The Truth Additional income for traders Trading Options for Income Most people associate investment success with nailing large returns on a set of individual trades.
While you could identify and successfully invest in one single stock or option and make a killing, committing a significant portion of your funds to a single security exposes you not just to high rewards, but also to a significant risk of losing all your money. The truth is that trading options for income are not a get-rich-quick scheme. Instead, it is a systematic implementation of a set of strategies intended to yield consistent results over time.
Can you achieve a six-figure income through it? Is it possible to make a living out of trading options? The answer to all of these questions is YES.
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The time you are willing to commit to trading: Most people who want to start trading also have a day job that demands a significant portion of their time. Trading options for income, like any other activity you wish to pursue, requires time, discipline, some degree of study, and practice. Your trading success is directly related to the time you invest in learning and implementing your trading strategies until you develop the kind of expertise that will produce consistent returns.
The right mindset: There are a lot of behavioral traps involved in trading that may drive you to make irrational decisions or expose you to unnecessary risks. Now that you know what to expect from trading options, here are some strategies you can start learning and practicing to build up your own money-making machine.
You can start trading options for completely free with the Robinhood app. No commissions no strings attached.
Want other commission free apps? These apps will give you free stocks simply by signing up. Strategy 1: Selling Puts If you have already set your mind on investing in a certain security, planning that its value will increase over time, selling a put is an easy way to generate income.
Doing this also allows you to buy the stock at a price lower than the current traded price. A put option gives the holder the right, but not the obligation, to sell the stock at a certain strike price at or before the option expiry.
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Traders selling are put must be willing to take ownership of shares of the stock at the strikes price. Here is a snapshot of your returns under the above mentioned scenario.
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Once you own the stock, you can collect the dividends and sell covered calls, which leads us to strategy number 2.
Start selling put options with Robinhood with no commissions.
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A call option gives the holder the right, but not the obligation, to buy a stock at a certain strike price at the expiration date of the option. Covered calls are great if you have a neutral to slightly additional income for traders view on the stock.
By writing a call on the underlying security, the writer earns a premium. On the other hand, if the security increases in price, the buyer of the option may exercise the option and the writer will have to sell the stock at the strike price.
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Since the writer is predicting that there will be little to no change in the price of the underlying security, this strategy should result in a benefit equal or similar to the premium collected from writing the call option. If you expect the stock to remain fairly flat over the next 3 months, you can write 3 call options on these shares.
If you were already planning to sell the underlying additional income for traders, a covered call is a good play to generate some extra income from the stock.
Under the scenario outlined above, here is the profit scenarios for ATT.
How to Trade Options for Income - 4 Proven Strategies that Work
See Related: YieldStreet Review — Invest in Alternative Assets Strategy 3: Vertical Spreads Vertical spreads are a more complex way to trade options for income compared to the previous two strategies, as they require a set of interrelated transactions that need to be properly understood. This strategy is a limited-risk, limited-reward approach, since it puts a cap on the potential losses the trader may face, while also putting a maximum limit on the gains.
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Additionally, they are subdivided into bull call and put spreads, and bear call and put spreads. Each strategy additional income for traders of buying and selling options with different strike prices that expire on the same date. See Related: How to Invest a Additional income for traders Amount of Money Strategy 4: Iron Condors An iron condor strategy involves trading four different options contracts that have different strike prices but the same expiration dates.
The strategy involves selling an out of the money call and put and then buying calls and puts further away from the current stock price. Because the calls and puts that are purchased are further away from the money that the calls and puts being sold, the traders receives a net premium for placing the trade.
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Iron condors are the most popular income trade for option traders. Trading an iron condor involves combing a bull put spread and a bear call spread.
Stocks can move one of fie ways during the life of an iron condor: Up a lot.