The Easy Ways to Make A Fortune In Options Trading

by : Wincent Loh

The Stock Market offers a lot of opportunity to make a steady income, one of the juicy strategies available allows you your fortune make; option trading. Stock Market is quite large with a lot of money and security exchanging hands everyday. With a good workable strategy you can be earning a steady income from the market. As mentioned one of the profitable techniques available is the skill to trade options.

Credit spreads is just one of the other many popular strategies available and it is quite profitable. Credit spreads when created put a "credit" into your trading account instead of a "debit" when you pay for a stock or derivative. That is why they are called credit spreads, they allow you keep the credited funds if the options in the spread expire and the share price has not reached a certain level.

You might wonder why it creates a credit and not the traditional debit. The reason is quite simple, you are selling an option at a price quite close to the current price, But at the same time you are limiting your risk on investment by buying the same number of option contracts at a strike price further apart, with both having the same expiry date. This activity has simply put your sell option closer to "the money" or the obtainable share price and which is higher than your "bought option" and that earns you a credit.

A trick of the trade is to sell credit spreads with a short expiry time, which allows you take advantage of the "time decay" factor in options. Options normally have a time decay which falls as the expiry date approaches. A credit spread with 4-6 weeks expiry is thus desirable. You can even have just less than 2 weeks expiry; you just have to be careful you know the way the share would move since the time frame is shorter.

Basically in a given time frame, in any market, share price can only move in five patterns:

1. A small upward move
2. A small downward move
3. A side ways move - i.e. market price goes practically nowhere or returns to its original point.
4. A large upward move
5. A large downward move

Out of the above five possibilities, four of them would favor you if you have created a credit spread. Even when the undesirable fifth option occurs, losses can still be minimized by rolling out or extending your expiry date and waiting for the market to return to a more favorable profitable position. You can also buy back on your sold option and make enough profit to break even or realize a small profit.

As you can see credit spreads are quite profitable they offer you an opportunity for fortune making while practicing option trading. It also offers wonderful flexibility! Imagine 4 out of 5 possible market movements are all in your favor, which is an 80% success rate.