How to Make Money by Trading Options Online?
An investor’s portfolio is comprised of various asset classes, including not only stocks, ETFs, bonds, and mutual funds. Another asset type is options, which, when properly traded, can provide huge profits beyond what trading in ETFs and stocks alone can. Options contracts allow the holder the right (but not an obligation) to buy or sell a specified number of underlying securities at a specified price before or on the contract expiration date. Simply put, the holder of the option contract holds the right to decide whether to exercise the contract or not. Options can be bought with brokerage accounts just like the majority of other asset classes. Continue reading to learn more about how to make money by trading options online.
How Does Online Option Trading Work in India?
In India, online options trading is available from 9 AM to 3:30 PM. Additionally, by 4.15 PM, you can amend your positions or establish a deadline. But keep in mind that not all Indian equities are eligible for options trading. According to SEBI’s regulations, there are just 198 securities eligible for options trading. Let’s understand how you can make money using options trading.
How to Make Money Using Options Trading?
In options trading, there are two types of traders. The one who buys the options contract is known as the holder, and the one who sells the option contract against a certain premium is known as the option writer.
In a call option, the holder gets the right to exercise the option contract and buy the underlying security at a specified price on or before the specified date. In the case of put options, the holder gets the right to exercise the option contract and sell the underlying securities at a specified price on or before the specified date.
Suppose you purchase a call option to buy 20 shares of a company at a strike price of Rs. 900. Currently, the share is trading at Rs. 910 and you anticipate that the price will further rise. For buying the option contract, you pay Rs. 100 as option premium. Suppose the share price increases to Rs. 950. Therefore, you will exercise the contract and buy the shares at Rs. 900. Your profit, in such a case, will be:
[(950-900)*20] – Rs. 100 = Rs. 900
However, if the share price drops down to Rs. 850, then as an option holder, you can restrain from exercising the contract and, therefore, your loss will be limited to Rs. 100 only, i.e., the option premium paid by you.
To Sum Up
Options trading app provide many ways for investors to make money by trading the underlying securities. Underlying assets, various sets of options, and other derivatives can be used in a number of different ways. Buying calls and puts, selling covered calls, and purchasing protected puts are fundamental techniques for newcomers. Trading options has benefits over trading actual assets, including downside protection and amplifying gains.
Disclaimer: This article is not to be construed as investment advice. Trading and investing in the securities market carries risk. Please do your own due diligence or consult a trained financial professional before investing.