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Buy Calls and Puts for Outrageous Profits!

 
     
 

This page introduces the important information and caveats of buying options, and describes the two main strategies that will be the focus of this site. Using a swing trading strategy to buy calls and puts is one of the most exciting types of trading around!

 
     
 
 
     
   
     
 
 
     
 

 
     
 


tapBuying Calls and Puts is a wonderful way of making huge profits with small amounts of money. It is exhilarating to watch a trade double...then triple...and sometimes even quadruple....all within a few days or even hours. It can give any portfolio a godzilla size boost, and keep a person awake at night dreaming of how he will spend the millions that are about to fall into his account.

Buying Calls and Puts can also be a real Godzilla, and can be the quickest way in the universe to wipe out an account in a few quick moves.


The Advantages of Buying Options

  • When buying options, you make full use of leverage to capitalise on a move in a stock. That is, instead of purchasing the stock for a large amount of money, you can acquire the rights to the same amount stock for a fraction of the cost.
  • The profit potential for options is unlimited.
  • The loss potential is limited only to the amount of money that you put into a particular trade.

The Dangers of Buying Options

  • The potential for loss is 100% of the amount of money that you put into a trade
  • The same leverage that would give you huge profits if the stock moves in the right direction can just as easily wipe out your trade if the stock goes against you.
  • The big enemy of options, TIME DECAY, is constantly working against you as long as you hold an option, and can wipe out all or some of your profit as you wait for a stock to make a move.

Almost any website, advisory or broker has prominently displayed a strongly worded warning that goes something like this: “As an informed investor you should be aware of the risks associated with options trading. Please read the “Characteristics and Risks of Standardized Options””.

So, go ahead and read it before you go further.

After all the CYA material, this type of trading, done correctly, can be extraordinarily profitable!
On this site, I will focus on two approaches to buying calls and puts. Both are valid and can be wildly profitable.

  • OTM Calls and Puts: a way to get the best advantage of intrinsic value as your option moves into ITM territory
  • DITM (Deep in-the-money) Calls and Puts: a way to make the most of DELTA, so that an option price moves in exact tandem with a stock move.

A few important points before you start:

  • Base your trading strategy on a sound underlying stock trading strategy. Become successful at trading the stock FIRST, and then apply your skill to options
  • Only buy options when you expect a SHORT TERM move, otherwise you will have TIME DECAY aggressively gobbling your profits. This is why Swing Trading is an excellent strategy, because trades are expected to last for 2-10 days.
  • Keep to a simple, rigid system, with tight money management rules. No other trading method is as subject to wild emotional swings as this, and as soon as you let your excitement divert you from your plan, you have stopped trading and have started gambling.
  • Never, ever trade options on margin, or using debt. ALWAYS use money that you can spare, and as a segment of your overall trading strategy.
With that, move on to the trading techniques. Be hugely profitable. Have FUN!

Return from this introduction on strategies to Buy Calls and Puts back to the Home Page

Move on to look at how to buy OTM Options;

Or: Have a look at DITM Options buying.