Options trading is interesting because it allows a holder to bet on how a stock will perform without putting more than their initial investment at risk. Certain options trading strategies, on the other hand, have the potential to reduce the risk of loss, protect investments from market volatility, and even generate a profit. However, because this is inherently more complex than simply purchasing stocks or mutual funds, traders must be more selective in choosing the right platform. Stay tuned as I enlighten you on the options for the trading course suitable for you.
What is Options Trading?
The practice of buying or selling options contracts is known as options trading. These contracts are agreements that allow the holder to buy or sell a group of underlying securities at a fixed price by a specific date. The right to trade the underlying asset is given to you when you purchase an option, but you are not required to. This action is known as exercising the option if you choose to take it. In essence, options trading is essentially a way for investors to make predictions directed to the overall stock market or specific securities like stocks or bonds.
Factors to Consider When Choosing Options for Trading
If you want to start trading options as a beginner, keep these considerations in mind.
#1. Options Trade on Different Underlying Securities
Although calls and puts are mentioned concerning stocks in this discussion, it’s important to remember that options can also be related to other kinds of securities. Equities, indexes, or ETFs are the three most popular underlying securities. In essence, knowing that options based on equities and ETFs and those based on indexes differ in a few key ways will help you make an informed decision. Therefore, it’s crucial to understand the distinctions before you begin trading.
#2. Historical Volatility and Implied Volatility
Historical volatility shows how much the stock price fluctuated in the past over one year daily. The implied volatility of a stock is determined by what the market “implies” will be the volatility of the stock will be in the future over the life of the option contract.
In addition, implied volatility is one of the most important concepts for options traders to understand. Because it can assist you in determining the likelihood of a stock reaching a specific price by a certain time and indicating how volatile the market may be in the future.
#4. Options Trading lingo
You can purchase or sell calls or puts when trading options. You can be either long or short; your height has nothing to do with either. As a result, you could also have money in, or money out. These are just a few of the many words you’ll hear in a room full of option traders. Simply put, it is beneficial to understand your terminology.
#5. Options Traders Borrow from the Greeks
The Greek alphabet is used by options traders to refer to how options prices are expected to change in the market. which is critical to options trading success. The most common ones referenced are Delta, Gamma, and Theta.
Although these helpful Greek references can help explain the various factors influencing option pricing movement and can collectively indicate how the market expects an option’s price to change. However, the values are purely theoretical, and there is no guarantee that these forecasts will be correct.
#5. Options Trading Starts with Your Financial Purpose
Options traders have a clear understanding of their financial purpose and desired position in the market, just like many successful investors do. But, your approach to and way of thinking about money, in general, will directly affect how you trade options. Hence, before you fund your account and begin trading, you should clearly define your investment objectives.
What are the Four Types of Options?
Buying a call option, selling a call option, buying a put option, and selling a put option are the four basic options positions. With call options, the buyer is betting that the market price of an underlying asset will exceed a predetermined price, known as the strike price, while the seller is betting that it will not.
What is an Options Trading Example?
Stock X is worth $20 per share, and a call with a strike price of $20 and an expiration date of four months is worth $1. The contract pays a premium of $100, or one contract * $1 * 100 shares represented per contract. The trader buys 100 shares of stock for $2,000 and sells one call to receive $100.
Options Trading Requirements
The requirements for trading stock options vary by brokerage, and the rules are frequently relaxed or tightened in response to the current economic climate. As a result, to begin your career as an options trader, you must meet the following requirements:
#1. Acquire a Bachelor’s Degree
While options trading has no formal requirements, investment banks are more likely to hire applicants who have bachelor’s degrees. Aspiring options traders can benefit from studying finance-related fields such as math or economics in college. As an alternative, you might consider taking courses that teach finance and accounting.
#2. Open an Account on an Options Trading System
Options traders who are just starting should use trading systems with straightforward entry and exit criteria. Different trading system tiers may request varying amounts of startup capital. Some require you to sign an agreement for options. In contrast, other trading platforms rank accounts according to their level of risk, giving low-risk accounts access to the greatest variety of trades.
#3. Choose Options and Predict their Strike Price
Choosing whether to buy a call option or a put option depends on your prediction of the stock price. A rising stock price indicates a future call option sale or put option purchase. A falling stock price indicates a call option purchase or a call option sale.
#4. Get Experience
To increase your experience and expertise, start trading options using your capital or make investments for relatives and close friends. Over time, you can increase the number and value of your trades. Brokerage firms and private clients value experience when choosing options traders to work with.
Options Trading Strategies
Traders often jump into trading options with little understanding of the strategies that are available to them. There are many options for strategies that both limit risk and maximize return. With a little effort, traders can learn how to take advantage of the flexibility and power that stock options can provide. However, whether you decide to use these strategies or not depends on your trading style. But at least if you have an understanding of how they work, you will be more adaptable to changing market conditions.
The best Options Trading Strategies for Beginners
The following list should guide you through…
#1. Covered Call
This is a very popular strategy because it generates income and reduces some of the risks of being long on the stock alone. The trade-off is that you must be willing to sell your shares at a set price, the short strike price. To execute the strategy, you purchase the underlying stock as you normally would and simultaneously write or sell a call option on those same shares.
#2. Married Put
In a “married put strategy,” an investor purchases an asset, such as shares of stock, and simultaneously purchases put options for an equivalent number of shares. This strategy is like the long put with a twist. The trader owns the underlying stock and also buys a put. This is a hedged trade, in which the trader expects the stock to rise but wants “insurance” if the stock falls. If the stock does fall, the long put offsets the decline.
#3. Bull Call Spread
In a bull call spread strategy, an investor simultaneously buys calls at a specific strike price while also selling the same number of calls at a higher strike price. Both call options will have the same expiration date and underlying asset.
Primarily, in the bull call spread option, you will still be able to buy that long call option expressing your bullish views, but you can compensate for some of that cost by selling a short call option in the face of it, thereby lowering your risk.
#4. Short Put
The short put is a trading strategy for beginners and investors who are selling options. This strategy aims to profit from premiums paid on options contracts. Let’s say Investor A is implementing a short put strategy and sells a put option to Investor B. If the price of those shares stays the same or increases, Investor B will likely let the put contract expire. After the contract expires, Investor A would keep the initial premium, thus profiting from the transaction.
#5. Protective Put
A protective put is another strategy used by investors to protect themselves from potential losses. Investors would buy a long put against an asset they already own. In addition, these strategies offer a way to potentially profit in almost any market situation, whether prices are going up, down, or sideways.
The market is complex and highly risky, making it not suitable for everyone, but the guide above lays out different trading strategies based on the level of expertise of the investor. Once you’ve mastered the basics of options trading, you may be interested in more advanced strategies to become more comfortable.
Options Trading Platforms
Options can be used to generate income, hedge your risk, or add more power to your portfolio by increasing your exposure to certain stocks and indexes. But because options trading is inherently more complex than simply buying stocks or funds, options traders often need to be more selective in choosing the right platform. In the guide below, we’ll share the best top picks for the best options trading platforms.
List of the Best Trading platforms
Here are the summarized results,
- Best options trading platform overall: Interactive Brokers
- Best web-based options trading analysis tools: E-Trade
- Most popular options trading platform: Fidelity
- The best platform for beginners: Charles Schwab
- Best stock options trading platform: Merrill Edge
- Best mobile options trading platform: Robinhood
- Best online trading platform for options: Webull
- Best for high-volume options traders: tastyworks
- Best low-cost options trading platform: eOption
- Best paper trading options platform: TradeStation
- TD Ameritrade – Equity tools and research
- Merrill Edge – Best for Beginners
In essence, options trading is more complex than simply trading stocks, FX, or other assets. As a result, options traders should be more selective when choosing the right platform.
Options Trading Course
The best way to learn options trading is to study the markets, take a course, and use that information in real-time. While an options trading course for beginners is a good place to start, you might also look into other option trading courses that review intermediate and advanced strategies. You can do this by weighing the price, the content, and your learning style.
When you find the perfect fit, the course will help you acquire solid foundational knowledge. The learning curve for understanding the options market and how to create successful trading strategies is fairly steep. The best courses walk you through what to do and how to do it and help build the self-confidence needed to frequently trade.
The Best Options Trading Course
Below are the best options trading course suitable for you,
- Bullseye Trades: Best education and options picks offer
- Market Navigator: Best for daily trade alerts
- Black Box Stocks: Best all-in-one offer (education, tools, community)
- Option Strategies Insider: Best for options trading strategy insights
- OptionsGeek: Best for in-depth options trading education (optional trade alerts)
- Best Overall: Simpler Trading
- Best for Complete Novices: Udemy
- Best Low-Cost Option: Bullish Bears
- The Best Free Educational Platform: Option Alpha
- Best Comprehensive Offering: Warrior Trading
- Best Value: Black Box Stock
References
- .indeed.
- Nerdwallet
- bankrate.
- .cnbc.
- Investopedia
- STOCK TRADING: Definition, Best Apps, Strategies & Games for Beginnersstock Trading
- 19 BEST STOCK TRADING APP in 2023 (Updated)
- Stock Trading Business: How to Start a Stock Trading Business
- Call Option vs Put Option: Stock Options
- SHORT PUT OPTION: Overview, Examples (+Trading Tips)
- BEST CYBERSECURITY COMPANIES IN 2023: Complete Guide
