To The Moon

Now that we have covered all the basic knowledge about options, are we ready to give it a go?

Actually, we still need to familiarize ourselves with the operation of the trading software. Next up, we will use the Tiger Trade app to demonstrate the key steps as well as dos and don'ts of actual operation.

As with buying stocks, first you must choose an option. After entering the option chain, select a contract to see the details. At this time, you can see that there are three trading options: buy, sell and close. When you don't have any contracts in your account, you can only buy or sell. Both directions are called 'opening.' After you have opened a position, you can choose to close it. Closing is the opposite of your original position. If you hold a long position, closing is selling. If you hold a short position, closing is buying.

Generally speaking, after opening a position and buying an option, there are three modes of operation.

The first way to operate an open position is to sell and close the position before the expiration date. Assuming that Tesla's share price stands at $1,000 USD on October 1, Tim is very optimistic about the future and buys a Tesla call with expiration date on December 31 and strike price at $1,100 USD. The total cost is $1,000 USD. Tesla's share price subsequently rises, as does the call price.

Assuming that Tesla's share price rises only 6% and stands at $1,060 USD on December 1, Tim finds that the call is now worth $2,000 USD, a rise of 100% over the purchase price. With 30 days to go before the expiration date, Tim decides to cash in. He clicks on "close the position" to sell the call and, excluding commission, realizes a yield of 100%. Of course, this is assuming favorable movement. If Tesla's share price barely rises by December 1, Tim could suffer a loss of $500 USD, as the time value is declining. He may then choose to close the position in order to stop the loss.

There are two ways you need to know about operation, you can learn them from the next video.

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