How to trade option safely ?

Question

Do you have any strategy to trade options only with safety strategy ?

Please advise...

Thanks

Answer 1

Sell calls on stocks you already own. For eg. if you own a stock worth 20, wait until it gets to like 25 or so and then sell a call option with strike 25. You get the premium and even if it gets exercised your $5 gain is fixed.

Answer 2

Sell calls against your portfolio.  Works real well.

Answer 3

There is only one way to trade options safely. That is to learn enough about them to understand what the risks are and how to control them.

The major risk factors in options are represented by "the greeks" (delta, gamma, vega, theta and rho). Unless you are a very large trader you can probably ignore rho. The remaining risk factors can be controlled with offsetting positions.

I respectfully disagree with the other answers which indicated that you should sell covered calls. Selling covered calls usually leaves you with nearly as much downside risk as simply owning the stock. but limits your opportunity to profit on big changes in the stock price. Covered calls can work well when the stock is less volatile then expected, but it is a real loser if a lot of your stocks are more volatile than expected.

Shares of stock have a higher delta risk than any options, and selling covered calls usually does not reduce that risk very much. (Covered calls can reduce delta risk significantly if they are in the money when sold, but most people sell out of the money covered calls.)

If you want to trade options safely, I strongly urge you to read some good books about options.