The Complete Guide to Option Strategies: Advanced and Basic Strategies on Stocks, ETFs, Indexes, and Stock Indexes

CHAPTER 1

Getting Ready to Trade

The good news is that there are many different ways to make money by trading options. You may be attracted to buying call or put options because you want large gains for a relatively small price, or you may be attracted to selling options because you want consistent returns and the odds on your side. Option buying and selling is sometimes described in a manner that makes you think option trading is simple. The reality is that making money in the financial markets on a consistent basis over a long period of time is not easy. However, it can be accomplished with proper preparation. Probably the best way to maximize your chances of success in the financial markets is to become as knowledgeable as possible so you can make educated decisions.

To get the most out of this book, you should read the Preface to understand how the book is organized. This chapter will cover the reasons why you should trade options, the importance of developing a game plan, risk management, option basics, and key definitions.

WHY TRADE OPTIONS?

Options can be used to manage risk, generate income, take advantage of leverage, and potentially profit under almost any market condition. Options can enable you to speculate on whether a stock, exchange-traded fund (ETF), stock index, or futures will rise, decline, or move sideways within your selected time frame. With options, you can engage in a high- or low-probability trade or a trade with limited or unlimited risk. With options, ...