How to make money in options?

How to make money in options?

I would suggest you get yourself one or two good books on the subject.

Making money in options can be done, but it has a different set of risks associated with derivatives compared to holding the underlying securities.

Probably the easiest and safest way is to write covered calls. As an example, lets say you have 100 shares of IBM trading at $90 each. You could right a covered call, which gives the buyer the right (not the obligation) to buy the underlying security from you. So, say you think IBM is going to stay at $90 or maybe even decline during the next 3 months.

You could write a covered call for 100 shares of IBM with a strike price of $95. This gives the buyer the right to buy the stock from you for $95.

• You could sell this option for $5 per share, times 100 (for the 100 shares) which puts $500 in your pocket. Now, during the 3 months, if the stock falls or stays below $95, the buyer will let the option expire without exercising it. You get to keep your $500.
• If, however, the stock rises to $110, the buyer will exercise their right to buy the stock from you for $95. You are obligated to sell your IBM stock to them for $95. They would have to pay you $95 times 100 share = $9,500. In this case, you wouldn't lose any $ out of pocket, but, obviously, you lose the opportunity to sell your stock for $110 times 100 shares = $11,000.

This is the simplest example. There are many other ways to make money (or reduce risk) through options.

Trading with options opens a large bag of trading tools and possibilities. There a lot os strategies associated with options - you can use it for hedging, make money when the stock market is falling, you can rent out shares and even "repair" a stock price.

Really, if you want to get involved in this, get yourself some good books. Its really a very exciting subject in Finance, one worth spending the time to learn.