Learn how to trade options with this step by step guide for beginners
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Options trading is one of the most popular investing strategies in the world. Options are not for everyone but they can be used safely to make a few extra percentage points per year while remaining safe. Here are 3 top options trading investment strategies for beginners - step by step.
WHAT ARE OPTIONS?
Options are contracts that represent underlying equities like stocks. One option represents control over 100 shares.
HOW ARE OPTIONS DIFFERENT THAN STOCKS?
Options have a lot more "options" than just buying and selling, and unlike stocks, options have an expiration date.
WHY USE OPTIONS?
Options allow you to leverage and get control over more stocks for less money.
3 BASIC FUNDAMENTALS:
There are 3 things to options you have to understand.
1. Strike Price: The potential future value of the underlying stock. This can be either lower or higher than the current equity value (stock price).
2. Expiration Date: The date at which the contract is no longer valid.
3. Premium: the payment made by buyers to sellers of options.
PUTS AND CALLS:
There are only two forms of options - puts and calls. You can buy buy and sell both puts and calls. Here's what that means:
Buying a Call - this is a bullish sentiment (you think the stock is going up) beyond the strike price, before the expiration date. You have the option to buy shares at the strike price on or before that particular date. You pay a premium to buy this option contract.
Buying a Put - this is a bearish sentiment (you think the stock is going down) lower than the strike price before the expiration date. You have the option to sell a stock at the strike price on or before a particular date. You pay a premium to buy this option contract.
Selling a Call - this is the obligation to sell stock at a certain strike price by the expiration date. You make money by collecting a premium when you sell this call option. If the price of the stock does NOT reach the strike price you do NOT have to sell the stock and you keep the premium.
Selling a Put - this is the obligation to buy stock at a certain price by the expiration date. You collect premium for selling this put option. If the stock price does NOT reach the strike price you do not have to buy the stock and you keep the premium.
3 STRATEGIES:
There are 3 simple strategies you can use to make money that are relatively safe (safer than some of the other options you can do with options).
1. Selling Covered Calls
2. Selling Puts
3. LEAPS
If you watch this video all the way through, you'll learn a lot and hopefully make some money. Enjoy, invest, and have fun!
*None of this is meant to be construed as investment advice, it's for entertainment purposes only. Links above include affiliate commission or referrals. I'm part of an affiliate network and I receive compensation from partnering websites. The video is accurate as of the posting date but may not be accurate in the future....(read more)
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Options Trading For Beginners | Step By Step Options trading can seem complex and intimidating for beginners, but with the right understanding and guidance, it can become a powerful tool for investors to manage risk and potentially maximize profits. In this article, we will provide a step-by-step guide to help beginners get started with options trading. Step 1: Understand the Basics Before getting involved in options trading, it is crucial to have a solid understanding of the basic concepts. Options are financial derivatives that give the buyer the right, but not the obligation, to buy or sell an underlying asset at a specific price within a certain time frame. There are two types of options - call options and put options. A call option gives the buyer the right to buy an underlying asset at a specific price (strike price) within a specific time frame. On the other hand, a put option gives the buyer the right to sell an underlying asset at a specific price within a specific time frame. Step 2: Learn the Terminology Options trading comes with its own set of terms and jargon. Some important terms to understand include: - Strike Price: The predetermined price at which the underlying asset can be bought or sold. - Premium: The price at which the option is bought or sold. - Expiry Date: The date on which the option contract expires. - In-the-money (ITM): When the option has intrinsic value. - Out-of-the-money (OTM): When the option has no intrinsic value. - Intrinsic Value: The amount by which an option is in-the-money. By familiarizing yourself with these terms, you will be able to understand and navigate the options trading market more effectively. Step 3: Choose a Trading Platform Once you have a good understanding of options and the associated terminology, it's time to choose a trading platform. Selecting a reliable and user-friendly platform is crucial for executing trades smoothly and efficiently. Look for a platform that offers comprehensive educational resources, live data, and a variety of options strategies. Step 4: Open an Options Trading Account To start trading options, you need to open an options trading account with a brokerage firm. This typically requires completing an application form and providing some personal information. Ensure that you choose a reputable brokerage firm that suits your trading needs and offers competitive commission rates. Step 5: Educate Yourself Options trading has its own set of strategies, techniques, and risks. It is imperative to educate yourself through various resources, such as books, online courses, and financial websites. Familiarize yourself with strategies like covered calls, protective puts, and straddles to develop a well-rounded understanding of options trading. Step 6: Practice with a Virtual Account Before investing real money, it is advisable to practice trading options using a virtual account. Many trading platforms offer virtual trading accounts that allow beginners to simulate real market conditions without risking their capital. This practice will provide valuable hands-on experience and help you refine your strategies before trading with real money. Step 7: Start with Small Investments Once you feel comfortable with your knowledge and virtual trading proficiency, it's time to start trading options with real money. However, as a beginner, it is wise to start with small investments to minimize risk. Gradually increase your investments as you gain more experience and confidence in your trading abilities. Step 8: Never Stop Learning Options trading is a constantly evolving market, and even experienced traders must continue learning to stay ahead. Stay up-to-date with market news, attend webinars or workshops, and read financial articles to enhance your knowledge. Options trading can be a lucrative endeavor for beginners, but it should be approached with caution. By following these step-by-step guidelines, beginners can navigate the world of options trading with confidence and potentially reap the benefits it offers. 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