Living from week to week is something that we all do from time to time. I commend those of you who have decided to part from your blue collar past and move on to making money via your investments instead of your sweat equity.
But don’t get the idea that letting your money work for you is not going to be a labor intensive project. Like the farm based economy before us the one who works hardest eats hardiest. So make up our mind to work harder differently.
The very first step is to start reading the Wall Street Journal. This will start you thinking properly about money and begin adding subliminal thoughts that will eventually become manifested in to reality.
Another thing you can do is do as much online research as you possibly can to learn as much as you possibly can. What follows is a great blog post I found online today that discusses different options trading strategies.
Image by MoreThanGolf via Flickr
While each of the options spread strategies serves a different trading purpose, the following example of a bull call spread options spread strategy provides an example regarding how options spread strategies can be used to reduce options trading risk while potentially still booking a decent options trading profit.
A bull call spread is placed when a trader buys call options at a strike price that is close to the current trading level of a stock or commodity and then sells (goes short) the same amount of call options at a higher strike price to offset the cost of the purchase of initial call option. Both options must have the same expiration date for the bull call spread strategy to work.
For example, if Apple Computer’s stock AAPL is trading at $450 per share, an options trader looking to put on a bull call spread using AAPL would buy call options close to the $450 price level for $15 per option, and then sell call options at a higher price level (say $475) and pocket $10 per option sold at the higher price level. This means that the bull call spread in AAPL cost the trader $5 to establish ($15 to buy call options, minus $10 earned by selling call options at a higher price point), but is limited to a $20 profit if AAPL trades above $475 per share before the options expire. If AAPL trades above $475 per share, the $450 call option will be worth approximately $25, which results in a $20 per option contract profit after the $5 cost of purchasing the option is factored in. A quadrupling of value of the AAPL call options bought at the $450 strike price, from $5 per option cost to $20 is an outstanding trading profit, but that is the maximum amount of profit that can be earned in this bull call spread example, because the call options sold at $475 put a cap on additional profits, if AAPL’s stock price moves higher than $475.
The nice thing about a bull call spread is that if AAPL were to fall instead of rise, and closed below $450 on the day the option expired, the loss would be limited to the $5 paid to set up the bull call spread. An options trader in this AAPL bull call spread example would be risking $5 per option to make $20, if the trade works as expected and AAPL rises above $475. Not a bad risk reward ratio….More at Advanced Options Trading Strategies | The Options Spread Strategy …
I hope this article gets you on the path to becoming a successful options trader. Thanks a bunch for taking the time to read it. See you on the links!