Yes, it is possible to make money through option buying, but it comes with its own set of risks and challenges. Options are financial derivatives that give the holder the right, but not the obligation, to buy (call option) or sell (put option) an underlying asset at a specified price (strike price) before or on a specified expiration date. Here are some key points to consider:
- Profit Potential: When you buy a call option, you profit if the underlying asset’s price rises above the strike price by more than the cost of the option (premium). When you buy a put option, you profit if the underlying asset’s price falls below the strike price by more than the premium paid.
- Limited Losses: When you buy an option, your maximum loss is limited to the premium you paid for the option. This limited risk can make options an attractive choice for some traders.
- Leverage: Options provide a form of leverage, allowing you to control a larger position in the underlying asset for a relatively small upfront investment. This leverage can amplify both gains and losses.
- Time Decay: Options have a finite expiration date, which means they lose value as time passes. This phenomenon is known as time decay or theta decay. To profit from option buying, you must correctly predict the direction and timing of the underlying asset’s price movement.
- Volatility: Options are sensitive to changes in implied volatility. Higher volatility can increase the value of options, while lower volatility can decrease their value. Traders often try to take advantage of changes in volatility.
- Risk Management: It’s crucial to manage risk when trading options. You should only invest what you can afford to lose, and strategies such as setting stop-loss orders or using position sizing can help control risk.
- Educational Resources: Options trading can be complex, and it’s essential to understand how options work and the various strategies available. Consider educating yourself or seeking advice from experienced traders or financial professionals.
- Market Conditions: The success of option buying can be influenced by market conditions. Bullish markets may favor call options, while bearish markets may favor put options.
- Commissions and Fees: Remember that trading options typically involves paying commissions and fees, which can impact your overall profitability.
It’s important to note that trading options carries a level of risk, and many individuals who engage in options trading experience losses. Successful option trading often requires a deep understanding of the market, careful analysis, and disciplined risk management. If you’re new to options trading, consider starting with a paper trading account or seeking guidance from experienced traders or financial professionals. Additionally, never invest money that you cannot afford to lose.
Here is a simple intraday trading system for buying options just for your information and eduction. It is not for implementing in live trading without testing.
Disclaimer: This strategy should never be tried in a live market without backtesting. Secondly if anyone incurs a loss because of trading this strategy it is strictly at their own risk and responsibility.
Instrument Bank Nifty Weekly Options
Time frame 5 min candle sticks
Entry Rules:
at 09:30am enter into the trade. Buy one lot CE and one lot PE at the same premium (or around the same price as it is not possible to buy CE and PE at the same price in live market.) as explained below:
On Thursday buy one lot CE and one lot PE around a premium of Rs.170 .
On Friday buy one lot CE and one lot PE around a premium of Rs.140 .
On Monday buy one lot CE and one lot PE around a premium of Rs.100 .
On Tuesday buy one lot CE and one lot PE around a premium of Rs.700 .
On Wednesday buy one ot CE and one lot PE around a premium of Rs.40 .
StopLoss: If combined premium of both CE and PE crosses below Rs.-500 exit the trades.
Profit Target: If combined premium of both CE and PE crosses above Rs.1000 exit the trades.
If any position is open at 03:00pm, then they should be squared off.