A put option buyer makes a profit if the price falls below the strike price before expiration. The exact amount of profit depends on the difference between the share price and the option strike price at expiration or when the option position is closed. Do you love podcasts or audiobooks? Learn on the go with our new app. While options can be risky, traders have ways to use them wisely.
In fact, if used correctly, options can limit risks and, at the same time, allow you to continue benefiting from the gains or losses of a stock. Of course, if you still want to try a home run, the options also offer you that opportunity. Stocks offer high-risk, high-reward potential, while options move up a couple of levels, with the possibility of doubling or tripling your money (or more) with the risk of losing everything, often in a matter of weeks or months. At this point, the amount of money required would depend heavily on the stocks you choose and your premiums.
If the stock price is below the strike price at maturity, then the call is “out of the money” and expires worthless. 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. Options and stocks are two ways to put money to work in the market, but they offer very different risk and reward profiles. While it may seem like a lot, it takes a lot more money to achieve the same goal through dividend investing.
It will probably take you years to achieve this, but with dedication and effort it is entirely possible to make a lot of money with options in addition to your long-term investment. Because options have no money, the time remaining before the options expire becomes critical. Selling options is a great way to make extra money with a faster route to 6 figures than investing in dividends.