An option buyer can get a substantial return on investment if the options trade works. This is because the price of a share can go significantly beyond the strike price. For this reason, option buyers often have greater (even unlimited) earning potential. Call options are “in the money” when the stock price is above the strike price at maturity.
The call owner can exercise the option, putting in cash to buy the shares at the strike price. Or, the owner can simply sell the option at its fair market value to another buyer before it expires. There are many factors that influence the price of an option. A trader can't just buy calls and expect to make money when the stock price rises.
The problem is that new traders are unaware of all the other factors that affect whether the trade will make a profit or lose money. If the stock price is below the strike price at maturity, then the call is “out of the money” and expires worthless. While it may seem like a lot, it takes a lot more money to achieve the same goal through dividend investing. Based on volatility data, buy options that have a good chance of being in the money at a later date (before the options expire).
For example, if you have sold a call and a dividend is approaching, the likelihood that you will be allocated early increases if the option is already in the money. You know what an option is and think you understand how it works, but show a little patience before putting your money at risk. Many options traders say that they would never buy options out of the money or that they would never sell options in the money. THE ONLY WAY TO LOSE MORE MONEY ON YOUR OPTION THAN YOU ORIGINALLY INVESTED IS IF YOU SOLD A SHORT OPTION (YOU WROTE) AND THE MARKET TURNED AGAINST YOU.
It was useful, however, I think there was a lack of examples and knowing what your goal or object was in addition to earning money. At this point, the amount of money required would depend heavily on the stocks you choose and your premiums. The 20% annual return scenario is also possible, but it involves additional risk and could leave money on the table due to stock appreciation in the case of a hedged purchase or depreciation in the case of a guaranteed cash sale. In fact, I never buy options that are in the money, but close enough to where it is possible to reach them.
It's bad enough to lose when your prediction is wrong, but losing money when it's right is a bad result, but it happens all the time in the world of options. This quick guide will help you fully understand the topic and use it to your advantage as you set out to make your money go even further.