How to Avoid Losing Money With Stock Options

Stock options can be very risky because they expire, unlike stocks. Here is a great way to avoid losing money when trading with stock options.

Difficulty: Moderately Challenging

Instructions

1. Do a spread.
   A spread is where you purchase calls and puts. This can be a great way to make money as long as the market is moving in one direction. If you are not positive what the market is going to do next, but do know that it is going to make a sharp jump in one direction, then you might want to try a spread. You do not have to spread the money equally either. If you feel it has a better chance of going up, purchase more calls than puts.

2. Pick a option that does not expire so quickly.
   Many people can figure out what direction a stock is going, but do not always know how long it will take to move. By buying a stock option that does not expire quickly, your stock will have time to move. Instead of getting one that has to go up or down in a very short amount of time. Even if a stock is bullish, sometimes it must has to come down before it can rally again.

3. Research the market as a whole.
   Do not just research the stock that you are wanting to buy a stock option in, research everything in the market. Things such as unemployment, earnings, and policies can all effect what the market will do each day. So even if the stock is bullish, it may come down due to things that are happening throughout the world. So make sure that you have really researched everything that is currently happening.