How to Make Money Trading Stock Options

Many investors view trading options as a highly leveraged way to take advantage of movement in the price of a stock or index. However, options trading can also be used to generate regular monthly income. The basic premise is that option prices decline as they near expiration; therefore you can make money being a net seller of options.

The most basic strategy for making money with options is writing covered calls, which is fine to create some extra income in your stock portfolio, but we're looking to earn a regular monthly income. To make money each month, we employ several different strategies and adjust the trades as necessary to minimize risk. The use of each strategy will vary depending upon market conditions, movement of the underlying security, volatility, and time until expiration, etc. While we'll use several different option strategies, all of the strategies are multi-leg or spread trades, which means we'll have at least two, and as many as twelve trades going at one time. The other similarities in the strategies is that we'll always be a net writer, or seller of puts and calls, and our goal will always be to make money on the time decay of the options.

Trade money on Stock Options

You may have heard the names of the spread trades used to make money with options, such as butterflies, condors, box spreads, calendar spreads, reversals, straddles, strangles, etc. Each of those trades work best under certain market conditions. Each of those trades also requires monitoring and adjusting in order to retain profits and protect against risk. This may all sound a bit overwhelming, but once you learn the overall characteristics of each trade, and when to use it, it will become quite clear and your trading will become second nature. In addition to being much easier than you may think, the amount of starting capital you'll need to start making money with options trading is surprisingly low. I've seen new traders take the time to learn the process, and with less than $1,000 in start up money, makes themselves a very comfortable living, while working only a couple of hours each day from home.