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Tips for Trading Your First Option

Tony Zhang
May 2, 2018
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Tips for Trading Your First Option

Learning how to trade options takes time and patience. Luckily, there are plenty of courses and tools to help investors through this process. Selling covered calls for income is a great way to dip your toes into the options market, before moving onto buying calls and puts. We will examine these 2 primary strategies that are suitable for beginners placing their first options trade. Use OptionsPlay to help you explore, analyze and visualize these strategies before trading. Understanding your risks and rewards prior to entering a trade is critical to success!

Selling Covered Calls:

Covered Calls is a basic strategy that adds no additional risk while generating income by selling calls against the stocks in your portfolio. It can be used in almost all market conditions and does not require a directional view to get started. Start with selecting shorter dated options (3-7 weeks from expiration) and strike prices that have a lower probability of being In-The-Money at expiration (20-30 Delta). Selling covered calls also does not require active daily monitoring of the position until near the expiration week. Watch our recorded webinar to learn more about this strategy and the best practices for Generating Income using Covered Calls.

Buying Calls & Puts:

With a strong directional view on a stock or ETF, buying calls or puts is a basic strategy to speculate on direction with limited risk. This can be used for breakouts, bounces off support or resistance levels for bullish or bearish views. Buying a call for bullish views, and puts for bearish ones is a simply way to get started. Select options that are roughly 1-2 months from expiration and use strike prices that are slightly in the money (60 Delta). Be sure to exit a trade prior to expiration once your directional view on the stock or ETF is either confirmed or invalidated. A very common mistake is holding onto a call or put for too long. View our recorded webinar on trading Trading Your First Option for tips and guidance.

There are many more things to learn about trading options, and having the right tools will make the process easier and more intuitive. Resources like the Montreal Exchange Reference Manual for Equity Options and OptionsPlay are great for the beginners starting out. Print out the infographic in this post to get started with your first options trade!

 

Plus, we’ll be at Montreal Exchange’s 11th edition of Options Education Day in Montreal on May 26th, 2018!

(Register now!)

It will be a jam-packed event showing you how to get started with options, manage your existing option positions and much more!  Swing by for a live demo!

 

Tony Zhang
Tony Zhang http://tmx.optionsplay.com

Head of Product Strategy for OptionsPlay

OptionsPlay

Tony Zhang is a specialist in the financial services industry with over a decade of experience spanning product development, research and market strategist roles across equities, foreign exchange and derivatives. As the current Head of Product Strategy for OptionsPlay, Tony leads the research and development of their OptionsPlay Ideas & Portfolio platform. He has leveraged his interest in financial technology and product development to provide innovative, reimagined solutions to clients and the users they seek to serve. Previously he spent 7 years at FOREX.com with a capital markets and research background as a market strategist specializing in equity and FX derivatives markets.

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