What Are Options and How Do You Make Money From Them?
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Options are contracts that give you the right to buy or sell an asset at a set price before a set date. You can make money by betting on price moves, collecting premium as income, or hedging your portfolio—but you can also lose quickly if you don’t understand the risks.
This guide explains what options are, how calls and puts work, and the main ways Malaysians can make (and lose) money trading them, using simple examples and minimal jargon.
What Exactly Is an Option?
An option is a financial contract that gives you the right, but not the obligation, to buy or sell an underlying asset (like a stock) at a fixed price before a specific date.
In the US market, one standard option contract usually represents 100 shares of the underlying stock.
| Term | Meaning | Example |
|---|---|---|
| Call option | Right to buy at the strike price | AAPL 170314 140C |
| Put option | Right to sell at the strike price | TSLA 250919 200P |
| Strike price | Fixed price to buy/sell | $140 for AAPL call |
| Expiry date | Date the option stops existing | 14 March 2025 |
How Do You Actually Make Money With Options?
There are two sides to every options trade: buyers who pay a premium, and sellers (writers) who receive a premium.
Buyers profit from favorable moves in the underlying price; sellers profit from time decay and stable or unfavorable moves for the buyer.
Buying Options: Long Calls and Long Puts
As a buyer, you pay a premium upfront. Your maximum loss is limited to that premium, but your potential profit can be much larger if the market moves in your favor.
For example, if a stock is at $100 and you buy a $105 call for $3, your breakeven at expiry is around $108 ($105 strike + $3 premium).
Simple Profit Example (Long Call)
Suppose you buy 1 call contract (100 shares) with these details:
| Detail | Value |
|---|---|
| Stock price | $100 |
| Call strike | $105 |
| Premium paid | $3 per share |
| Total cost | $3 × 100 = $300 |
If the stock rises to $115 by expiry, the call is worth $10 intrinsic value ($115 − $105). Your profit is roughly $10 − $3 = $7 per share, or $700 for the contract, minus any commissions.
If the stock stays below $105, the option expires worthless and you lose the $300 premium.
Selling Options: Collecting Premium as Income
As a seller (writer) of options, you receive the premium upfront but take on the obligation to buy or sell the underlying if the buyer exercises the option.
Common income strategies include covered calls (selling calls against stocks you own) and cash‑secured puts (selling puts while keeping cash to buy the stock if assigned).
Buyers vs Sellers: Risk and Reward
| Side | Cash Flow | Max Profit | Max Loss | Best For |
|---|---|---|---|---|
| Buyer (long call/put) | Pays premium | Large (directional) | Limited to premium | Speculation, hedging |
| Seller (writer) | Receives premium | Limited to premium | Potentially large | Income, range‑bound markets |
| Spread trader | Pays/receives net premium | Capped by structure | Capped by structure | Defined‑risk trades |
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Common Ways Malaysians Use Options
Malaysians typically use options for directional bets, income generation, and portfolio protection.
| Strategy | Idea | Risk |
|---|---|---|
| Long call / long put | Bet on big up or down move | Lose premium if wrong |
| Covered call | Collect premium on stocks you own | Capped upside, still exposed to downside |
| Protective put | Insure your stock portfolio | Cost of premium reduces returns |
| Vertical spreads | Defined‑risk directional trades | Capped loss by design |
Key Risks You Must Understand
Options are powerful but risky. Time decay erodes option value as expiry approaches, which hurts buyers and helps sellers.
Volatility swings can sharply change option prices, and illiquid options can have wide bid‑ask spreads that make entry and exit costly.
💡 Pro Tip: Start by learning long calls/puts and covered calls before trying complex spreads or naked options. See how to trade options in Malaysia →
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Final Thought
Options can be used to speculate, generate income, or hedge your portfolio, but they’re not a get‑rich‑quick scheme.
Treat them as tools for specific views and risk profiles, and always understand the maximum loss before entering any trade.
⚠️ Important Disclaimer
This article is for informational purposes only and does not constitute financial advice.
- Options trading involves significant risk and is not suitable for all investors.
- You can lose some or all of your capital, especially when selling options or using leverage.
- Past performance and examples are not guarantees of future results.
- Always read the full terms of any broker or platform and do your own research before investing.
- Consult a licensed financial advisor for personalised investment advice.
Duitwise does not take responsibility for any investment decisions made based on this article.
References
- Moomoo MY — Options Trading Guide for Malaysian Investors — moomoo.com/my
- US options contract basics (1 contract = 100 shares) — various broker education pages
- BrokerChooser — Best Options Trading Platforms in Malaysia (2025/2026) — brokerchooser.com