How To Start Trading Options? 6 Easy Steps

We always get this question from readers.

Where or how do I start trading options?

In our endless quest to help education and promote options trading, here are 6 easy steps to get things rolling:

1. First of all you need to open a trading account which will allow you to trade options. We use and highly suggest thinkorswim.

2. Second, learn all you possibly can about options. Read up to date books, search our past blog articles and talk with people who have been trading for years. If you buy a call option then you believe that the underlying stock is going to trade higher. If you buy a put option, then you feel that the underlying stock is going to drop in price. Another term that you need to know is “strike price” which is the price where you are guaranteed to be able to buy or sell a stock no matter what the actual market price is. Most importantly, learn how option pricing works (i.e. the Greeks, Implied Volatility, etc).

3. Third, you need to learn the about the markets and some basic technical analysis skills. Again read books and our past blog articles for more detailed information, but the more you read and learn the much better off you and your portfolio will become going forward. You can never learn enough in this category!

4. Next, be prepared to lose money. I could have put this first because it’s just as important. It is 100% certain that you will at one point lose money trading options – if you can’t come to grips with this reality then stop reading right now. Having a true understanding of probability and odds trading will help you as you continue on your journey.

5. Also, have a couple different exit plans in place. Before you ever decide to make an option trade you should already have an idea of what to do if you make a profit and also what to do if the market goes against you. At this point it’s sufficient that you at least have thought of some way to get out of the trade, later on we can fine tune these details.

6. Finally, consider a personal trading coach and or trading service. I’ve seen way too many beginners jump into the options trading market and assume they can replace their income overnight. I’m sure some of you reading this right now have been there already and know exactly what I’m talking about. Having a coach or trading service available will help keep you accountable and also help minimize losses. It’s worth the $20 per month to have someone waiting in the wings in case a trade goes bad right?