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 Expiration Date: The date at which the contract is no longer valid.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.
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
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.