How to Make a Living on Stock Options

Video Transcript

"Have some extra money that would like to lose? I'm Roger Groh at Groh Asset Management and we're here today to talk about how to make a living by buying and selling stock options. Well maybe how to lose a living by selling and buying stock options. It's a very difficult business, most people don't make money. The first I would do would be to be to one of the brokerage firms and use their free complimentary fake trading account where it looks like you're buying and selling but you're really not. You get all of the advantages of actually doing it, but you don't make or lose money and in most cases lose money. Now ways that you can reduce the risk and possibly make money trading options, well one is to actually sell options on stock you already own. It's called covered call writing and it's a consistent way to generate cash for yourself using stock you already own. You need to discuss the tax side of that and the risk side of that with the stockbroker that you regularly deal with so that you fully understand the implications of doing it. As far as buying puts or buying calls or trading puts or buying calls, really you're betting that the price of the stock is going to move to some level that you've indicated in your option where you begin to make money. Your betting is the key there. But if you bet right long enough, you'll probably do OK. There is a model that has been setup that won a Nobel prize years ago called the Black Schulz model that will help you in pricing those options if there's any doubt as to the price at a period of time because remember, stock options don't always trade and sometimes they're illiquid and you still want to know what they're worth and whether in fact they've hit your price point. So that's a little bit about how to make a living using stock options or how to lose your shirt. I'm Roger Groh. Thank you for spending a few minutes with me."