Options Trading Tips For Good Profit

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Options trading is gaining popularity in Indian stock market at very rapid pace nowadays. Most of the traders are leaving behind equity trading and are getting attracted towards options trading for making quick money. However truth is that options trading is quite risky and most of the traders are losing money in it. Options traders should seek professional guidance in order to earn money through it.

In order to earn money successfully from options trading one need to have solid trading strategies. No matter if you are beginner or an experienced option trader following options trading tips will help you to earn money from options trading in optimum way.

1.    Basics of Options trading
Before starting options trading one need to understand what exactly it is and how to trade in it. In Indian stock market we have Index options and Stock options. Index options have weekly expiry whereas stock options got monthly expiry. We do have options in Commodities also like we have options contracts for Crudeoil, Naturalgas and gold to name few.

Here are two types of Options:
• Call Options: Grant the right to buy the asset.
•  Put Options: Grant the right to sell the asset.

Options trader need to select call contract or put contract as per market conditions and strike price need to be selected as per the future price and expiry date. If expiry date is near than one should avoid Out of Money contracts and should rather buy In The Money contracts.

2.    Options Trading Strategies:
Options traders need to have clear trading strategies before taking any position. Unlike equity trading options trading offers multiple ways to trade in different market scenario be it bullish, bearish or sideways. Following are commonly used options trading strategies:

•  Covered Call: This is when you own the underlying asset and sell call options against it to generate additional Iron Condor income.
•  Protective Put: This involves buying a put option to limit potential losses if the underlying stock price falls.
•  Straddle: When you expect significant price movement but are unsure of the direction, you can buy both a call and a put option to profit from volatility.
•  Iron Condor: A more advanced strategy that limits profit potential but also reduces risk by using a combination of spreads

Choosing the right options trading strategy as per market condition is the key to success.

3.    Start Small:
Specially beginners who have just started options trading should start with small capital and should best test their options trading skills and strategies before making big investments as options trading is highly rewarding yet most riskier form of trading where contract can become zero also. As traders gain experience in options trading they can increase their capital for buying bigger contracts as per risk appetite.

4.    Time Decay Factor:
Time Decay also called Theta is a unique aspect of options trading which need to be taken care off. It means reduction in the value of options as the expiration date approaches. Normally time decay works against the options buyers as the value of options contract decreases gradually once contract approaches its expiry date. Options sellers are mostly benefited due to it as the option loses value over time and near expiry it becomes almost zero normally.

So choosing the right time frame in options contract plays the critical part in deciding the right approach like whether you should buy option or sell option.

5.    Manage Your Risk:
Risk management is important factor in all forms of trading however in options it is the most important part as if traders are done without risk management then traders are most likely to lose complete capital so capital protection is very important in options. Traders should never ignore applying logical stoploss in options and should focus on booking timely profit.

6.    Volatility Factor:
More volatile market means good movement in options contracts. Less volatile market or range bound market will result in premium decay in both call options and put options.  In volatile market traders should focus on quick trade for quick profit and should not hold positions for long.

7.    Understanding the Greeks:
Options traders often rely on a set of risk measures known as "the Greeks" to assess potential trades:
• Delta: Measures how much an option’s price will change with a change in the price of the underlying asset.
• Gamma: Shows the rate of change of delta, helping traders understand how fast an option’s price may move.
• Theta: Indicates how much an option’s price will decay over time.
• Vega: Reflects the sensitivity of the option’s price to changes in volatility.

By keeping an eye on the Greeks, traders can get a clearer picture of how their options will behave under different market conditions.

8.    Avoid Revenge Trading
Options trader’s likes to place revenge trade the most. Once they close any trade in loss immediately options traders are likely to place next trade in order to cover the loss which eventually will again result in loss. So at this time options trader will place another order with double quantity in order to cover all the losses and the cycle goes on. This impulsive trading should be avoided and one should set daily profit/loss limit in order to save capital.

9.    Market Events:
Options trader should always keep an eye on market moving events like earning repoprts, economic data and geopolitical news as these all have good impact on the price of the security and options contract will react as per that.

10.  Keep Learning:
One should never stop learning as options’ trading is complex and with increase in market volatility traders need to modify their trading strategies in order to stay in profit. Best way to earn from options is to hire options experts and trade on their back tested strategies.

 

Are you looking for Trading Tips on the GO of Stock Market, Options-Index Options and Stock Options, Commodity. Download SHARETIPSINFO APP NOW