Want to make money even when the stock market crashes? Options trading changes your investment forever

Stock investing seems simple—buy low, sell high to make money. But if the market declines or volatility increases, do you still have ways to profit? The answer is yes, and this is the charm of options.

What exactly are options? Why are traders all using them?

Options, in English called Options, are essentially a type of choice right. They give the holder the right—note, not the obligation—to buy or sell an asset at a predetermined price at a future date—be aware, it’s a “right,” not a “duty.” The asset can be stocks, indices, currencies, or commodities.

Compared to simply going long or short, options are called the most flexible financial derivatives because they can find opportunities in any market environment. Whether the market is rising, falling, or oscillating, there are corresponding options strategies to match. That’s why options can be used both for speculation and for hedging risks.

Why use options instead of directly buying stocks?

Options have three core advantages:

First, high capital efficiency. You don’t need to pay the full stock price, only a much lower option premium (also called the “rights fee”), to gain control over a large asset. This is the power of leverage—using a small margin to control a large amount of assets.

Second, adaptable to various market conditions. Expect stock prices to rise? Buy call options. Expect prices to fall? Buy put options. Even when stock prices are stagnant, there are corresponding options combination strategies. Flexibility far exceeds traditional stock investing.

Third, risk is controllable and clear. When buying options, your maximum loss is the premium paid—fixed and limited. This makes risk management predictable.

Six key elements to understand in an options contract

To start trading options, you must understand the basic components of a contract:

Underlying asset—the object being traded, such as a stock.

Type of trade—call options (Call) represent the right to buy, put options (Put) represent the right to sell.

Strike price (exercise price)—the price at which you buy or sell the underlying in the future. Choosing a reasonable strike price is crucial. For example, if you expect a company’s earnings report to be negative, you should choose options that expire after the earnings release date.

Expiration date—the last date the option is valid. After expiration, the contract becomes void, and the rights disappear.

Option premium—the price paid by the buyer to the seller for this right. Standard US stock options are for 100 shares per contract.

Multiplier—determines the actual delivery quantity. The premium multiplied by the multiplier equals the actual payment amount.

Breakdown of four basic trading methods

Buying call options: betting on stock price rise

Simply put, this is buying a “certificate” that allows you to purchase stock at a fixed price in the future. The more the stock rises, the more you earn; if the stock falls, it’s okay because you can choose to abandon exercising the right, with losses limited to the premium paid.

Example: When Tesla’s stock price is $175, you buy a call option with a $180 strike price and a $6.93 premium (cost $693). If the stock rises to $200, you can buy at $180 and sell at a higher price, earning the difference. But if the stock drops to $170, your maximum loss is $693, no more.

Risk characteristics: unlimited upside, limited downside.

Buying put options: betting on stock price decline

This is the right to sell stock at a fixed price. The deeper the stock falls, the more you profit. The maximum loss is also the premium paid.

For example, when you are bearish on a stock, you can establish a short position at a relatively low cost without actually short selling (which involves borrowing shares and complex operations).

Risk characteristics: limited profit, limited loss.

Selling call options: betting that stock price won’t rise or will rise slightly

You become the recipient of the premium. If the stock price doesn’t exceed the strike price, you keep the entire premium. But the cost is huge risk—if the stock price surges, you may have to buy the stock at a high price to fulfill the contract. This is a “win some sugar, lose some factory” scenario.

Risk characteristics: limited profit (premium), potentially unlimited loss.

Selling put options: betting that stock price won’t fall or will fall slightly

You collect the premium from the buyer, hoping the stock price stays stable. But if the stock crashes, you may be forced to buy the stock at a price far above the market value. For example, a $160 strike put with a $361 premium, if the stock plunges, your loss could reach over $15,000.

Risk characteristics: also limited profit, potentially unlimited loss.

Four major risk control systems for options

The core of options risk management boils down to four words: Avoid, Control, Diversify, Stop.

Avoid net short positions—don’t sell too many options. When the number of options you sell exceeds what you buy, you form a net short position. At this point, potential losses are unlimited. Compared to buying options (max loss is the premium), the risk level of selling options is entirely different. Always ensure your long positions can cover the short risks.

Strictly control position sizing—don’t put all your funds into options for one month. The high leverage of options means small price movements can cause large gains or losses. If you use a strategy of more selling than buying, you should calculate risk based on total contract value, not just margin. For example, selling 100 shares of a $172 strike put involves an actual risk exposure of $17,200, not just the margin paid.

Diversify investments—don’t put all your eggs in one stock’s options. Spreading options positions across different stocks, indices, and commodities can effectively reduce the risk of a single point of failure.

Set stop-loss orders—especially for net short positions, stop-loss is crucial because losses can be unlimited. For pure buyers (net long), since maximum loss is known, stop-loss can be more relaxed.

Options vs Futures vs Contracts for Difference (CFD), who should you choose?

Three derivative tools each have their strengths:

Options: Highest flexibility for the rights holder, who can choose to exercise or abandon; sellers bear obligations. Moderate leverage (20~100x). Suitable for investors with precise bullish or bearish views on a stock and clear timeframes.

Futures: Both parties must fulfill the contract, highly standardized. High leverage (up to 100x+). Lower fees. Suitable for traders confident in their directional judgment and able to withstand higher volatility.

CFDs: The most flexible customized tool, allowing precise leverage (up to 200x). Suitable for short-term traders with strong risk tolerance.

The key difference: options are less sensitive to small changes in the underlying price, so if you want to capture short-term, small price movements, CFDs or futures are more efficient. But if you want “insurance” and directional bets, options’ flexibility is unmatched.

Final advice

Options are the “Swiss Army knife” of investment tools—versatile and powerful, but also requiring respect. Whether you buy calls, sell puts, or use combination strategies, the tool itself only makes money when your judgment is correct. This means:

1. Thorough market research remains the top priority
2. Understanding options pricing logic and risk features is essential
3. Discipline in risk management is more important than choosing a specific derivative

The charm of options lies in their flexibility, but that also means risks must be actively managed. After mastering the basics, start with small trades to accumulate experience—this is the rational approach.