The demand for the analysis of options is now increasing in this globalized world. There are numerous products that can be traded on options like stocks, commodities like gold, oil, etc. Let’s find all about options trading and the options traders who made millions!
The idea of trading in the future is quite old. From the ancient era of Greeks to the Japanese Samurai of the 15th century, people have been involved in futures trading, that is, to anticipate the future and invest in the profit. In the current world, people are trading in the future as well.
The era of trading in the present only is disappearing slowly and the era of futures is coming. By talking about trading in the future, the idea is of trading options in the future. Investors get up and see the value of options so that they can take advantage. Some do it for the purpose of hedging while most of them do this for short term profit and speculation.
Definition of Option Trading
‘Option’ is basically a contract between two parties. It gives the buyer the right to buy but not the obligation if it is the call option and the right to sell if it is a put option. What we are buying and selling are the assets underlying in the contract at a certain price before the due date.
The options are also called derivatives because their values are derived from the underlying assets like bonds, commodities, and currencies.
People have become millionaires in a very short span of time by trading in the options. The key to surviving in the options market is to have patience and the right timing. These essential features transform a normal investor into a well-known millionaire.
Strategies Used in the Option Trading
There are several strategies in options trading that are followed in order to make the profit. The market also consists of risk-averse investors as well.
Such investors go for two-way trading, that is, if they buy something then they keep something to sell as well to minimize the loss and at least breakeven. There are many options strategies played daily like covered call, married put, bull call spread, bear put spread and protective collar, and so on.
Animal Descriptions in the Market
When we talk about the market is bearish, it means that the market is expected to go down (like the bear attacks). Similarly, when we talk about the market being bullish (from the bull) then it means that the market is expected to go up (like the bull attacks).
The famous two animals specifically for options strategies are the iron butterfly and iron condor. Butterfly means selling two options at one strike price whereas condor means to limit the risk at a certain limit. The purpose is to buy back the spread for less than the credit taken in or expire worthless, resulting in a profit. There are further descriptions but these are enough to get the basic understanding of options.
Options Traders Who Made Millions
There are some traders who made millions by understanding the market to its depth while measuring the right time to invest with an amalgamation of strategies. Options trading is the kind of the bet which you put and when you see yourself losing, you back out because you have paid the premium for that option. But if you win that bet, you are lucky!
Steve Oliverez was a successful entrepreneur who put a bet in the stock market in December that the stock market will go up in January. He bought the options worth $100,000. He actually had a bullish perception of the market like that of 1987 and he anticipated that the market would go up. If the market had gone down then he would have the options of worth $0, the heart-wrenching loss. The January in history luckily turned out to be great for him according to his technical analysis based on market behavior, taxation, and intuition. He made a total profit of $2 Million.
Talking about another option millionaire, Karen Trader made a good profit with her knowledge of mathematics and calculations. She was an expert Certified Public Accountant (CPA) and she left her job as Chief Financial Officer (CFO) to trade in the stocks. She used the strategy of “strangle” in which the trader buys the call and put options both to take benefit. The only risk is the loss of the premium paid for the option and the profit potential is higher since call options have unlimited upsides. She played well in volatility and came up with her calculation of market volatility while also keeping the technical analysis in mind. She turned her $100,000 into $41 Million in 2011. She had been using condor strategy due to her mathematics skills.
A member of Wall Street Bets also made a huge profit by buying the options of Tesla’s stocks. The future of the electric car is undoubtedly bright, and the investor anticipated this at the right time. He invested a huge amount of options. The price of the options soared in just two days as Tesla made huge profits. The amount the investor primarily invested was $125,868 and he ended up at $4.3 Million.
The prices of the contract move with greater volatility as compared to that of stocks. Making profits from contracts involves a lot more analysis with a considerable magnitude of research, trends, and illusions. People have ended up losing big amounts because the anticipation got wrong.
An option gives you the chance to ignore the loss on investment and the maximum loss is the premium paid on the option. This is one strategy, other strategies can be to buy call and put options both at a time and benefit from a large spread. Furthermore, you can simply take one side and put all your investment at risk as Steve Oliverez did. That requires a great amount of patience and risk-bearing, but it is said: “the higher the risk, the higher the rewards.”