The Forex market is growing, options trading is still a strange name to the majority of traders. Because this type of security has not been traded on the floor but only through the OTC market. How to have safe and successful Options trading? In this article, Yenmachvang will tell you about Day Trading Options Complete Guide: How To Maximize Your Profit.
What are Day Trading Options?
Options trading is a form of speculation in an underlying asset. It gives the holder the right to buy or sell the underlying asset at a predetermined price at some point in the future. future. These assets can be stocks, bonds, commodities, or any other type of tradable market. Therefore, they are called “derivative” products because the price of an option is calculated from the price of the underlying asset. The price of a call/put option will change depending on market volatility, interest rates, volume, and many other factors.
Options date back to ancient Greece when some traders chose to “speculate” on the olive harvest.
In the form of online options trading, if you choose to buy an options contract, the trader will have the right to buy or sell the underlying asset at a predetermined price or on a certain date in the future. In general, all forms of trading and investing will involve analyzing a financial instrument’s ability to rise/fall over a specified period of time.
How to trade options trading
Options contract basics: What is a call option?
The call buyer has the right to buy shares of a company at a predetermined price (strike price) on a specified date (maturity date). The seller of a call option is obligated to sell the stock at the agreed-upon price to the buyer when the call buyer requests the exercise of the option.
For call options, traders will typically create a profit/loss chart similar to the one below:
Options contract basics: What is a put option?
Buying a put gives the buyer the right (not the obligation) to sell the underlying stock at a predetermined price (strike price) on a specified date (expiry date). In this case, the trader is betting on falling stock prices and short-selling the market.
Buying a call option or put option allows you to make a hypothetical infinite profit if the price goes up (for a call option) if the price goes down (for a put option). However, the price of the property is forced to run far enough to surpass the fee you initially paid.
How to Trade Options: Options Strategies
There are many different types of options strategies, each tailored to each trader’s style. Some traders use day options trading while others choose to trade stocks through swing techniques to hold trades for a longer period of time.
However, to understand what an options contract is, it’s best to look at all the different types of strategies that use options:
1. Buy call options
This type of options trading strategy is simple and is executed when the trader expects the underlying asset’s price to rise moderately in the future. You will be able to profit by selling the option before expiration. When the price rises and the trader knows how to make good use of the options premium. For call options at risk, the trader only loses the previously paid option premium
2. Buy put option
Also, a simple options strategy is used by traders who think that the underlying asset is likely to decline in value. In case the price is undervalued and the trader knows how to make good use of the option premium. He can profit by selling the option before expiration. With a put option, in the worst case, the trader only loses the previously paid option premium
3. Sell call options
If a trader already owns shares of a company, a trader can sell call options on these shares. This strategy is called a covered call. But if the trader does not own the underlying asset and still sells the call. This strategy is called a naked call with a high risk that the trader may have to pay the full cost.
The arbitrage strategy is the most popular. Because it allows traders to limit risk through simultaneous buying and selling of trading options.
For example, a trader employs a bullish arbitrage strategy by buying a call at a specific strike price. And simultaneously selling the same number of calls at a higher strike on the same instrument. same term.
Although this strategy limits the profit from the difference between the two actual prices, it also reduces the premium paid for the option. Traders can also use bear-put spread strategies in the opposite case.
5. Straddle strategy
Is a strategy where investors hold both call and put options, ie simultaneously buying Call Option and Put Option. In it, both options must have the same underlying asset, the same exercise price, and the same expiration time. Investors use this strategy when they expect that the price of the underlying asset will fluctuate greatly but do not know whether it will increase or decrease.
There are also several other factors to consider that also affect the price of an option:
The volatility of the underlying asset. The more volatile the stock, the closer the options contract gets to the strike price. However, this increased volatility will also affect “Greeks” as well as option prices and premiums.
Expired time. The price at which the underlying market is trading and the time remaining. Before the option contract expires are critical in determining profit and loss and managing risk. In it, three important terms that any trader should know:
Speaking. When the price of the underlying asset is higher than the strike price for a call option. Or lower than the strike price for a put option. It is an indicator that the strike price of the option. And it is having an upper hand over the current market price of the underlying asset.
Losing. When the price of the underlying asset is lower than the strike price for a call. Moreover, it is higher than the strike price for a put option. A losing option has no intrinsic value but only extrinsic value, also known as time value.
Break-even. This is when the price of the underlying asset is equal to the strike price.
In general, before doing options trading, a trader needs to consider many factors and perform the necessary analysis to identify a profitable trade, trend and look for buy/sell areas. and exit the command.
In this article, Yenmachvang introduced you to Day Trading Options Complete Guide: How To Maximize Your Profit. Hope this information can help you to understand more details about options day trading. Hope you accumulate useful knowledge and get the expected profit.