How to make money in the stock market

Posted By Team iBizExpert On March 11, 2022 12:03 PM Hits: 100

On the stock market, there is a lot of money. But not everyone can get their money out of that place. Some people can make a lot of money on the stock market, while others have lost a lot. It can't make up its mind. Sometimes you lose money right away, but after a few days you may make money, and sometimes it's the other way around. So, what should we do to get the money out of the stock market? Investing and trading are the two most common ways to get money out of the stock market. Trading is when you buy and sell shares, futures, or options in a short amount of time. Investing is when you buy a share, future, or option and hold on to it for a long time, usually at least a year, before selling it.

How are shares, futures, and options different? We know that the price of an option is much less than the price of a share, and that the price of a future is usually ten times less than the price of a share. So, if you have enough money to buy 100 units of stock, you can also use that money to buy 1000 units of options. And the return on investment for both shares and options is almost the same. So, if you buy an option instead of a share or a future, you will make about ten times as much. But if you lose on that trade, you will lose almost ten times as much as you would have. When we trade options, we can almost make or lose the same amount of money as when we trade shares. But compared to buying an option, buying a share costs a lot more money. Because of this, the percentage of profit and loss when buying options is much higher than when buying shares. The example is like buying one share of stock for $10 and one unit of an option for $1. When the price of a share drops by $0.10, the percentage drop for buying shares is 1%, but the percentage drop for buying options is 10%. Even though the share price only goes up and down a small amount, this is why the percentage of profit and loss when buying an option is so much bigger than when buying a share.

Trading or investing in options is like gambling because you can make or lose a lot of money when you buy them. It's pretty common for the return on investment to be more than 100%. But it is also possible to lose all of your money when you invest or trade. If you want to make more money than you lose, you need to know how to trade options and do technical analysis. Option is not the same as share. The time value of an option is different from the time value of a share. The value of one share will not go down over time. It only changes because of supply and demand and how well the company does. But after some time has passed, the value of an option will go down. When the option's end date comes, there is no longer any time value for that option. Because of this, you need a plan to trade options so that you can minimise your losses and make as much money as possible.

Bullish call spread and bearish put spread are the two most basic ways to trade options. When the stock price is expected to go up in the next few months, a bullish call spread is used. On the other hand, a bearish put spread is used when the stock price is expected to go down in the next few months. The steps of this strategy are to buy an option that is in the money and sell an option that is out of the money. The option that has both time value and intrinsic value is called "in the money." The option that has only time value is called "out of the money." When the stock price goes up (to the "made money" side), options that are "in the money" will make money and options that are "out of the money" will lose money. But the net profit from this strategy is the difference between the profit and the loss. When the stock price goes over the out-of-the-money strike price, the profit will be at its highest. If the stock price keeps going up, it won't make any money for the investor. In this case, we'll close both positions to get the money we've made from the market.

If the stock price goes down, the in-the-money option will lose value and the out-of-the-money option will make money. But the profit you can make from out of the money is only as much as the price you sold it for. When you subtract out of the money profit from in the money loss, you get a negative number. This is because the profit from an out-of-the-money option is smaller than the loss from an in-the-money option. In this strategy, the out-of-the-money option can only earn a limited amount, while the in-the-money option can lose as much as it wants. If the price of a stock keeps going down, you could lose all of your money. So, what's the difference between buying an option "naked" and using the spread strategy to buy an option? If you buy a naked option, you may lose more money, but if you buy a spread, you may lose less money. This is because if you just buy naked options, you don't make any money. However, if the stock price goes down, you can make money with out-of-the-money options. The problem with the spread is that the broker firm charges twice as much commission as with the naked option. This is because a naked option only takes one position, while a spread takes two. There will be a separate commission charge for each position.

Also, selling an out-of-the-money option is part of the spread strategy to keep the time value of an in-the-money option from going down too much. In fact, both the in-the-money and out-of-the-money options would lose value over time. We don't own the out-of-the-money option, so we can keep the money we got from selling it. When the time value of this out-of-the-money option went down, we bought it back at a lower price. So, we make money by selling at a high price and buying back at a low price. Most of the time, the money we've made is enough to make up for the time value we lost from the in-the-money option. But even if the stock price goes down, you still lose the value of the option itself.

So, bullish call spreads and bearish put spreads are two very simple ways to trade options. The stock market is not a sure-fire way to make money, though. You still need to learn how to use technical, fundamental, and news analysis to figure out how the stock price will move.