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Make Money Buying Options
For most traders the best practice is to make money buying options. You can make money buying options on stocks or commodity futures. And you can make money when you buy foreign currency options. Professionals make money trading options both by buying and selling. The fact is that those who sell options tend to make more money over the years than those who buy options. But, the risk of a horrendous loss in selling options is such that this practice is largely limited to those with deep pockets. If you analyze carefully and pay attention to the markets you can find underpriced or out of the money options. If your analysis tells you that the underlying equity will go up, or down, in price you can make money buying options.
Make Money when Equities Rise or Fall
There are two types of options contracts, calls and puts. A call contract gives the buyer the right to purchase the equity in question at a set price no matter how high the market price may go. The trader is under no option to execute the contract and will do so only if it results in a profit. Traders make money buying stock options with calls if the price of the stock rises. Their maximum loss is limited to the cost of the options contract. What about if your analysis tells you that the price of a stock is about to go down? Then you can make money buying stock options by using puts. A put contract gives the buyer the right to sell the equity in question at the fixed contract price not no matter how far the price might go down. As with a call contract the trader is under no obligation to execute the contract and will only do so if it is profitable.
Never Buy or Sell the Stock in Question
An options contract has a value. It is the price that one pays to purchase the rights in the options contract. When a person buys a call on a stock he pays a certain price. If the price of that stock goes up so does the value of the options contract. The same happens with puts if the price of the underlying stock goes down. Many if not most options traders never buy or sell stocks. They simply exit their contract by making the opposite trade, taking their money with them.