I’m beginner in investing and I want to know if it is at all possible to make money from trading options. It looks quite complicated but my broker told me options can provide unlimited return with limited risks. Any of you made any money from options? Any sites or books you recommend?
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Yes, you can make money in short (1-3 days) and long term (3 weeks). This is depend on your strategy. I make some money by my self. Study first, use virtual money before you start to trade real money
The way that options work is that they are bought or sold as contracts. A option is the right not the obligation to purchase or sell the stock. So in turn, you are limiting the potential loss.
However, they can expire worthless. Once they expire you lose your total investment. The upside is that you are buying the actual position for pennies on the dollar.
Your broker shouldn’t even be telling you about options, because they are consider extremely risky, and are not for the average investor.
I used to do options all the time, and unfortunately mistimed one a long time ago. I was about 3 months early, and lost approx. 15,000. But, if I would have timed it correctly, I would have profited about 2.7 million. Needless to say, I wish I had that 15k right now.
Yes, you can make thousands of dollars with stock options. However, options could be risky if you don’t know the risk management strategies. A few sites I recommend:
http://www.ibankinsider.com – options trading guide from an ex investment banker
http://www.optionsxpress.com/ – an online broker that provides free investor education
http://www.cboe.com/ – Chicago Board of Options Exchange, free basic courses on options
I would also recommend you to read the options playbook by Brian Overby and TradeKing.
Here is just a little bit of insight for you.
On June 9th 2008 I purchased a call option on a company called Solarfun, this is how the trade worked out for me.
Bought the July 08 Expiration $22.50 strike price for $160.00
Sold the position back to the market on June 16th, yesterday at $220.00 for a profit of $60.00
$220.00 Sell Price
-160.00 Buy Price
_______
$ 60.00 Profit
Total amount of time invested in the position, one week.
Yes there are many strategies to use to make money with options that can make money in up, down and sideways markets. However, most are unsuited for beginning investors. The only exception is covered calls. Writing calls on stocks you own increases your returns with pretty much no risk.
Besides that, I would suggest you start studying stocks since their prices and volatilities determine the price of options. A true options trader must also be familiar with the Black-Scholes formula for option pricing. There are many books on the subject.