In today's era, it is everybody's dream to generate some easy and extra income by investing money somewhere. After the internet revolution, it has become far easier than ever to earn some extra and passive income siting in the bedroom. About one and half year back I learned about Option Trading in share market. Since then, I am doing it regularly. Though trading in derivative market is a high risk affair but if you get involved in it to earn a reasonable return every month, you can fulfil your desire to earn easy money.
There are two part of option trading, option buying and option selling. Here I will try to explain about both as per my understanding.
In today's era, it is everybody's dream to generate some easy and extra income by investing money somewhere. After the internet revolution, it has become far easier than ever to earn some extra and passive income siting in the bedroom. About one and half year back I learned about Option Trading in share market. Since then, I am doing it regularly. Though trading in derivative market is a high risk affair but if you get involved in it to earn a reasonable return every month, you can fulfil your desire to earn easy money.
There are two part of option trading, option buying and option selling. Further there are two types, put and call, this total 4 types of options. Here I will try to explain about both as per my understanding.
What are OPTIONS?
These are derivative products of any stock/indices, traded on the basis of speculation. They are used to hedging against volatility of underlying stock/asset/index.
Call options
- Call options buy – Call buy is used to make profit if market is in upward direction. To buy call, you only have to pay premium and chances of loss is limited, i.e. you will lose only premium amount if market goes against you. But here, profit could be unlimited if the market goes in your direction.
- Call options sell – It is used if you are bearish and want to make some profit. Here if you sell any call option and market remain below that till expiry the premium will be yours but at the time of selling you have to deposit heavy margin. In case market become bluish, and you didn't flow stop loss, there are chances of unlimited loss.
Put Options
- Put option buy – It is just opposite to Call option buy. Used to make profit in bear market sentiments.
Put option sell – Same as in call option sell, you have to deposit high margin money and your profit is limited to premium you earned while loss is unlimited if market fall below your put option.
How I trade Options
My favourite is Cal option selling. Although as mention above in such trade profit is limited and loss is unlimited, but I used it in combination with holding of any particular stock. Below is the example -
- I hold 1 lot of X company's stock (quantity of share in 1 lot decided by stock exchange. e.g. here 1 lot is 1000 shares)
- Option expires in one month or 4 weeks. I sell option of above 10% of current price. E.g. if price is 100 then I sell option of 110 (1 lot ) of X share. If premium is 1 then I will get 1000 as a premium.
- Now I wait till expiry if share price remain below 110, then premium will be mine. But in case it goes above 100 I will be in loss.
- As I already have holding of 1 lot, so price of my holding will also increase, thus my loss in option selling will be covered.
The above trading is 100% safe, but for that, selection of stock is very important. I selected the stock which is in continuous uptrend from last 20 years. Thus, the premium I am earning every month by selling options is an extra income other than appreciation of stock price.
In last one and half year of my option selling only one time, share price went above my option price, otherwise I am always in profit in option selling.
It requires high investment, but a good way to earn something on shares you hold. Figures show that option seller's winning rate is above 80% because in option selling time is in your favour as time passes premium evaporated and on the expiry it becomes 0.
Selling a call/put option without hedging is a high risk affair and should be done with strict stop loss.
Buying an option required low investment, but chances of losing your investment is very high until and unless you square off your position in profit.
Disclaimer
What ever I mention above is not a financial advice and written on my personal experience. One must do his/her own research before any investment.
