How to Trade Options by Karen Rockfeller

It may seem like it would be hard to learn how to start to trade options. It doesn’t have to be. One of the easiest ways to start option trading is for a new options trader to begin by opening an online options trading account with a broker. The trader should choose a broker that offers online options trading to practice buying call options (the rights, but not the obligation, to buy for a specified amount by a specified time) for stocks that the trader believes will go up. The trader can also practice buying put options (the rights, but not the obligation, to sell for a specified amount by a specified time) for stocks that the trader believes will go down. When the trader is experienced and familiar with trading call options and put options, the options trader can then move on to the more complex option strategies.

When an options trader starts out, they often wonder if they have to wait until the expiration date to sell it an option that becomes profitable right away. This does happen when an options trader has done research on options trading before beginning. When to sell such a profitable option, is entirely up to the options trader. Being patient and waiting to hold on to the option until nearer its expiration date could result in an even larger profit. This is not always the case though, because the value of the option can also loose value.

Everyone wants to know the “magic” time to sell a trade option. The truth is even the option trader who is a big money maker can and does loose option value. The goal is to reduce the risk and have value reduction occur as few times as possible. That is what separates those who make money over time and those who don’t. To trade options you have to take what you learn and keep going to earn money.

A point to remember when making the decisions regarding options trading is that in addition to whatever a given option would currently be worth to exercise, options that haven’t yet expired may also have time value which is the difference between option value and intrinsic value. The value will never be less than zero.
When learning how to trade options, it is good to know what the difference is between an options “premium” and an options “strike price.”

• Premium-this term, when used in reference to options, it has the same meaning as when used in connection with insurance. It’s the price that is paid to buy a given option.

• Strike Price-this term, when used in reference to options, is the specific price (as stated in the options) which the option gives you the right to buy a particular commodity in the case of a call or in the case of a put to sell the commodity

Here is an example to help understand what a strike price is: A call option gives the trader the right to buy 100 ounces of gold at a price of $500 an ounce, $500 is the strike price. There is likely to be trading in options with several different strike prices.
When an option trader buys a call, the goal is that the market price of the commodity will move above the option’s strike price by an amount greater than the cost of the option, because this makes the option profitable. When the option trader buys a put, the goal is that the market price of the commodity will decline below the option’s strike price by an amount greater than the cost of the option, because it would make it profitable.
There was a time when options trading secrets were not shared. Those days are gone with many people who are making extra money and bringing in their primary income with options trading, now sharing how they do it.

Read More about How to Trade Options. For more information about ForEx and commodities trading, contact one of our experts today.

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