How to Trade Options in Moomoo and Manage Risks

To trade options in Moomoo, you'll first need to fund your account and set up your trading platform. You can deposit funds through various payment methods, such as bank transfers or online payment services.

Moomoo offers a range of options trading products, including call and put options, which can be traded on various underlying assets like stocks, ETFs, or indices. Options trading can be a powerful tool for managing risk and maximizing returns.

Before you start trading options, it's essential to understand the different types of options available, including American and European options, and how they work. Moomoo provides detailed information on each type of option, including their expiration dates and strike prices.

To manage risks, you can set stop-loss orders or limit orders to automatically close or adjust your trades. This can help you avoid significant losses and lock in profits when the market moves in your favor.

As a put option buyer, you're essentially betting on a decrease in the underlying asset's value, and the premium you pay represents the cost of this bet.

The strike price is a crucial element of a put option, as it's the predetermined price at which you can sell the underlying security. This price is set by the option writer, and it's the price at which you'll buy the asset if you choose to exercise the option.

The premium you pay for a put option is influenced by several factors, including the asset's current market price, the option's strike price, time value, and market volatility. This means that the premium can fluctuate over time, and it's essential to understand these factors to make informed trading decisions.

The time value of a put option begins to decrease as it gets closer to expiration, due to time decay. This means that the longer you hold onto the option, the more time value it will lose.

Here are the major elements of a put option:

You'll be charged 1x when you open a position on Moomoo, which is a flat fee.

If you close your position before expiry, you'll be charged 1x again, making it a total of 2x fees.

Holding the option until expiry will save you from paying an additional fee, so you'll only be charged 1x, which is the initial opening fee.

I've personally paid around $2.5 to $3 every time I open or close a position of 1 contract.

The fee structure is straightforward, but it's good to double-check the fees before trading, especially if you're new to options.

The Moomoo Platform is a great place to start exploring options trading. You can filter out the option chain to show only "Call" options, making it less confusing to navigate.

To get started, search for and select TSM on the Moomoo platform. Next, filter out the option chain to show only "Call" options. This will help you focus on the relevant information.

By selecting the expiration date to be the closest to your estimate, you can zoom in on the strike price and see how much you can earn by selling that call option. In the example provided, the strike price was 127, and selling one call option would give you $2.99 x 100 units = $299 right away.

There are two scenarios that will play out when selling a covered call, and it's essential to understand how each will affect your trading profits.

Here are the two scenarios:

In the second scenario, you would have made $299 + the price increase from 100 shares * (127 – 124.28) = $272, which would be $571. However, you could have made 100 shares * (135 – 124.28) = $1,072.

Options are a type of financial instrument that can be a bit confusing at first, but once you understand the basics, they can be a powerful tool for managing risk and making informed investment decisions.

A put option is a type of option that gives the buyer the right, but not the obligation, to sell an underlying security at a predetermined price, known as the strike price.

The strike price is a crucial part of a put option, as it determines the price at which the buyer can sell the underlying security. In a put option contract, the strike price is the predetermined price at which the holder can sell the asset to the option writer (seller) if they choose to exercise the option before or at its expiration date.

The premium, or the price a buyer pays to purchase an options contract, represents the cost of acquiring the right to buy or sell an underlying asset at a specified price (the strike price) before the contract expires.

As a put option gets closer to expiration, its time value begins to decrease as a result of time decay. With less time to realize a potential profit from the trade, time decay continues to accelerate as the expiration point draws closer.

Here are the major elements of a put option:

Long put options and short put options are two different strategies with distinct characteristics. The main difference between the two is the direction of the trade. For a long put, an investor has a bearish outlook with limited risk and a significant profit potential.

A long put is typically used when an investor anticipates a decrease in the underlying asset's value, as mentioned in Example 2. This strategy involves buying a put option, which gives the buyer the right to sell the underlying asset at the strike price.

In contrast, a short put is a neutral/bullish strategy where an investor sells a put option, as explained in Example 6. This means they have a higher risk of potentially large losses and limited profit potential.

Here's a comparison of the potential outcomes for a long put and a short put:

Keep in mind that a short put strategy is still a very risky approach, as noted in Example 4. It's essential to understand the risks involved before using this strategy.

The strike price is a crucial component of an options contract, and understanding how it works can help you make informed decisions when trading. It's the predetermined price at which the underlying asset can be bought or sold when exercising the contract.

The strike price plays a pivotal role in determining the contract's intrinsic value, as mentioned in Example 4. This means that the strike price directly affects the premium you pay for the option or the profit you can make from it.

When choosing a strike price, consider how close the current price is to it, as discussed in Example 2. The further the strike price is from the current price, the less likely it is to reach the strike price, resulting in a lower premium.

You can also think of it this way: selling a call option with a strike price far from the current price will get you less money compared to selling a call option with a strike price closer to the current price, as seen in the TSM example in Example 2.

Here's a summary of how the strike price affects the premium:

The strike price is also influenced by the asset's current market price, as mentioned in Example 3. This means that the strike price should be set in relation to the current market price to ensure the option is priced correctly.

In conclusion, the strike price is a critical component of an options contract, and understanding how it works can help you make informed decisions when trading.

Options trading offers a unique advantage in that the risk of losses is theoretically limited to the size of the option's premium. This means you can potentially gain from an increase in stock prices without owning the stock itself.

Options trading allows you to generate regular returns from your portfolio, making it a great option for those looking to earn income.

Selling a put option against a company you own stock in can give you the potential to benefit from either a rise or fall in that company's value, making it a useful risk mitigation strategy.

However, be aware that the potential loss can be substantial if the underlying stock goes down to zero.

Options trading offers flexibility across different market conditions, making it suitable for both bear and bull markets.

You can use options trading to create flexibility across time horizons that suit your individual investment strategy.

Options trading allows you to use smaller initial outlays to generate potentially greater returns, making it a great option for those with limited capital.

With options trading, you can diversify your portfolio by utilizing your capital across multiple stocks, rather than directing it into a smaller number of stock pools.

You can start with basic calls and basic puts, which are available by default on Moomoo.

To sell covered calls, you need to activate the covered call function by contacting customer service via the mobile app. They usually respond quickly during working hours.

For more advanced option strategies like vertical spreads, straddles, and butterflies, Moomoo has announced they will be available soon in 2021.

To trade put options, you need to consider different variables such as the underlying security, expiration date, strike price, premium, and order type.

Here are some key considerations for put option strategies:

As a beginner, it's best to consider buying options where the theoretical maximum loss is the premium paid.

Delta is a crucial concept in options trading, and it's essential to understand how it works. Delta measures the change in the options contract's value in relation to the underlying asset's price movement.

It provides insights into the contract's directional risk, which is the risk associated with the price movement of the underlying asset. Delta is a key factor in determining the potential profit or loss of an options trade.

In the context of trading strategies, delta is particularly useful for traders who want to gauge the potential impact of price movements on their options positions. By understanding delta, traders can make more informed decisions about their trades.

For example, let's consider the scenario where you sell a call option on TSM with a strike price of 127. According to Example 5, if the price of TSM goes beyond 127, the buyer of the call option would exercise it at the strike price of 127. This means that the delta of the call option is 1, indicating that a $1 increase in the price of TSM would result in a $1 increase in the value of the call option.

Here's a simple way to think about delta:

Keep in mind that delta is not a fixed value and can change over time due to various market factors. By understanding delta, you can better navigate the complexities of options trading and make more informed decisions about your trades.

Trading options can be complex, but there are some basic strategies that can help beginners get started.

You can buy and sell basic calls and puts on Moomoo, but you need to contact customer service to activate the covered call function.

One of the simplest strategies is to buy a call option, which can limit your loss to the premium paid.

Investors who trade put options need to consider several variables, including the underlying security, expiration date, strike price, and premium.

You can also use put options to hedge against a falling stock price, but this requires careful consideration of the underlying security and expiration date.

To trade options, you need to understand three key aspects: leverage, flexibility, and hedging.

Some common starter option trading strategies include long call, covered call, long put, cash secured put, and married put.

These strategies can be implemented using stocks as the underlying asset and can help beginners limit their loss to the premium paid.

Here are some strategies to consider for beginners:

These strategies are all about buying options where the theoretical maximum loss is the premium paid, making them a good starting point for beginners.

Choosing the right time frame for your options trade is crucial, and it's best supported by rigorous research and a strategic approach. The expiration dates offered in the option chain can be as small as a matter of days or as long as years.

American options offer more flexibility, allowing you to exercise them at any point up to the expiry date, but they're often more expensive. This increased flexibility comes at a price.

Long-term investors tend to use monthly or yearly expiration dates, which can be a safer bet. Daily and weekly options, on the other hand, are inherently more risky.

The choice of expiration date can significantly impact your options trade, so it's essential to consider your investment goals and risk tolerance.

Options trading can be used to help protect against some downside risk in an investment portfolio through hedging.

One of the biggest advantages of options trading is that it generally has a lower initial capital requirement compared to trading an equivalent amount of the underlying asset.

For a buyer of a put option, the theoretical maximum loss is limited to the premium paid for the option.

This limited risk can be a major draw for investors who want to minimize their potential losses.

The potential gain from buying a put option can be significant if the asset's price declines sharply.

Here are some key pros of options trading:

Trading strategies can be overwhelming, especially when it comes to deciding between different approaches. One key decision is whether to use put options or short selling to potentially profit from a decline in stock prices.

Put options give the holder the right to sell a stock at a predetermined price within a set time frame. Short selling, on the other hand, involves borrowing shares and selling them, then buying them back at a lower price.

The main difference between the two is the level of risk involved. Short selling has unlimited risk, while long put options limit losses to the premium paid. This is a crucial consideration for any investor, as it can greatly impact their overall strategy.

Here's a quick comparison of the two:

Ultimately, the choice between put options and short selling depends on your risk tolerance, investment goals, and market conditions.