Options have become one of the fastest-growing industries of the financial world. Even though the ABC of options trading is relatively easy to learn, it takes a lot of time and effort to master options trading so that you can make decent profits on a regular basis.
What are the secrets of profession options trading? Is it available to the mediocre trader? We will try to answer these questions in the article dedicated to the forthcoming webinar on options, which will be conducted by .
Options Trading Essentials
Imagine the situation when the price has been consolidating for while and is about to initiate a major momentum in any of the 2 possible directions. However, you are not sure which side the price will take. Obviously you can open trades in both directions but this position won’t bring you any profit because this is a lock.
Another way is to set pending orders in both directions. However, we all know that the price may well initiate a false breakout, thereby catching pending orders and going in the opposite direction to turn them into losers. In this case, you will also end up with a lock. Only this time it will lock a loss.
You can open a trade and set a stop-loss order, which is the conventional way of trading financial markets.
As for super-profits, you can use leverage. However, along with bigger potential profits your risks increase dramatically.
Most traders exploit trends, which are usually represented by strong directional movements, and abstain from trading on flattish uncertain market moves during times of consolidations (which occupy 70% of the time). I it possible to make money during times of market consolidation? Yes, there is.
According to Andrei Mikhalets, a trading expert from , unlike conventional Forex, options trading gives you many more trading opportunities.
Options Trading - New Opportunities For Forex Traders
An option is a financial derivative, which has an underlying asset. Therefore, the price of the underlying asset along with other factors (time, volatility etc.) determines the price of the option. These factors give options a competitive edge and extra opportunities in terms of profits.
Ok, now let’s assume the market is consolidating (like in the example mentioned above). We want to play this situation profitably without thinking about the direction of the forthcoming move. Is it possible? Yes, it is.
You buy both put and call options. As options are limited-risk assets (you pay a premium and cannot lose more than you have paid even in worst-case scenarios) we don’t care about the direction of the price move. The only thing we need is to see a price move in any of the 2 directions.
Moreover, even if the price initiates a major move or makes a false breakout and goes back into the price range, such market behavior is usually attended by high volatility. Therefore, we can make money even in this case.
It is difficult to believe, but it is possible.
Let’s consider a particular example of profitable options trading. July wheat options (the strike price was $800) cost $50 in late June 2012. At that time the price of the underlying asset was $640. In mid July those options cost $2500. $2500/$50 = 50 times, which is 5000% ROI within a month!!!
Do you happen to know any other financial instrument that can allow you to make mega profits in a relatively short trading period? Moreover, the risks were limited by $50 per option. Therefore, the risk-reward ration turned out to be 1:50.
No Forex instrument is capable of producing such hyper-profits.
Time Trading With Options
In options trading, there is such notion as time decay. It is about trading options during times of consolidation in the market of the underlying asset. Any market spends most of the time (roughly 70%) consolidating within a certain price range. This is the situation that can be exploited by options traders.
The price sees minor (or no) changes - the trader makes money. You can trade a certain price range. While the price stays within this price range, you keep making money.
An option trade may include different types of options: call and put options can be bought and sold. Moreover, we can build up a trade by using a combination of the underlying asset and its options.
To make the long story short, we can conclude that options give traders a lot of profitable trading opportunities. Therefore, options are a perfect option for those who want to make decent profits on a regular basis without major risks.
