Things You'll Need:
- Computer
- Internet Access
- Online Stock Broker
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Step 1
Select a list of securities that you are interested in trading. Stocks that have higher volume typically have options that trade in higher volumes. It helps to select particular securities with higher volumes and daily moves to maximize your earnings. Pick a list of 10 - 15 publicly traded companies that you know about or are interested in. Monitor these companies daily to understand their movements.
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Step 2
Define an exit strategy early on in order to profit from the volatility of options. Everyone likes to win and make profitable trades, but any successful options trader needs to understand when to get out. One must accept that they cannot always make money and know when to cut their losses.
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Step 3
Decide if you want to trade calls or puts in a security. If you notice one of your monitored stocks falls on a given day and you believe it will go back up within the next four to six months, then you should purchase call(s) against that security. On the other hand, if one of your stocks rises and you believe it will fall back down, then you should purchase put(s) against that security.
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Step 4
Continue to monitor the stocks and option contracts once you make your purchase. If you noticed a significant swing in the opposite direction on your security, consider selling the put or call contracts and take your profits. Just as you need to define an exit strategy, it is very important to also define a strategy to take your profits in order to profit from the volatility of options.
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Step 5
Constantly monitor the stocks and options in your portfolio, as well potential opportunities. Keep an eye on macro movements within the overall market and particular sectors. It is impossible to trade against the overall movement of the market.
