Online options trading.

There several complicated online options trading strategies that you can use to make money in the markets, and traders will go through many of them trying to make as steady of an income as possible from their trading. Most of the strategies are based around a range bound market, which is the normal state of most markets. The problem is that sooner or later, the markets will either eventually have a large rally, or on the other hand, a large decline. It is during these raging bull or bear markets, that the average option trader gets hurt.

A perfect example of this was during the mid-1990s in the United States stock markets where a lot of traders were making mass amounts of money selling naked puts. The market had been so lopsided with these institutions selling puts, that some of the marketplace began to strategize a selloff in the markets, forcing the liquidation of these positions and margin calls.

Essentially what happens in a situation like this is that as the markets collapse, it forces institutions into margin calls, and thus forces them to sell all of their positions. All of this forced selling it would extreme pressures on the marketplace and the index will start to fall off a cliff.

In the case of the mid-90s, the floor traders at the CME started to see a perfect set up to short the marketplace and force this exact scenario. On October 24, 1997 the Dow Jones closed at 7715.41, down 319.24 points for the day. This was to be the beginning of a huge round of margin calls in the marketplace. On the next trading day, which wasn't until the following Monday on the 27th, the pit traders realized that all they had to do was to step away from the marketplace and refused to put bids into the marketplace and watch it fall. By the end of Monday the 27th, the Dow Jones had closed down 554.02 points. Most people who are selling naked puts it this point in time had just lost a ton of money. In a twist of irony, the very next day the marketplace rallied over 300 points. After all these guys were cleaned out, all they could do is watch the rally began.

Certainly there are ways to use online options trading in a responsible manner. One of the most common ways to use online options trading is to use them as a way to own a stock at a cheaper price. For example, buying a in the money option on a stock that I want to own is a safe and reasonable way to use options.

One of the most obvious advantages to using options is when you want to buy a stock that is very expensive. Some stocks can be as high as $400-500 a share. With a stock like this, it is much easier for the average retail trader to buy an in the money call for couple hundred dollars as opposed to coming up with $40,000 or more for a "lot", or 100 shares of the stock.

As the options move in their direction, the stock trader still participates in the profiting of the underlying stock. Of course, the stock could go against them and they could lose money. The beauty of options is that you can only lose the premium you pay to own that option. So if the above example cost you $900, I would be the absolute most you could lose under any circumstance in this trade.

Options can be used for a lot of different strategies, but by far the safest and most common is a simple "stock replacement" strategy. Or better put, a poor man's way to buy stocks like Google, or any other overly expensive company.