In this quick tutorial we'll use AAPL stock as an example and go directly to my broker platform and walk through the steps to buy a call option anticipating that AAPL stock might rise the future. I'll also show you how to calculate your break-even price and determine the option contract multiplier all from your broker's trade tab.
In this video tutorial, I’m going to go over the exact specifics for buying a call option. We’re going to talk about everything from finding where the option chains are, finding where the quotes are for any particular option that you're interested in buying and then exactly how to place the order to purchase that call option in the market.
Let’s get right into it here as always. And we are on my Thinkorswim desktop platform, so your broker may be a little bit different. This is what my desktop looks like for my broker. And we’re going to always find the trade tab. It’s going to be the “trade” or “place order” tab. And you can see that I'm currently under “all products.”
All I’ve done here in the top left-hand corner is I’ve typed in the ticker symbol for whatever underlying stock I want to buy options on. For example, I’ve typed in SPY which is the S&P 500 index. I could easily type in AAPL which is the ticker symbol for Apple Incorporated. If we want to trade Apple calls, we could do that.
After you type in the ticker symbol, you will start to see an options grid up here and below here. And you can see that all of the different contract months for Apple stock are listed below.
And let's say we wanted to purchase some December 2011 contracts. We would just open up this contract month. And you can see how easy it is just to toggle this open and close. Most of the time, you can just toggle these open and close very easily.
Now that we’re in the actual December 2011 contract month, we’re going to find the calls which are located on the left side of your typical option pricing chains. And then you can see here I have different columns, I have the last traded price for these calls, the net change on the day, the bid and the ask are always there, and then we have our expiration period and our strike price.
Let’s say for example you’re bullish on Apple (and Apple is currently trading at 395 as of the time of this video) and you wanted to buy some 400 strike calls on Apple for December.
The bid and the ask spread is here, the net change on the day is here, they lost about $430 on the day, but let’s say we want to buy this. We’d click right over here on the “ask” to buy it, right at the “ask” and you can see this order entry form comes up and it recaps your entire order here.
As you can see here, this is a single order. We’re just buying one contract. We’re on the buy side of this trade, but you can easily change it over to the sell or whatever you want to do. But we’re on the buy side, and you can see the quantity is just 1.
Now, we can easily in here adjust this is we wanted to buy 12 or if we wanted to buy 20, we could easily adjust that. But for the simplicity of this video, let’s just buy one Apple contract. You can see here again that the symbol is APL. It’s a December expiration 400 and a call option.
Now, the price that came up is 360. We know that the last price is 350, so we’re going to change this to 350 here and make that last price the same price that we want to pay for Apple’s option right now.
This is going to be a limit order, and it were going to be just for the day and routed through the best exchange possible, so the quickest order and fill that we can get. We hit confirm and send and then an order dialogue pops up and you can see that all of our information here for Apple is…
Once confirmed before we send this order into the markets, so we’re going to buy one Apple December 400 call for 13.50. Our breakeven price is already calculated, our max profit is unlimited, so infinite, our max loss here and then the actual cost of the trade with commissions. And you can see your buying power and resulting buying power, etcetera.
That is exactly how you buy a call option on any broker platform. It's very easy. You simply type in the ticker symbol like we've done, find the expiration month that you want to trade, find the strike price and price of the option and then simply enter your order.
But as always, take your time with your orders if you’re just beginning. It’s very easy to get confused with expiration months and strike prices, so take your time and look at everything once or twice over before you enter the order.
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