Call Options Trading Explained

Just like buying shares, you use the same setup requirement, kind of like swing trading , but focused more on technical analysis rather than fundamental as options trading are short term strategies and time decay can erode the price of options.

So some of my entry criteria and yours for buying options would be:

• Is it still in an uptrend or trend reversal taking place?
• Is the technical analysis buy signals confirmed?
• Are there any chart patterns developing and about to break to upside?
• Is Delta turning point ,market matrix turning point , now heading up towards bigger cycle turning points
• Elliott wave 3 just about to be forming
• Swing 3 forming after normal fibonacci retracements

or a great way of picking stock winners is use the free trial from Dan Zanger's chartpttern.com , where he picks stocks that's about to break out. A tiny movement in stock price is equivalent to a big surge in options.

I have used this and it's great. You can cancel membership after the trial or continue when you make money.

Buying Call Options To Make Money When You Think Market Will Go Up In Price

Once you have identified the stocks /indexes that met these conditions,then ensure the stock you are interested in has more than 100 open interest ( number of contracts open and the call is not exercised yet) otherwise this won't go anywhere. Also check economical calendar. If earning reports are due, stay away from this stock as it could be bad news otherwise.

Once confirmed all ok, you place an order with your option stock broker to

• Select the Call side of option premium price

• Select the required strike price. In or AT THE Money is better, as the stock price more or less match the option price and tend to more or less change at the same speed (DELTA)as the underlying stocks

• Select BUY TO OPEN, using the ASK price

• Select the number of options ( remember 1 contract =100 shares)

• Select stock expiration date to be minimum 4 -6 months away, as you want more time to be right.

• Once stock price rise, your call option value should also rise. You can close the trade anytime you want once you are in profit by placing a SELL TO CLOSE order, once the stock price has risen.

Note, if you are wrong and it's going the wrong direction, rather than leaving it till expiration day where you will lose 100 % of what you paid for, you can place a SELL TO CLOSE order, for which the premium ( quite small now) will be credited to your option account.

Sell Call Options to make money when you think price will drop (Naked Calls)

This is same as above but on the downside so you use the same selling criteria as though you are selling /shorting the stock like downtrend, breaking down and out of consolidating patterns etc. This strategy could be risky on it's own but can be done if the trade is going the way you anticipated.

Now this time, you place call option order with your option stock broker to

• select the Call side of option strike price, look for Out of money ( higher ) price
• select SELL TO OPEN, using the BID price
• select number of call option contracts
• select the stock expiration date to be 1 month or shorter

We want, say Harry who bought the Call to have less time to be right. Time decays exponentially during the last month and even if stock price rise as it approaches expiration, option price may not rise but fall and will expire worthless when time is up.

Sally, or you the SELLER/ writer will keep the premium and don't need to deliver the stocks. The premium say for 1 contract is $ 1 x100 share= $ 100 minus commissions will be automatically credited to your option trading account.

To exit the trade - Buy the Call back before expiration if the trade is going against you.

You can combine buying and selling call options to form credit spreads which can give you a higher probability trade.

Note, if you do not have the shares already, some brokers would not allow you to do this as this is more or less short selling, ie selling something you don't have and can be risky if you are wrong and have to buy them back at the loss in order to deliver it back to Harry!

One safer way to this options trading and collect monthly rent sort of speaking is via COVERED CALL options

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