Trading options to make money is easy. However, it can be hard most of the time. This is especially true for people who simply go into this business without even understanding everything that the stock market is all about. In fact, even if you know the market well, there are still a lot of risks involved in trading options. But, if you are careful enough, it will be possible to make a good living out of this. Here’s a guide to help you all throughout the process:
Establish a capital. In options trading, it is important that you start with a good capital to increase your chances of effective trading. More often than not, the minimum capital to start this business is 20,000 dollars. However, the better starting capital for options trading is 100,000 dollars and even more.
Open your own trading account. There are two trading accounts that you have to choose from. One is full service and the other is discount trading account. Both have their own advantages and disadvantages. For one, the first one is more costly than the other one but it provides recommendations from a seasoned trader. Meaning, even if you pay higher, you can be guided in what and what not to do in the business. On the other hand, discount account is cheaper. However, it does not offer any form of personal recommendations. Despite this, most discount accounts are offered with free or cheap trading programs and tools to guide you in your decisions in the stock market.
Be educated about your options. Start learning and understanding everything you can in terms of options especially on how they work. Take note of things such as puts, calls, expiration dates, and strike prices. Discover also the methods and tips when it comes to options trading including the risks involved in this game.
Discover different strategies in buying and selling. Spreads and straddles are two of the most common techniques to get a good chance out of trading options. Spreads refer to the process of making profit in price changes between different kinds of commodities. On the other hand, straddles refer to the process of buying and selling various monthly contracts to later take advantage of time value decay differences.
Completely understand margin trading. Margin trading can both hurt and help you in the business. It is the process of borrowing an amount from a broker and then purchasing options using the borrowed money. Take some time to understand this process before actually committing to options trading.
Trade options wisely. You must not reach this point if you have not followed all of the steps above. If you do this without understanding everything, you will turn out trading options using your own hunches or guesses. Though you can rely on your luck, the chances of losses here are high. Also, take note not to enter this business if you aren’t prepared to face any kind of loss. This is because loss is already a part of the life of options traders.
There are a lot of risks involved in trading options. However, if you are knowledgeable about this business, you have a good chance of making a good living out of it. Hence, before you enter options trading, start to educate yourself about it first.