Becoming an options trader takes time, research, and strategy. Before you can start successfully making strong profits, you must educate yourself on stock options and find a broker who can guide you along the process. Follow these steps to help you get started in becoming a successful options trader.
- Research Stock Options and Learn How They Work
Before getting into the options trading game, you must learn what stock options are through research. As an overview, stock options are contracts that give you the option to buy or sell a stock at a certain price on the agreed-upon date. While purchasing stocks immediately gives you company ownership, stock options are more temporary contracts that provide short-term benefits.
There are a few elements to be aware of before handling stock options:
- Strike price: This is the set price that options can be bought or sold at.
- Premium: When starting your options contract, you’re required to pay a fee, which is the premium. Premiums are priced per each share and fluctuate as market prices move higher or lower.
- Expiration date: You can only keep options for a certain time period before they expire. Contracts last anywhere from a month to several years.
- Open an Options Trading Account
When you’re ready to get started, brokerage firms will screen you to better understand your trading experience. To do this, you’ll give brokers the following information:
- Details about the options you’re interested in trading.
- Any trading experience you currently have, including stock or options trading history, the size of your past trades, or details regarding how extensive your trading knowledge is.
- Specific investment objectives, including growth, income, or capital preservation.
- Your financial information, like current investments, net worth, income, and employment information.
The broker will analyze your information and determine what trading level to place you in based on your skills and experience. Options trading levels range from one to five. Let your broker guide you in learning more about the options trading world.
- Set Up Price Charts To Track Stocks
Set up price charts to help you track your stock options. View the stock symbols on their own screen. These symbols are abbreviations used to locate publicly traded shares of stocks. Have a third screen pulled up to view option quotes on your stocks. Finding a strong platform is key because some will allow you to link all your screens together, making it easier to transition to and from each piece of stock information.
- Develop a Plan for Your Trades
You’re more likely to succeed in options trading if you have a solid plan for these trades. Having a plan helps you create a goal and a strategy to stick to. Your plan should detail your trading approach, including trades you will and won’t take. This plan should also list your trade management and risk control.
Once you understand how stock options work, you can develop strategic plans to make strong profits. Becoming a successful options trader takes time, organization, and intelligent guidance from your broker. Conduct plenty of research, follow through with your plans, and soon enough, you’ll be trading options like a pro.