After setting up my new trade strategy over the past couple
of weeks I realized that buying the stocks is like buying a car. Why own the car and deal with all the
headache of getting it fixed and replacing parts when you can lease for a
cheaper price and get a nicer car. The
correlation is similar to stocks versus options. If you can trade options and get better
leverage, i.e. make more money, why buy the stock that has inherent risks of
losing value?
I started out trading options but never really appreciated
the seller’s side of the option chain.
If you become the seller you net your premium and then wait for the
trade to play out. I always like getting
my money up front. In any deal if you
can get paid first before the actual transaction you are headed in the right direction.
The trades I am making now are selling cash secured
puts. This is probably the safest option
trade. The only potential loss you have
is by being assigned the stocks at a low price at expiration. But if you traded on a decent stock, why
wouldn’t you want that stock at a discount? Other than this you are net
positive because you got your money up front as the seller of the put option.
As with any trade you have to make a smart decision about
where and when to sell and where and when buy. But if you are good at technical analysis then
you should be OK if you keep your trades farther out of the money. The key is to check the support and
resistance lines to make sure your strike price is beyond that and then you
will more than likely be OK.
More info on cash secured puts:
Selling Cash Covered Put Options
Here are some great videos that explain credit spreads which
are the other safe play that I may be getting into soon.
Credit Spread Option Trading Strategies part 1
Credit Spread Option Trading Strategies part 2
"if we never save money or invest we will always be poor, No matter how much we earn"
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