I've never traded Options before, I started for the first time today having done a bit of reading.
I think the markets have had a good run the last few weeks with the expectation of more easing etc etc with the FED downgrading the growth forecasts and not pumping anymore money I think the markets will be disappointed.
As such I have sold an out of the money August Call option at a strike price of 13.350 at 19.
Time will tell whether I am setting myself up to look silly here, but I don't think the markets are likely to rally 400 points in the next 2 weeks when the option expires.
With the Olympics and the Summer holidays I think the markets are at best likely to move sideways.
Therefore I hope to collect the decay on the option.
What is interesting is had I sold Dow futures instead of the call option I would be in the money, but I am still yet to cover the spread on my option despite a 50 or so point move since I opened my position.But conversely with the DOW trading around 12,968 there needs to be a 382 point move higher before I lose. Whereas a 50 point move up from here will put me at a loss on a DOW Future.
I think selling out of the money Call options when the market has had a decent run and selling put options after a significant decline is the best way to make money from options.
Simply be collecting the premium.
I think 8/10 times one will make money, but will get hit the other two times, I guess the trick is to know when the avoid the trade.
I may try the strangles/straddles at somepoint as I learn more about options.
I am sure there are more experienced and knowledgeable posters on these boards, feel free to share your views.
Filed Under: CALL And PUT Options Trading,