Summary / Reference

Before you begin trading options, you should know what exactly is a stock option and understand the two basic types of option contracts - puts and calls. Learn how they work and how to trade them for profits Binary option trading is quickly gaining popularity since their introduction in Check out our complete guide to trading binary options The covered call is a popular option trading strategy that enables a stockholder to earn additional income by selling calls against a holding of his stock Buying straddles is a great way to play earnings.

Many a times, stock price gap up or down following the quarterly earnings report but often, the direction of the movement can be unpredictable. For instance, a sell off can occur even though the earnings report is good if investors had expected great results For the short to medium term investor, stock option investing provide an additional suite of investment options to let him make better use of his investment capital When trading options, you will come across the use of certain greek alphabets such as delta or gamma when describing risks associated with various options positions.

Investing Basics: Options Trading Guide

They are known as "the greeks" Many options traders tend to overlook the effects of commission charges on their overall profit or loss. Cash dividends issued by stocks have big impact on their option prices. This is because the underlying stock price is expected to drop by the dividend amount on the ex-dividend date Learn about the put call ratio, the way it is derived and how it can be used as a contrarian indicator You can take your trading beyond basic call and put options.

That is the beauty of options trading. Other trading strategies include covered call, married put, bull call spread, bear put spread, and more. They can help you better manage your risk and seek new trading opportunities. Study the top 10 stock options trading strategies below:. Options trading is constrained by the expiration date factor.

First steps for call options

The RSI indicator is a momentum indicator which makes it the perfect candidate for options trading. This is because of its ability to detect overbought and oversold conditions in the market. You will find it under the indicators library. There is no need to go further into the math behind the RSI indicator.

All we need to know is how to interpret the RSI oscillation. Basically, an RSI reading equal to or below 30 shows that the market is in oversold conditions. An RSI reading equal or above 70 shows the market is in overbought conditions. At the same time, a reading above 50 is considered bullish. On the other hand, a reading below 50 marks is considered bearish.

Get the best rates

Before we go any further, we always recommend taking a piece of paper and a pen and note the rules. Before we dwell deep into options, you should check out our free stock trading class by clicking on the banner below and learn to trade like a pro today. The stock market opening price is usually the most important price. During the first minutes after the stock opening bell, we can note a lot of trading activity. You'll learn about a strategy that isn't restricted to the time element and focuses on price action. It's one of the most comprehensive guides to successfully trade stocks or other assets by simply using price action.

Our team at Trading Strategy Guides wants to develop the best options trading strategy. In order to do that, we have to think smarter. We have to track how the smart money operates in the market. The best options trading strategy will not keep you glued to the screen all day. You only have to know when the stock markets open. This brings us to the next step in our options trading tutorial…. As we have established earlier, we only want to trade in the direction where the smart money is.

We use the RSI indicator for confirmation purpose only. We want to make sure that once we have identified the bullish price action the momentum behind the move is confirmed by the RSI indicator. In the chart above, we can note the RSI is well above 50 during the first minutes of trading. The price action is confirmed by the RSI momentum reading.

As easy as it sounds this strategy only requires you to put minutes of your time each day. So at this point, our trade is running and in profit, but we still need to define when to exercise our call option and take profit. Options Trading Tutorial Step 5: Choose the nearest expiration cycle. For day trading choose the weekly cycle. When you buy a Call option you also have to settle an expiration date, as part of that contract.

You might be asking yourself how to choose the right expiration cycle?

Knowing when to take profit is as important as knowing when to enter a trade. We want to get out of our position as soon as we see the sellers stepping in. We measure this by counting two consecutive bearish candles as a sign of bearish sentiment presence in the market. Use the exact same rules — but in reverse — for buying a Put option trade. In the figure below you can see an actual Buy Put Options example using the options trading tutorial.

Now that you understand how to successfully trade options, you will want to know how to choose the contracts that are right for you. All options contracts will have some degree of risk. This is especially true when trading binary options. This is due to the fact that options can potentially be worthless on their expiration date. The risk of trading options can be managed.

When selecting options, keep the following things in mind:. Options contracts also have high levels of implied volatility. During the first 30 minutes of trading, options contracts experience large changes in value. When volatility is high, both the level of risk and potential reward will be higher. During this time, your trading strategy will need to be much more active. Risk can be managed by issuing stop orders. It can also be managed by hedging your position and diversifying your positions. Both call and put options can be very rewarding. In order to prepare yourself as an options trader, it will be a good idea to practice.

Fortunately, Trading Strategy Guides makes it easy to hone your skills and enter new markets. Carefully combining the steps mentioned above can help you unlock the best options trading strategy.

Please leave a comment below if you have any questions on How to Trade Stock Options! We specialize in teaching traders of all skill levels how to trade stocks, options, forex, cryptocurrencies, commodities, and more. Our mission is to address the lack of good information for market traders and to simplify trading education by giving readers a detailed plan with step-by-step rules to follow. You mentioned a lot of names options in trading options, can I have the list of all options trading to learn what is what and the options to predict what stagtergy to go with.

Dude, I don't see the stop-loss part in this tutorial, we can't afford to Lose all in an intraday option trading right.

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Very interesting and unique! I have an interest in trading Options but have as of yet stayed away. A couple things here:.

Call Options: Learn The Basics Of Buying And Selling |

Not knowing the Stock Market very well I am a Forex Trader , I would have no idea how to go about selecting a stock to apply this strategy to. Also, are you suggesting only trading one Stock per day or can we trade multiple stocks? All reviews are prepared by our staff. Opinions expressed are solely those of the reviewer and have not been reviewed or approved by any advertiser. The information, including any rates, terms and fees associated with financial products, presented in the review is accurate as of the date of publication.

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