Options trading is not a form of investing that is risk-free. However, according to Wendy Kirkland, trading options is still a good way to make money.
Option investors can earn income by becoming option buyers or writers. This is possible because prices are continually changing for shares, commodities, and currencies.
Wendy Kirkland has a selection strategy that can be used regardless of market conditions.
Options contracts and the strategies for using them determine your profit and loss account. You must study it carefully to understand your income or losses.
Under normal circumstances, the potential benefit is unlimited.
When you buy options, your earnings can be unlimited, and you will lose the cost of the option premium.
Depending on the options strategy adopted, you can benefit from various market conditions, such as bullish, bearish, and horizontal markets.
Check out other books published by Wendy Kirkland Publications on various income strategies and business methods!
Who is Wendy Kirkland?
When Wendy Kirkland lived in Asheville, North Carolina, she was an excellent choice broker.
She has also led several women’s funding organizations to understand skills related to market opportunities and share her experiences.
What is Options Trading?
An option is an agreement that provides the buyer with assets. However, it is not intended to allow you to purchase or sell an asset at a specific value before a predefined deadline.
To speculate, profit, and hedge against uncertainty, individuals use options trading.
Options are referred to as securities as they have an intrinsic value.
An offer with a stock option usually consists of 100 underlying shares. Stock options, though, can be traded, from shares to securities to services, into any underlying commodity.
Trading options are beneficial as they can enhance your investment account.
They achieve this goal by improving sales, safety, and even impact. Depending on the case, the option is ideally described to fulfill the investor’s purpose.
An example is using options to reduce risks from the recession as an effective hedge against declining share prices.
You may also make use of continuing rewards options. Also, you can use them for theoretical motives, including the course of uncertain occurrences.
Account Size vs. Earnings
Your trading account’s size has nothing to do with whether you will become a successful options investor.
First of all, you should look at the market’s success to determine whether you follow the system or rules. Second, is your system profitable?
Therefore, if you have $2,000 in your account, and you can still earn $200 per month, then you should consider yourself to be a successful options trader.
Of course, even if you cannot quit immediately, you will still grow.
Focus on trading the market, not making money. Choosing trading options can be challenging.
Your success does not depend on your trading account’s size but your confidence in the formation of successful transactions. Believe me, if you succeed in trading by the rules, then money will follow.
Suppose that real goods or services rise above the strike price until they expire. Investors with call options will benefit in this case. The put option holder will gain if the price holds below the strike price before it increases.
If the underlying share price remains lower than the strike price, the call’s issuer will profit.
After writing the put option, if the price is still above the strike price, the trader will profit.
Purchase and Deed Options
Purchasers of options will get a substantial return on investment(ROI). This is because the share value may surpass the strike price.
If options trading is profitable, the return to the option writer is relatively small. No matter how much the stock goes up or down, the author’s income is limited to the premium.
So why choose the option? Option writers are likely to benefit under normal circumstances.
In the late 1990s, a survey carried out by the Chicago Mercantile Exchange (CME) showed that more than 75% of all options retained to maturity were useless.
Assess Your Risk Tolerance
This is a simple risk tolerance test to determine if you are an option buyer or seller. Suppose you can buy or save 10 call option trades and the value of each call option is $0.50.
Each contract generally has 100 shares as the underlying asset, so the cost of 10 contracts is $500 ($ 0.50 x 100 x 10 contracts).
However, the probability of a profitable options trade is very high- 75%.
However, if you do not know there is a 75% risk that you will waste your money and a 25% probability of gain, will you have invested $500?
Maybe you want to win $500 and know that there is a 75% chance of keeping all or part of the amount and a 25% chance of losing.
The answers to these questions will help you understand your risk tolerance and become a better buyer and seller option.
Option Trading Skills
As an option buyer, your goal should be to buy options with the longest expiration date possible to give yourself time to trade.
When writing options, shorten the expiration date as much as possible to limit your liability.
Try to find a balance between the above views by buying the cheapest options.
It could improve your odds of winning. The dividend yield can be quite poor for such low-cost options.
While this indicates that the probability of a successful trade is low, you may underestimate the implied volatility and option prices. Therefore, if the trade is successful, the potential profit will be huge.
As shown in the example above, there is a trade-off between the strike price and the option’s expiration.
For example, when the results of a major drug clinical trial are announced, biotech stocks are often sold alongside binary products.
Of course, it would be hazardous to subscribe or sell biotech stocks related to such events. Until volatility is excessively high, premium revenues will compensate for the risks.
It does not make much sense to buy or sell large amounts of money from industries with low volatility (such as utilities and telecommunications).
Use options for one-time events, such as company restructurings and spin-offs, and cyclical events, such as earnings releases.
For example, it could be a lucrative opportunity to buy cheap stocks at the currency’s purchase price before the share income report drops significantly.
If you can beat the lowered expectations and then rise sharply, it will be a promising strategy.
Choosing the Correct Option
Here are some general tips that can help you identify the types of trading options.
Bullish or Bearish
Are the stocks, industry, or market you want to trade going up or down? If so, are you crazy, moderate, or just a little stubborn/bearish? Suppose you are very confident in the hypothetical ZYX stock (price $46).
Is the market situation turbulent or calm? What about ZYX stocks? Assume that the implied volatility of the ZYX is not too high (for example, 20%).
It might be a smart choice to purchase a stock option in that situation, as these options might well be relatively inexpensive. Check out how to invest safely in volatile markets.
Strike Price and Expiration
Since you are very bullish on the ZYX, you should be able to buy short call options. Suppose you do not want to spend more than $0.50 on each call option, and you can choose to buy a call option priced at $49 for a purchase price of $0.50 for two months, or choose a call option with a purchase option. $50 is the option price. For a three-month purchase, the price is $0.47. You choose the latter because you think you could offset the slightly higher strike price by additional months of expiration.
What if it just goes up a little on the ZYX, and the implied volatility is 45%, which is three times the overall market? In that case, you may consider writing short-term put options to get higher returns rather than buying call options like before.
More advanced methods, such as call and put options, should only be used by experienced investors with sufficient risk tolerance.
You can customize the strategies according to your risk tolerance and income requirements. They provide different ways to earn a profit.
If we exchange options, stocks, shares, or some other strategy or process, we have to concentrate on one system at a time to gain expertise.
You should be direct and be the person who is willing to listen to expert advice. You will soon be a master in options trading.