learn how to trade options for beginners

learn how to trade options for beginners

Options trading can be a complex and sophisticated way of investing in the stock market. However, it can also be a highly rewarding activity for those who are willing to learn and put in the time and effort to understand the intricacies of the market. In this article, we will cover the basics of how to trade options for beginners.


learn how to trade options for beginners


What are options? Options are financial instruments that give the buyer the right, but not the obligation, to buy or sell an underlying asset at a specified price and time. The underlying asset can be a stock, an index, a commodity, or a currency. Options come in two types: call options and put options.

Call options give the buyer the right to buy an underlying asset at a specified price (called the strike price) on or before a specified date (called the expiration date). Put options give the buyer the right to sell an underlying asset at a specified price (called the strike price) on or before a specified date (called the expiration date).

Options trading strategies There are many options trading strategies that investors can use to profit from the market. Here are a few of the most popular ones:

Buying call options

This strategy is used when the investor believes that the price of the underlying asset will increase. The investor buys a call option at a strike price lower than the expected price of the underlying asset.

Buying put options

This strategy is used when the investor believes that the price of the underlying asset will decrease. The investor buys a put option at a strike price higher than the expected price of the underlying asset.

Selling call options

 This strategy is used when the investor believes that the price of the underlying asset will not increase significantly. The investor sells a call option at a strike price higher than the current price of the underlying asset.

Selling put options

This strategy is used when the investor believes that the price of the underlying asset will not decrease significantly. The investor sells a put option at a strike price lower than the current price of the underlying asset.

Risk management Options trading involves a higher level of risk than traditional stock trading. The potential for profit is higher, but so is the potential for loss. It is important for investors to manage their risk carefully.

One way to manage risk is to use stop-loss orders. A stop-loss order is an order to sell a security when it reaches a certain price. This can help limit losses if the market moves against the investor.

Another way to manage risk is to diversify the portfolio. Options trading should be part of a larger investment strategy that includes a mix of stocks, bonds, and other assets.

Education and research Before diving into options trading, it is important for beginners to educate themselves on the basics of the market. There are many resources available online, including articles, videos, and tutorials.

Investors should also conduct thorough research on the underlying assets they are interested in trading. This includes studying the company's financial statements, industry trends, and news articles.

Conclusion Options trading can be a lucrative way to invest in the stock market, but it is important for beginners to proceed with caution. By learning the basics of options trading, using risk management techniques, and conducting thorough research, investors can increase their chances of success in the market.

Youtube option trading for beginners

If you're a beginner looking to learn about option trading on YouTube, there are many channels that offer valuable information and resources. Here are a few that you might find helpful:

Tastytrade 

Tastytrade is a financial network that provides educational content on options trading, as well as other financial topics. Their YouTube channel has a wide range of videos that cover everything from basic options terminology to more advanced trading strategies.

Option Alpha

Option Alpha is a popular options trading education website that also has a YouTube channel. Their videos cover a variety of topics, including options trading basics, strategies, and market analysis.

Option Trading Coach: Option Trading Coach is run by veteran trader Mark Sebastian. His YouTube channel provides educational content on options trading, as well as live trading sessions and market analysis.

InTheMoney

InTheMoney is a YouTube channel run by trader Nic Chahine. His videos cover a variety of options trading topics, including strategy, market analysis, and risk management.

The Trading Fraternity

 The Trading Fraternity is run by trader and entrepreneur Joshua Belanger. His YouTube channel provides educational content on options trading, as well as other financial topics.

When looking for educational resources on options trading, it's important to choose reputable sources that have a track record of success. These channels are a great place to start for beginners who are looking to learn more about option trading on YouTube.


learn how to trade options for beginners


Option trading strategies

There are many different option trading strategies that investors can use to profit from the market. Here are a few of the most popular ones:

Covered call

 This strategy involves selling call options against stock that the investor already owns. The investor collects the premium from selling the call option, which provides some downside protection if the stock price falls.

Protective put

This strategy involves buying put options to protect against a potential decrease in the price of a stock. The investor can continue to hold the stock while having the option to sell it at the strike price of the put option.

Straddle

 This strategy involves buying a call option and a put option at the same strike price and expiration date. The investor profits if the stock price moves significantly in either direction.

Strangle

This strategy is similar to the straddle, but involves buying a call option and a put option at different strike prices. The investor profits if the stock price moves significantly in either direction, but the potential profit is lower than with a straddle.

Butterfly spread

 This strategy involves buying a call option and a put option at the same strike price, and selling two options at a higher and lower strike price. The investor profits if the stock price stays within a certain range.

Iron condor

This strategy is similar to the butterfly spread, but involves selling two options at a higher and lower strike price, and buying two options at an even higher and lower strike price. The investor profits if the stock price stays within a certain range.

Calendar spread

This strategy involves buying a longer-term call or put option and selling a shorter-term option at the same strike price. The investor profits if the stock price stays relatively stable during the period between the expiration dates of the two options.

It's important to note that each strategy has its own risks and rewards, and it's important for investors to thoroughly understand the strategy before executing trades. Additionally, risk management techniques such as stop-loss orders and diversification should always be used to protect against potential losses.


Binary options trading

Binary options trading is a type of financial trading where investors make predictions on the price movement of an underlying asset, such as a currency pair, stock, or commodity. Binary options are called "binary" because there are only two possible outcomes: the investor either makes a profit or loses the entire investment.

Here's how binary options trading works

Choose an underlying asset: Investors can choose from a variety of underlying assets, such as currencies, stocks, commodities, and indices.

Choose the expiration time: Investors must choose the expiration time for their binary option, which can range from minutes to months.

Predict the price movement: Investors must predict whether the price of the underlying asset will go up or down by the expiration time. If the investor believes the price will go up, they purchase a "call" option. If they believe the price will go down, they purchase a "put" option.

Invest the amount: Investors must decide how much money they want to invest in the binary option.

Wait for the expiration

 If the investor's prediction is correct, they make a profit. If their prediction is incorrect, they lose the entire investment.

While binary options trading can be potentially lucrative, it's important to note that it is also highly risky. The outcome of the trade is binary, meaning the investor can only win or lose, and the odds of winning are not in the investor's favor. Additionally, binary options trading is often associated with fraudulent practices and scams, so it's important to thoroughly research any platform or broker before investing.

It's important for investors to educate themselves on the risks and rewards of binary options trading and to use appropriate risk management strategies, such as diversification and stop-loss orders, to protect against potential losses.

Thinkorswim options

Thinkorswim is a trading platform developed by TD Ameritrade, which offers advanced tools and features for options trading. Here are some of the key features of thinkorswim options trading:

Options trading dashboard

The thinkorswim platform offers an options trading dashboard that allows investors to view options chains, create custom spreads, and analyze options strategies.


learn how to trade options for beginners


Options analysis tools

 The platform offers a range of advanced options analysis tools, including the ability to visualize options strategies, view profit and loss charts, and perform backtesting.

Order execution

Thinkorswim offers a variety of order types for options trading, including market, limit, and stop orders. Investors can also set up conditional orders, such as OCO (one cancels other) and OTO (one triggers other) orders.

Mobile app

 The thinkorswim platform also offers a mobile app, which allows investors to trade options from their smartphone or tablet.

Education and resources

TD Ameritrade offers a range of educational resources for options trading on thinkorswim, including webinars, video tutorials, and articles.

Fees and commissions: Like all trading platforms, thinkorswim charges fees and commissions for options trading. Investors should be aware of these costs and factor them into their trading strategies.

Overall, thinkorswim is a powerful platform for options trading that offers a range of advanced tools and features. However, it may be best suited for more experienced investors who are familiar with options trading and are comfortable with the platform's complexity.

 


Comments