Learning How to Trade Options
If you are new to trading options and want to learn more, you’ve found the right place. In my research on trading, I have discovered little online supports for new traders. Yes, there are resources and lessons online for options strategies and interpreting indicators but not enough plain talk for beginners.
We remain beginners for quite a while and that’s all right. It can be difficult to keep up with talk from veteran traders and they can be hard to understand. They’ve been around the block quite a few times and are experts at trading. They’re not going to stop so that we can catch up.
We will catch up, though. With time, patience, practice and perseverance beginners can learn to trade stock options wisely and with caution.
My introduction to stock options occurred at the Rich Dad, Poor Dad Stock Options Seminar. Here are the first lessons learned at that seminar:
Lesson #1: What attracted me to options trading was exactly what too few people know: When you buy stocks, you only make money when your stock goes up (yes, I know you know that). But options traders are making money when stocks go down too. The icing on the cake is: stocks go down faster than they go up. Options trading is the little secret easily kept from those of us allergic to financial complexities.
Lesson #2: Stock Options are just what they sound like. You are purchasing the “option” to buy or sell stocks at a specific price and within a specific period of time. How that is done is not so simple.
Lesson #3: There are always opportunities. New opportunities occur all the time with options. Never think you have missed your one and only opportunity, or jump on a trade without thinking it through because it might slip away. There is always another one.
- Learn the trade. If you’re serious about trading you will be learning constantly hereafter. Know the markets. Know the terminology. Know the difference between NASDAQ and the S& P 500, call options and put options. Before learning options terms, understand general financial instruments, exchanges, the basics, i.e., NASDAQ, S & P 500, stocks, etc., visit Investopedia’s Stocks Basics. Investopedia is an excellent resource and is mentioned on this website often. After obtaining a good grasp of the basics and if you’re serious about trading options, The Options Industry Council (OIC) is a nonprofit whose only goal is to make better traders. You will find that both Investopedia and The Options Industry Council will be two of your best resources and they are free.
- Learn the technical tools. Leave no stone unturned in understanding every aspect of options trading. Not doing so will cost you money. Get help for what you don’t understand.
- Be patient. You are a beginner. Learning takes time and there is much to learn about trading options. Your money depends on your knowledge.
- Make sure you are aware of your tax responsibilities before you embark in trading. See How to Set Up Your Own Trading Business on setting up your trading as a business.
- Do not trade with your emotions.
- Practice. There are many virtual trading platforms available. I use FreeStockCharts.com. It’s easy to use and has the most technicals for free that I have found.
- Find a mentor. Having a mentor is not necessarily having an experienced trader by you side and they don’t have to cost anything. Most brokerage houses offer some type of assistance either through chat or telephone. Don’t underestimate the value of mentoring through technology. Make it a pre-requisite in choosing your broker.
- Share your experiences with others here on our Virtual Trading blog. The blog is where you can “speak” the new language you are learning with others like yourself. Some people just don’t understand what we’re talking about.
The J.P. Morgan Chase $2 billion debacle of 2012 was a trade, a single trade. Conversely, in 1993 Warren Buffett made $7. 5 million dollars on a trade, one trade. In the case of J.P. Morgan Chase, their loss was several traders’ gain. In the case of Warren Buffett, his gain was probably several traders’ loss.
Options trading is complex and can be an intimidating process for the beginner. Here you will find resources for starting you trading career. There are many resources on the internet to help you acquire the confidence you will need to succeed in trading and many of those listed here are free.
With the internet, what you once had to do on Wall Street can now be done in your living room. Quite a few have utilized these instruments and made fortunes and now there is nothing stopping anyone from trading options. If you can handle it and have a minimum investment, I have found no other online resource for making money that compares to stock options trading but you have to learn it. You should know the system as well as possible before trading real money.
Get professional training whenever you can. Options trading is complex. See our review on Rich Dad, Poor Dad Stock Success 3-Day Training Seminar.
Set short term and long term reasonable goals.
Most of all, enjoy the excitement of this new endeavor and make money.
There are several online brokerage houses to choose from. One does not necessarily fit all. I suggest doing a few virtual trades before deciding on which brokerage house to use. Most assume a certain level of competence but offer varying degrees of help.
Help can be online chats or by phone. Two suggested here are:
A powerhouse brokerage firm. Unlimited day trades with cash account. Platform can be overwhelming at first since they have everything at your disposal. Virtual trading platform excellent for “getting your feet wet” before trading with real money.
Trade for $.39/100 shares. Unlimited shares, fast executions, competitive prices & powerful tools.
Trade Commission Free for 30 Days at tradeMONSTER!* See Why Thousands of Traders are Making the Switch.
For information on how brokers handle you trade orders, the U.S Securities and Exchange Commission give a simple breakdown on what happens to your options order after you hit, “enter.”
Almost every site that discusses options trading prints a disclaimer on their site. I will do likewise:
***Trading options is not for everyone. Trading options can result in loss as well as gain. This site is for informational purposes only. We all trade at our own risk. ***