Four Golden Trading Mantras for Beginner Options Trading

In essence:

1. Bullish: Buy Call
When you believe a company’s stock will rise, consider buying a call option. Options allow you to leverage your position with a smaller upfront cost compared to buying the stock directly.

For example: If you believe $KUAISHOU-W(01024.HK)$ will continue its upward trend after an earnings report, you might buy a call option. If the stock rises, your returns can be substantial, and if it falls, your maximum loss is the premium paid for the option.

2. Bearish: Buy Put
If you expect a company’s stock to decline, you can buy a put option. This allows you to bet on the downturn with limited risk.

For instance: If you think $XIAOMI-W(01810.HK)$ will drop by the end of the year, you could buy a put option. If the stock falls, you profit, and if it rises, your loss is limited to the premium.

In summary, buying call or put options limits your maximum loss to the premium paid, while offering significant upside if your prediction is correct. This high leverage is a key attraction of options trading.

3. Neutral-to-Down: Sell Call
If you believe a stock won’t exceed a certain price, you can sell a call option at that strike price to collect the premium.

For example: If you think $BABA-SW(09988.HK)$ will not rise above 100 HKD by the end of the year, you can sell a call option at this strike price and earn the premium.

4. Neutral-to-Up: Sell Put
Similarly, if you think a stock won’t fall below a certain price, you can sell a put option at that strike price to earn the premium.

For instance: If you think $TENCENT(00700.HK)$ won’t fall below 320 HKD due to strong buying interest at that level, you can sell a put option at 320 HKD and collect the premium.

Overall, while selling call options and put options can often be high-probability, low-payoff strategies, they come with significant risk in extreme situations. Selling call options without owning the underlying stock is particularly risky (naked selling). If the stock price rises sharply, potential losses are unlimited. Additionally, options don't trade during pre-market and after-hours sessions, so it's difficult to stop losses in time. Therefore, selling call options without owning the stock is not recommended to avoid substantial losses.

Additional Tip: Options can also serve as a hedge. Long-term stockholders can buy put options on their stocks to protect against potential losses.

Recap:
1. Bullish: Buy Call
2. Bearish: Buy Put
3. Neutral-to-Down: Sell Call
4. Neutral-to-Up: Sell Put

Today's session covers four golden mantras to help you get started with options trading. To succeed, continue learning and understanding options thoroughly.