Commodities Market Risks
Financial Reference Book(s)
Within the commodity marketplace one very very nice process to establish capital is options trading. I generate 15 t0 20% every single month by trading options, more notably put options.
Generally there will be two different facets to put options trading.
There is the particular element involving protection on your balance aka getting insurance for your stock, and then there is the wealth building, monthly cash flow side aka getting paid to own a stock. Why don't we do a quick glimpse at both of these.
Buying Insurance with Put Options
To be the possessor of this put options contract, there is an "option" to offer a stock at a very certain price up until you sell your option or the particular option expires.
A good number of investors apply puts to safeguard their trading account from big movements to the downside and furthermore lock in profits.
For example, let's imagine a trader bought a stock and it increased in price by about $10 per share. This will be a really big move.
At this point the question you could be asking is...should you take profits or perhaps let it ride? You also really need to take into consideration that if you do nothing, your profits may very well be wiped out in minutes with some bad news. Taking no action is among the most detrimental actions you can take within the stock market.
So What do you do in that situation?
You may buy a put option with a strike price which is a couple of prices below the current price of the stock. As a result, it is possible to sell your stock at this strike price no matter what happens to the cost of the actual stock. For instance, if you acquired the stock at $200 and it went up to $250, you can buy the put at $240. With the $240 put option, no matter how low the stock goes, you can still sell it at $240! So, if the stock drops to $30 per share, you can STILL sell it at $240, think about that for a second...let it sink in.
Making Monthly Passive Income with Put options
On the other hand of the put options coin is how you can create wealth with options by making residual income month after month.
In order for the stock buyer to cover his stocks by purchasing protective puts, he will need someone prepared to sell those put options to him.
I personally make money on a monthly basis by simply selling put options against stocks I'd be ready to own and occasionally against stocks that I never plan to own.
One of the keys if you want to building wealth with put option selling is always to sell puts for stocks you will not mind buying and to also try to look for stocks which are relatively flat with regards to their price goes. Flat stocks are usually stocks that move not more than $3 in a month and possess really low PE ratios.
I've found that I really also have a lot of success by trading stocks inside the $20 - $30 cost range. Anything greater or cheaper is often too risky in my opinion.
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