You want to get into options trading but are worried that options trading is “too risky”. You can control your risk with spreads. In this article you’ll learn:
- 5 easy steps to transition from trading stocks to trading options.
They say that even the journey of a thousand miles still begins with just one step. We would like to bring this ancient axiom into the modern lexicon. Let’s just say that the start of a whole new page in your life begins with just one click.
Let us not waste any bandwidth, we want you up here where the air is sweet and the options literally astound us. Therefore, to make the ascent as easy as possible we have outlined five simple steps. Steps that can quickly catapult you to a lofty options trading trajectory. Given the boundless opportunities available at your fingertips, this should be a snap!
Know the Rules
First things first, you will want to get your trading account up to speed. Meaning, the disclosure and acknowledgment of the options agreement with your broker or account holder.
(CHARACTERISTICS AND RISKS OF STANDARDIZED OPTIONS). This is the regulatory form. It ensures you fully understand what options contracts are and what you are required to do if you engage in one. Your online account dashboard will most definitely have links that take you straight through this process seamlessly. Keep in mind that there are four levels of trading. Each will need your formal understanding and consent.
Your options trading journey begins with executing covered call writing, cash-secured put writing, and buying long puts and calls.
Almost all brokers have an upgrade to options trading link within their user portals. The first level is for a covered call and cash-secured puts (synthetically the same).
Options Trading Tip
This is a great document to familiarize yourself with as there could be major pitfalls. It’s important to take proper care to find out about them and understanding the rules and regulations.
Analyzing and Screening options
After you have done your homework on the rules of the land, it is time to start with rules of engagement. Familiarize your surroundings. Analyze and screen options which underlying stock tickers you know and follow on your stock screener or actively have positions in within your brokerage account. In this way, your comfort in understanding what makes that company tick will enhance your understanding of the overlaying options in the direction of that value going forward.
Options Trading Tip
When you fully grasp the various time/delivery spectrums for a specific options chain, you can ramp up your skills. Now you are ready to pass the next leg of your journey, which puts your entire training top task.
Options Trading Optimization
Now you must execute basic strategies like writing a covered call. You will use a portion or all of an existing stock position in your portfolio. This will offset and cover the contract you offer.
A closer look at how this goes down. In your options account, you place an order to sell a particular stock option. Let’s assume you have 100 shares of AAPL sitting around and you wish to earn an even greater return than the paltry one point eight percent paid in dividends. Therefore, you wrote (sold) one call contract, with each covering 100 shares. You assigned the right for the option buyer to buy from you 100 shares at the strike price you agree upon. In exchange, you earn your first premium for the contract, pushing your yield on this stock even higher. All this because you push a few correct buttons on your screen or keyboard. Wow!
Note on Strategy
Note that this strategy actually has less risk than the position you originally hold as you are protected to the downside in the amount that you sell the upside call for.
Expand the Horizon and Investigate Strategies
Getting even deeper into the woods, it is time to expand the horizon and investigate strategies used to profit from options safely without using stock as an underlying guarantee. There are many trading techniques which have even more creative nomenclature; along with butterflies, iron condors, straddles and strangles. You will want to understand how you can choose riskier trades versus the most profitable trades. Of course, for the amount of risk you’re willing to take.
With a global knowledge-base, OptionAutomator.com is at once your guide and companion on the road to reward.
OptionAutomator Trading Tip
Pure direct insight into how you can tangentially improve your immediate trading performance. We show you how to use easy to follow guides, along with the most intuitive powerful and adaptive options search screener. Forced relevancy ranking at your fingertips anywhere twenty-four seven!
Engaged in the Flow
Finally, our fifth step is to be engaged in the flow at OptionAutomator.com . We invite you to relish in the richest set of features soon to roll out. It is designed to offer clear ranking for covered calls. All so you can always find the most optimized contract to balance the necessary amount of downside protection, with the shortest duration.