There are countless strategies involving Stock Options. Some are for insurance and many are for generating an income.

When choosing a strategy to use for Options Trading to make money for income, you need to carefully consider several key areas.

• You need to find a strategy that you are comfortable with.

• You need to have a sound understanding of that strategy.

• Your strategy needs to suit the current market conditions.

One thing you need to remember when options trading is that there is always another trader on the other side of the trade doing the exact opposite that you are doing.

So if you are options trading and you have bought a stock option, someone else has sold it to you and the premium you have paid is their income.

When you Buy an option, you are said to be a Taker.

When you take, or buy an option, you are said to be long that position.

When you Sell an option, you are said to be a Writer.

When you write, or sell an option you are said to be short that position.

That is not to confuse a writer with someone who has previously bought an option to open a position, only to later sell it to close that position.

So when considering the use of stock options for generating an income our choices are whether we want to be the taker who pays a premium for stock options to profit from later selling them, or whether we want to be the writer who collects that premium as income.

A major consideration in any strategy is the level of risk associated. As the writer of an option, you ARE obligated to buy or sell the shares should someone wish to exercise their right.

The option taker however, has NO obligation. If they chose to do so they could let their option expire worthless, a writer can't.

It is said that the majority of stock options actually expire worthless. So a writer would generally be doing so in order to receive the premium paid as a guaranteed income.

You see, even if the option were to be exercised, the writer still gets to keep their premium.

When writing options there are two ways to expose yourself to risk.

To write a covered option simply means you own the underlying security.

Covered Calls are a good example of this. Many investors write call options over stocks they already own to collect the premium as additional income.

The risk with this strategy is limited because if the option was to be exercised and you had to sell the shares, then you already own them in the first place.

Even if the option holder exercised their right and the investor had to sell their shares, they would still keep the premium they received.

To write a naked option means you do not own the underlying security.

Writing Naked options means you are promising to buy, or sell shares you do not own.

An example would be if you wrote a Naked Put option. You are obligated to buy someone's shares from them should they choose to exercise their right.

And because the holder of a Put Option would only exercise should the option become In The Money that mean you would be paying a price higher than market value resulting in an unlimited loss.

This can be a very dangerous strategy if you don't fully understand the possible outcomes.

There are advanced options trading strategies however, that allow you to write options and collect the premium with insurance to minimise your risk.

Using a strategy like this means you are almost covered, and can actually make money out of nothing.

An example of this would be if you wrote a Put Option to collect the premium and bought a Put Option with a different strike price to protect yourself from an unlimited loss.

The difference between the two strike prices, or the spread, would be your maximum risk and the difference between what you received and what you paid for the two options would be your income.

Your choice of strategy really depends on your comfort level with the risk associated with each and what results you are trying to achieve.