Efficient Steps To Earn Profit From Call Option Trading
Call Option Trading is a buying agreement under options trading. Under this agreement, the investor gets the right to buy any asset at a fixed price within a specified period of time. This asset can be in the form of stock, bond, commodity of any other trading instrument.
This agreement grants a right but it’s not a fixed obligation. Most of the traders use modern strategies while trading but sometimes basic call option trading is the most suitable for volatile market situation. Here are some efficient steps which can help in earning profits from call option trading:
- Direction of price movement – The most basic step which helps in profit earning is determining the direction of price movement. Call option trading is completely based on price movement. The investor has to predict the direction of price movement. Profits are earned from upward movement. So, the investor should try to determine direction of price movement. He should check market updates and conduct market researches for determining the flow of price.
- Fixing the target price – Along with determining the direction of movement, the investor should also determine target price. This price is the new value of the underlying asset after change. The marketing strategy used to determine price movement will also find the target price after movement.
- Time limits of trading – The next step which helps in earning profit from call options trading is anticipation of time. The investor has to determine the expiration time of his call. This period defines how long the investor is expecting the underlying assets price to move towards targeted price.
- Evaluation of risk – The next step which ensures profit earning is evaluation of risk. An investor should evaluate his risks versus reward based on his target price. He should research the market and should calculate a breakeven point to evaluate all available risks.
- Determination of exit point – Before placing the trade, investor has to make sure that he has profit taking points and stop loss point in place. This will ensure that no emotional factor comes as a hindrance while placing the trade.
- Place the trade and close the position – The last step is of placing the trade and closing the position. The investor should place the trade after calling his broker. And after placing the trade, he should close the trade according to the profit or loss.
These were the steps which help in earning from call option trading. Punctual following of all these steps will give best investment results.