If you are looking for a way to turn a small amount of money into a lot more, consider weekly trading options. These are contracts that give you the right to control a certain quantity of stocks.
Weekly options are particularly time-sensitive as it gives you eight days to trade until the contract expires. This is cheaper than buying stocks, which makes it more lucrative. However, you would not have enough time for things to turn your way, which makes it riskier.
Trading weekly options are not for the weak-hearted person. If you can do it right, you can make a lot of money otherwise you may face big losses. Here’s how you can make a living out of trading weekly options.
How does Weekly Options work?
Weekly options work the same as monthly options except your trading period ends within the week. This gives you a short window of time to trade and you must analyze how it will go and learn to buy and sell at the right moment.
This option contract gives you control of 100 shares. If you want to get into trading big company stocks but find them too expensive, options are a great choice. You get to trade the shares at a cheaper price.
With stocks, you are looking for stability to make a steady income. With options, the stock is quite volatile. People try to make a profit out of this volatility because it is riskier hence this also makes it more profitable.
Understand Time Sensitivity
As mentioned before, the weekly options expire within a week. They are introduced on Thursdays and end eight days later on Friday. It is crucial to understand the element of time in weekly options.
The closer it gets to the expiry date, the more its value will depreciate. You must understand that your asset is diminishing in value as more time passes. You are trading for a short term and you can only trade four times per month.
The best thing to do here is to know when to buy. Buying the share at the right time and selling it within the day is your best bet. You can try holding it overnight, but holding them for too long is not advisable.
Importance of Patterns, Technical Analysis & Strategies
With trading options, learning technical analysis, and understanding patterns is vital. If you go in blind, without any prior experience or understanding, you will face losses.
Remember that options are time-sensitive and risky. You will not get much time for the prices to recover and the longer you wait, the more likely you will be selling at a loss.
Click here to learn the basics of technical analysis of trading options. Learn the patterns to determine the right time to buy and sell.
If you check out Chuck Hughes Top Trader’s Toolbox, you’ll come to know about the different strategies he uses to make a profit with weekly options. If you’re willing to learn, you will find many such effective strategies.
Practice Paper Trading
Most people are scared of venturing into riskier trades because we do not want to mess up. Gaining more experience gives us the confidence and understanding to trade right.
Practicing paper trading is a great way to gain experience without losing your precious earnings. As with everything, the more you practice, the better you get at learning how to trade weekly options.
There are plenty of paper trading apps out there and practicing with these are absolutely worth your time. If you make mistakes you can learn from it. You get to understand and try out various strategies.
Practicing paper trading works great with any kind of stock market trading. Learn more about paper trading apps and how they work here.
Understand the Risks
You must have strong nerves if you want to trade weekly options. You will be working with volatile shares. The prices will rise and fall on a daily basis. You have to get in, make a profit, and exit within a short period of time.
Understanding that it is an immensely risky trade is vital. Even after knowing patterns and learning analysis, there will be weeks when you trade at a loss. But, if there will be bad weeks there will also be good weeks too when you will be able to make a good profit.
A mature trader will accept losses and understand that there will be better weeks. Follow the trends and make the right decisions at the right time.
Don’t Wait Too Long, Don’t Gamble
You already have a very short window for trading weekly options. The more your options approach the expiry date, the lower your prices will get. Day trading is the best way to go with weekly options.
Buy and sell within the same day and at max, wait overnight, but do so at your own risk. The chances are that the prices that dropped the other day might fall further. If you see that the price is giving you a decent profit, do not gamble.
Your best approach will be getting in and out with a good profit. Within a period of time, you can make quite a bit of money with this, hence you have to look at the big picture.
Keep an Eye on the Company
A fun aspect of trading options is that you can go for any market and even trade with shares of hotshot companies, which have high share prices. Keep a watch on the company and see how it has been performing.
Keep track of different circumstances or upcoming events. Various events affect prices so be aware of it. You are focusing on stocks heading towards a certain direction, based on that you buy or sell.
Hence, keep an eye out for any such events, as it will determine whether you should buy or sell them. Opt for big company stocks that are high volume and are garnering a lot of interest in the market, and through them, make a weekly profit.
Trading options can be a fun, profitable experience, but it certainly is not for the weak-hearted people. Know your risks and learn as much as you can about the technical aspects.
Practice paper trading options and only trade with real money when you are certain you got the hang of it. Learn as much strategy as you can. You can find a lot of free resources online to learn from.
If you play your cards right, options are a great source of income. You won’t win every week, but in the long haul, you can make plenty of money trading weekly options.