How to Make a Living Trading Options

The downturn in the economy has put the spotlight on the stock market and its close cousin, options. Though riskier than the stock market, which trades in the "now", trading options is trading future productivity of a certain company, or stock.

Difficulty: Challenging

Instructions

Things You'll Need:

• Money
• Patience
• Time
• Series 7 License (if you want to be an options broker
• Internet
• Time (yes, I know I already have it above, but you need lots of time!)

1. You must have a solid understanding of the stock market before you proceed to attempting to understand options. They run along the same lines, so if you have a grasp on one, you should be able to understand the other. Stocks are a piece of a company that you can buy. The better a company does, the higher their worth, the more the stock is worth. To be good at trading stocks, be in the "know" about current events, global events, etc. that would directly, or indirectly affect your investments. For example, if you own stocks in Chiquita Banana, know about civil wars in the banana republics or monsoons that would destroy crops and diminish productivity.

2. Options are a step more complicated that stocks as you are, literally, buying and trading the option to buy something. Currently, oil is big with the options traders. You can almost certainly predict that oil prices will rise (although at the time of my writing this, oil prices are decreasing). So you buy the option to buy oil in the future. You can buy the oil or you can sell that option to someone else when the time is nearing for the option to expire. They can take that option of buying the stock or re-trade it to someone else.

3. You need time for this as 1) you need time to have a strong grasp on the minutia of this topic before you start risking your hard earned cash, and 2) stocks and options are an investment and take time to be worthwhile. You need a series 7 license to buy and trade as a broker.

Tips & Warnings

• Invest money you don't need tomorrow.
• Learn the stock market before proceeding to futures as a base of knowledge.
• Use a broker if you're not confident. Better to spend money paying for an expert opinion than to loose money trying to save money!
• I AM NOT A SERIES 7 LICENSED INDIVIDUAL! I am familiar with the market from people who trade their own money and when I get enough money on my own, will do.
• You need at least $10,000 to make this investment worthwhile. You can do with less on your own, but brokers won't talk to you if you have less.
• This is only a basic overview of the options market. There are many books out there that thoroughly explains the subject.

[taskeinc]

on 11/8/2008 I started out with a book on "Day Trading" and trying to expand from that .. this article helps.

[iamageniuster]

on 10/19/2008 Great tips. 5 stars!

[Thims]

on 10/19/2008 Risk vs Reward! Good advice...research and learn.