There is 4 type of option
Normally when we long a stock market, we get profit when it going up,we get profit see the graph green color is +profit, red color is -profit.
Same rule apply when you short stock, we get profit when it going down, we get profit as graph show
green color mean +profit, red color mean -profit.
Option have 4 type, long call, short call, long put, short put.
Long call, you get unlimited profit and limit loss.
Short call, you get unlimited loss and limit profit.
Long put, you get unlimited profit and limit loss.
Short put, you get unlimited loss and limit profit.
So, what difference long option is like buying a insurance, short option is likely to sale a insurance.
and you notice Long call is like long stock but with limit loss, and long put is like short stock and with limit loss also.
Is there better than normal stop loss?
from my view option is more strategy and it safer, if you combine type of option in your portfolio,
there are so many strategy in option trading on internet I'll explanation about my most used and it just a basic strategy.
Long call + Long put
as you see graph will be like this, this strategy good when you know price is going to break no matter price is going up or down we still make a lot of money, but if the price is not moving we loss x2 premium from long call and long put option.
My main strategy to make this free betting is, I trade normally from my main portfolio and when I got profit assume I get 10$ profit and I want to make this free bet
I long put 5$ and long call 5$ (10$ premium I need to paid for option)
and watch and see whatever it move I have no loss only get a big money from it, the weakness is I need to make a profit to do this first and mostly I will loss the money, but if I win I get a very big money so I need to use free money betting on this system no need to put your main money on it!.
My secondary strategy is, long spot short call option, it sound good when I can make money no matter price is up or down again but it have a bit problem, because when I short call option and price go down very deep remember short call option has limited profit so that a weakness of this strategy, my option cannot cover loss if price go down very deep, but if price go up my long spot can cover my short call option loss, it seem this strategy good at no volatility market and up trend but if go down we get a little from short call, I don't know if it worth but it still good to run.
