Getting Started with Options Trading

Options are a type of investment that lets you buy or sell stocks in the future. There are many different options and ways to trade them, which can be confusing when you’re just starting out. But it gets easier once you know what your goals are.

First, you need to decide what you want to achieve by trading options. Do you want to make more money from the stocks you already own? Or do you want to protect your stocks if the market goes down? There’s no single right goal – it depends on what you want.

Next, look at the different option trading strategies that can help you meet your goal. For example, if you want more money from your stocks, you could try a strategy called “writing covered calls.” If you want to protect your stocks, you could buy “puts” or options on a stock index.

You’ll also need to choose a broker – a company that can buy and sell options for you. Some brokers will give you advice and make sure options fit your investment plan. Other discount brokers charge less but don’t provide advice.

Before you can start trading, your broker needs to approve you based on your experience and how much money you have invested. More experienced investors with more money get approved for riskier option strategies.

You’ll need to fill out an options agreement and read about the risks of options trading. You can’t buy options using borrowed money like you can with stocks. Some option strategies require you to have a minimum amount of cash in your account.

If you don’t have enough cash in your account to cover potential losses, your broker will ask you to add more money. If you can’t add money, they could sell your investments without your permission.

Options trading involves risk, so make sure you understand it fully before getting started. Pay close attention to your account so you don’t get caught owing your broker money unexpectedly.