It seems like a good place to start: buy a call option and see if you can pick a winner. Buying calls may feel safe because it matches the pattern you're used to following as an equity trader: buy low, sell high. However, buying OTM calls outright is one of the hardest ways to make money in the options world. If you limit yourself to this strategy, you may lose money consistently.

Not surprisingly, these options are cheap for a reason. When you buy an OTM cheap option, they don't automatically increase just because the stock moves in the right direction. The price is relative to the probability of the stock actually reaching (and going beyond) the strike price. If the move is close to expiration and it's not enough to reach the strike, the probability of the stock continuing the move in the now shortened timeframe is low. Therefore, the price of the option will reflect that probability.

How can you trade more informed?

Consider selling an OTM call on a stock that you already own. This strategy is known as a covered call. By selling the call, you assume the obligation to sell your stock at the strike price stated in the option. If the strike price is higher than the market price, you're indicating that — if the stock goes up to the strike price — you will allow the call buyer to take the stock away. This strategy can earn you some income on stocks when you're bullish.

What's nice about covered calls as a strategy is that the risk does not come from selling the option. The risk is in owning the stock – and that risk can be substantial. Although selling the call option does not produce capital risk, it does limit your upside, therefore creating opportunity risk. You risk having to sell the stock upon assignment if the market rises and your call is exercised.

If the market remains flat, you collect the premium for selling the call and retain your long stock position. On the other hand, if the stock goes down and you want out, just buy back the option, closing out the short position, and sell the stock to close the long position. Keep in mind you may have a loss in the stock when the position is closed.

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