Options are a best and the powerful way to increase the value of your portfolio while increasing your income and monthly cash flow. If used correctly with right decisions , trading options can make you enormous profits. Contradictory to it , if you are not appropriate with your trading, stock options can wipe out your earnings very quickly. One of the easiest and least risky option tools available are selling call options. Typically, to avoid risk, a call option should be used when we are in an up trending market and the outlook of the particular asset is bullish. However, if you can handle the risk, trading options in a down market can make you a bundle of money as well.
- The first step in purchasing a call option is to identify the assets or stocks that you are interested in trading. it is very good to stick to trading options of the stocks and companies that you know or are interested in. Prefer to stick with stocks that pay good dividends and have been around for a while. The riskier the stock, the more volatile the associated options are.
- After figuring out what stock(s) you want to trade call options for, you need to define your strategy. You can choose to trade options for the short-term and flip these contracts similar to day-trading stocks. Or you can choose a longer-term approach.
- Once you have your strategy defined, you need to determine which strike price you want to purchase. Depending on the stock, there are usually several strike prices available for every month the call option is available.
- Once you have made your decision on what to purchase, you simply contact your broker to make purchase the asset. Remember that if you purchase 1 call option contract for $10 – that means that you have purchased the right to buy 100 shares of that stock at a future date for $10.
- After you made your purchase you have two choices. You can hold the call contract(s) so you own the right to buy 100 shares of the stock for the strike price. The other possibility is to turn around and sell that same contract(s) to someone else, hopefully for more than what you originally paid for it. This is my preferred method of options trading as I don’t have the capital to purchase 100 shares of stock for $10. Instead, I am concerned with trading the price of the call option.