Make a Living Selling Stock Options

Have you always been fascinated by the world of buying and selling stock options? Would you like to make a living at it? It seems like an easy way to make free money. But is it?

The best part is that the odds are usually stacked for you and not against like a casino. You normally win more than you lose. But losing is part of the game too.

Making a living at it is to throw your stock out there, sell options against it and get paid well for it. All the stock options expire on the 3rd Friday of every month. Either you keep the stock or it goes away, sold to the option holder.

On that day, the third Friday of the month, every month, you either get your stock back if it didn't hit the price you sold the option for(covered call), or if the stock hits the price you sold the option for, (the strike price), the stock is sold to the option holder who paid you for it.

If you get your stock back you get to play the game again and collect more money on it by selling the option again. If you lose the stock you win because you hopefully optioned it for more than you paid and you already collected the covered call money when you optioned it.

Either way it’s a win. It can add up fast over a years time! Here on some tips on how to make a living with options trading:

Things You’ll Need:

• Pencil and paper
• calculator
• stock trading account
• computer and printer

Step1 You must be approved for "covered call" options through your brokerage account. It's an easy form to fill out.

Step2 It's good to use a brokerage firm such as Scottrade or other that charges a small fee like $7 per transactions as a base.

Step3 Covered call options are sold in contracts: 100 shares=1 contract, 200 shares=2 contracts, 300 shares=3 contracts, etc. You can option more than 1 contract and get paid more.

Step4 Covered call option charts can be found at Yahoo under Finance. To sell the option you decide the price you want to get for the stock(strike price) and which month the option will expire.

Step5 When you do sell your option you get INSTANT CASH called the covered call option premium. It drops instantly into your brokerage account. It can be several hundred dollars to several thousand dollars. You get to keep that money no matter what. It is yours!

Step6 Here is a good description of a covered call option: If the stock is higher than the covered call (strike) option price on the 3rd Friday at closing, your shares will be "called away" – sold at that price. But you get to choose the "strike" price. That way if you paid $6 a share you can option it for $7, $8 or $9 and get the covered call option premium.

Step7 On the expiration date, if the stock hits the strike price you optioned it for and sells, hopefully you optioned it for more than you paid, and make the profit.

Step8 If the stock does not hit the strike price, you keep the shares of stock. You can option again and again and collect the option premium, every month if you want to. Usually you can make more with covered calls than with dividends.

Step9 There is some protection on your stock price using options. If it falls, the covered call option premium can absorb some of the loss. If you bought the share at $9, optioned it and got $2 a share, the stock can fall past $7 before you actually lose money.

Step10 If the stock falls, the covered call option will also fall. Remember you always keep the covered call premium. You may buy the option back for less than you sold it for and make a profit. If you were paid $900 for the covered call premium you might buy it back for $500 and make a $400 profit. The option price goes up and down with the stock price.

Step11 The longer the covered call premium is for timewise, the premium paid will normally be larger, but you tie your stock up longer. You have to think about will your stock go down or up if you tie the stock up for 6 months, a year or two years?

Step12 Will it be so valuable that the stock price may go up and what you paid $10 for, optioned at $15 is now worth $20. You will feel bad because you are selling your stock too cheap.

Step13 If the stock price goes way up, and you want to buy the covered call premium back so you can sell the stock and make a profit, the covered call option premium will also have gone way up. You will have to pay much more to buy it back. However, the stock now sells for more.

Step14 Do the math and see if it is to your advantage to buy the covered call option back, sell the stock at the higher price and still make a profit.

Tips

• Do the math on all choices and see if it is to your benefit to sell covered calls on your stock. Always do the math. Don't guess.
• Do charts to see which covered call strike price is best for the most profit.
• Add the covered call premium to the stock profit to see what you can make.
• Have your broker walk you through the first time or two so you do it correctly.
• When you choose the strike price be sure to make it high enough that the stock won't be called away. That way you can collect the option premium over and over.
• You can sell more than one contract so you can make 2x,3x,5,10x. You just have to own that many shares.
• Study other informative sources/books on option trading. You need to learn a lot more to be able to do it well.
• Decide what profit you will be happy with when you choose your option premium and strike price. It could change dramatically.
• Study stock publications to make sure you understand it all.