• Can You Get Rich Trading Options

  • Maybe you’ve been trading straight futures or just buying stocks but want to know can you get rich trading options or how can I get rich trading options. Everyone who has ever traded options was a beginning options trader at one point.

    Did you know that you can make more money on many trades using options than you can by using a straight futures contract or by just buying or shorting a stock? If you don’t believe me, I’m going to prove it to you.

    After you see that you can make just a much, or more, money using option strategies and even have less risk sometimes you will wonder why no one has told you about this before.

  • How many types of options are there? Just two, Puts and Calls, but there are dozens of ways to use them either alone, together, or in combination with a futures or stock positions.

    In this article, I’m not going to discuss all the different option strategies you can use but rather I’m just going to show you why you should trade options along with what you are currently doing.

    Remember I said there are only types of options? Let’s take a look at each one of them.

  • What is a Call Option

    If you purchase a Call option you have the right, but not the obligation to be long a market or stock at a certain price, the strike price, on a before a certain date, the expiration date. Simple? You buy a Call when you think the price is going up.

  • What is a Put Option

    If you purchase a Put option you have the right, but not the obligation to be short a market or stock at a certain price, the strike price, on a before a certain date, the expiration date. It’s just the opposite of a Call option. You buy a Put when you think the market is going down.

  • The actual definition is simple enough but you have to know which option strike price if the right one to buy, how many days should an option have left before it expires and how to price an option to know if you are paying a fair price for it. These are just a few of the questions you need to understand to become successful at trading options.

  • True Story that Anyone Can Get Rich Trading Options

    Learning to trade is not rocket science which reminds me of a funny story I’ll share with you. I was doing seminar in Canada a few years back and during my short introduction about myself I told everyone that learning to trade futures and options was not rocket science and that anyone with average intelligence (hopefully that included me), a desire to learn and is teachable can learn to make a living trading futures and options. Please notice two important words I used, desire and teachable which is much more important than intelligence. I’ve seen some really smart people fail and some really average people become successful traders.

    At my seminars everyone wants to know what kind of people trade futures so I go around the room and ask people what they do for a living, are they trading, how are they doing etc.

    I got the typical answers; a farmer, a truck driver, a teacher, an accountant, a stay at home mom, a doctor and then I ask the next man what he did and he kind of blushed and ask if it was really important. I told him that it was not really important but I was asking only because I thought it would be interesting for everyone in the room to get to know each other. Then he told me he was a rocket scientist! I thought it was humorous and told him that even a rocket scientist could learn to trade. Everyone, including him, laughed.

  • Can You Get Rich Trading Options - Yes, Here's How:

    All I’ve mentioned so far is “buying” options. Did you think about the fact that it takes someone to sell you an option before you can buy it? Of course buying an options requires someone to sell you that option. Common Sense; right?

    What risk do you have if you buy an option? The only risk you have is the amount of money, known as premium, that you paid for the option. You also have basically unlimited reward potential too. So you might be wondering why would anyone want to sell an option? It’s because they collect a premium from you (the buyer) for taking that risk. It’s the same reason an insurance company sells you a home owners policy; because you pay them a premium for it and they feel that the odds are on their side and over time they will collect more premiums than they have to pay out in claims. This is the same reason why someone sells options.

    Now selling options has predefined rewards (premiums collected from the buyer) and unlimited risk and buying options has limited risk (what you paid for it) and unlimited reward potential.

    So David, why would anyone in their right mind sell you an option? It’s for the same reason the insurance company sold you a policy. Are your wheels turning yet? I hope so. But there is a big question you need to ask; how many options expire worthless where the seller gets to keep all the premium? I’ve heard the term 80% used a lot and that’s probably pretty accurate. Should a new trader sell options? Short answer is no, at least not at first. You have to understand the “creature” really well first. However, I will say that you can control your risk when selling options but that is going to be covered later in another article.

    On the following chart, I’m saying that we entered the market just below the current day’s low on a short futures contract and had a target to get it at the lows of February 11th which is the most current major low. As you can see the risk is $1,990.00 and the reward is $3,250.00 which is a reward of 61% ($1,990 / $3.250.00). Not a bad trade if it works like we think it will.

    Now I’m going to buy a 125.00 Out of The Money (OTM) Put option for $1,030.00 which is about half the risk I would be taking on the short futures contract.

    Look at the chart below and you will see at this point it’s about an even race. The short futures position is up $2,600 on a $1,900.00 risk or 135% and the Put has now made $1,410.00 or 136% of the risk taken. Not a huge difference.

  • However, what would it look like if on the same day I purchased the Put option I had also SOLD a 132.000 call and collected $630.00 in Premium? Then the cost of our Put we bought, also called the short Put, would only cost $500.00 ($1,130.00 - $630.00 that I got from selling the Call, also called the short Call). So my net cost is now only $500.00 ($1,130.00 - $630.00). See the chart below.

  • Now, I’ve played the chart forward the to the same date in time. Obviously I would have made the same $2,600.00 or 136% on the short futures position but how much did I make on the options? Good question.

  • On the 132.000 Call I sold, the short Call, I made $460.00 so far because it’s gone down in value which is a profit for me and I’ve of course still made the same $1,410.00 on the Put Option I purchased, the Short Put. So I made an extra $460.00, not a real big deal or is it. THINK………………………. What did I pay to put the options trade on? Remember I only paid $500.00 net because I sold the Call to help puy for the Put I purchased. So I made $1,410.00 + $460.00 or $1,870.00.

    The big difference is the percent of profit I made $1,877.00 / 500.00 = 375%!!!

    If course it did not come without risk, but not a lot more risk. If the market had started to rally I would have lost money on the Put I purchased AND the call I sold. Of course the same could be said about a short futures position too. I would have had a risk of $1,900.00 on the short futures position so I could have had a “mental order” in that if the Options (both the Put and the Call) went against me $1,900.00, I would have gotten out. So the risk would have been the same. Unless something drastic happened and the price took off like a rocket right after I got in I could have controled the risk to be about the same as the futures contract woud have been.

    This is just one way to trade options. There are dozens of them discussed in my course as well as in some of the following articles. You can also watch the video I did about this strategy below.

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