Options are derivative financial instruments that are actively used in the trading of commodities, securities and in transactions with currencies. An option gives you the right (but not the obligation) to buy or sell the underlying asset at a predetermined price and within a predetermined time frame. If you use options wisely, they can become both a means of insuring operations in the stock and foreign exchange market, and an independent source of your income.
Instructions
Step 1
Get trained to trade such difficult-to-master instruments as options. Familiarize yourself with the terminology, understand what the essence of options trading is, what they are and how they differ from each other. There are many options, but in order to make a profit, we are interested in those types of them that can be bought and sold at any time, have an expiration date and a strike price.
Step 2
Explore the features of Call options (a buy option) and Put (a put option) and the differences between them. Remember that there are four main types of option trades:
- buy a Call option;
- sell the Call option;
- buy a Put option;
- sell the Put option.
Step 3
To reinforce the educational material that you can find in the literature, consider an example of using the Call option to make a profit. So, let's say that at the end of July, when deciding to buy an option, you expect the rate of the pound sterling (GBP) to rise within the next month and buy a $ 100 Call option for the pound sterling with the option expiring on August 23 of the current year and the strike price. equal to 4800. This means that you paid a premium of $ 100 for the right to buy the GBP at the specified time at 4800. It comes on August 23rd and you see that the price of the pound has risen to 5300. Since the option you bought gives you the right to buy the underlying asset (GBP) for the price of 4800, that's what you do. Immediately selling the pound at market price of 5300, you will receive $ 500. After deducting the $ 100 bonus paid, you received $ 400 in net profit, which is 400% per month. As you can see, the benefits are obvious.
Step 4
Analyze the situation if, in the described case, when the option expires, the pound price does not rise, but falls to, say, 4300. In this case, you will incur real losses only in the amount of the premium paid when buying the option, that is, $ 100. You will not be able to lose more money, since you are not obliged to buy the underlying asset at a price that is unfavorable for you (an option is only the right to buy the underlying asset, but not an obligation).
Step 5
With experience, you will be able to master more complex options trading strategies, in which the risk of loss of investment is minimized. However, to master all the methods of option strategies, you will have to learn a lot.
