
A Reality about Trading Options for Income
There is a misconception about investment success. People want to achieve large returns on each trade. Investing in options is the relationship between risk and reward. During trading options, you can make significant profits in a single trade, and meanwhile, there is a chance of losing all the money in one trade.
So, it is better to set and implement strategies instead of looking for quick money. Your sizeable portfolio wouldn’t allow you to make headlines in newspapers, but it will definitely open the door for more investment opportunities.
Setting Your Expectations with Options Trading
Everybody wants to know how much he can make by trading options for income. Is it possible to achieve six-figure incomes through options trading?
Can you only rely on options trading as a source of living? So, the answer to all these questions is “Yes.” For achieving all these goals, you will have to stick to the following elements.
Options trading is all about the number game. So, it largely depends on the amount of capital you are willing to invest in.
Most of the experienced traders want to gain 1% to 2% returns on their investments without taking too many risks.
For example, if you want to make $5,000 per month, then you need to have something around $250,000 to $500,000 in trading operation. Most of us don’t have massive money, so it depends on how wisely we allocate money and reinvest it in trading.
If you have investment, but you can’t give proper time to trading, then you can lose all your investment. Some people want to continue their day job, and definitely, it requires a full time, so it can become hard for them to do options trading and day job at a time. The trading option for income is much like any other activity you do that requires time, some knowledge, skills, dedication, and discipline. Your success in options trading mainly relies on the time you invest in learning and implementing strategies. The more time you spend on learning strategies, the more returns you will achieve.
In options trading, you will be making lots of behavioral decisions that can put you off track and can force you to make irrational decisions. In this way, you will take unnecessary risks. So, along with investment and time, the right mindset is also much-needed in trading options for income.
So, now you know what to expect from options trading. It’s time to look for some strategies that can help you to build your own money-making machine.
The Best Strategies for Trading Options for Income
To be successful in options trading, let’s have a look at some of the strategies that can help you to increase your income.
When you made your mind about investing in certain security, and you hope that its value will increase over time, then selling a put can be the best strategy for making money. When you sell a put, it allows you to buy the stock at a lesser price than the current-traded price. A put option gives the right to the owner to sell an asset at a certain strike price at or before the expiration.
It is another strategy that is used in options trading in which you sell a call option that you own. Covered calls give you the right to buy stocks at a certain strike price at or before the expiration. If the behavior of the market is from slightly neutral to bullish, then covered calls can be a great option. When you write a call on underlying asset or security, you earn a premium. In case, the stock prices drop or remain the same, the option will expire worthlessly, but the writer will keep the security and premium that he has earned.
It is another strategy that can be used for a trading option for income.
In this strategy, four different options contracts are traded at different strike prices, but at the same expiry date. This strategy is very common and popular among options traders. A mixture of a bull put spread and a bear call spread is used for trading iron condors. Traders use this strategy when they feel the future performance of an underlying security will remain neutral. Iron condor trade can benefit traders in different ways.
During the life of iron condors, stocks can move in one of the five ways.
- Up a little
- Up a lot
- Down a little
- Down a lot
Stock traders can only make money in the first two scenarios. So, these are the strategies that can help in trading options for income.
It is a complex strategy than the previous two. It involves interrelated transactions, so you must have the ability to understand these transactions correctly. This strategy is all about limited risk and limited reward approach. It means it puts a cap on profit gains and potential losses. There are two types of vertical spread, such as bear spread and bull spread, and depends on the trader’s view about the underlying security’s performance. These two types are further divided into put spreads and bull calls. So, selling vertical spread can be a good choice for a trading option for income. There are limited losses and risks, so if the trader’s predictions go wrong, there will not be too many losses.
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.