hi so I'm interested in trading options but I have a question please bear with me. In this example, il use td ameritrade. So an option is basically a contract to buy a stock at before expiration date and u buy it at a fixed rate even if the price of the stock up(profit) or down(loss in amount of premium) so for example: I buy a option for 9.99$ plus .99 so commission wise I'm at $11 in commission. Let's say that I bought it at 10$ per share and now the price is 13$. Do I sell my contract that I bought( another 11$) or do use that contract to buy my 100 shares at 10$ price (commission $10 for stock trades) and then sell at 13$ another commission 10$. Sorry I have a small account so I just want to have a general sense of idea of cost. If the option goes in ur favor, do u actually go out and buy the stock and pay the fee to buy and sell stocks or do u simply sell the option contract. Cuz if I simply sell the contract I pay 20$ in fees for everything while I pay more for the other alternative. Sorry if it's confusing
How do options work?
- Thread starter Mian97
- Start date
- Equity options can be bought and sold at any time before expiry.
- The price of the options will be determined by the underlying.
- 99% of option traders have no intention of trading the underlying- they will close the trade on or before the expiry date.
- Place small $100 option trades to learn the ropes at first.
Mian97:
Use the TDA papermoney before making any trades. There are many moving parts with option trading. The most complex part, is likely you trying to understand exactly what you are trying to accomplish! (I am NOT trying to be an @$$ here, but most people enter a trade without a plan) -- TDA also has OnDemand, which will allow you to repeat a prior time interval.
Typically option traders, merely trade options with no intention or desire to hold the underlying.
DO NOT use your hard earned money to learn this skill. Only after you have a good handle on option trading should you risk real money, and then "small size" is best, as there always are things you should have considered that can cost you dearly.
Use the TDA papermoney before making any trades. There are many moving parts with option trading. The most complex part, is likely you trying to understand exactly what you are trying to accomplish! (I am NOT trying to be an @$$ here, but most people enter a trade without a plan) -- TDA also has OnDemand, which will allow you to repeat a prior time interval.
Typically option traders, merely trade options with no intention or desire to hold the underlying.
DO NOT use your hard earned money to learn this skill. Only after you have a good handle on option trading should you risk real money, and then "small size" is best, as there always are things you should have considered that can cost you dearly.
Judging by the responses, you all are experienced traders. Everybody was born with 0 trading knowledge, how did y'all learn it. I know trading takes time but I want to absorb as much information as quickly as possible. I understand that trading is a long process and requires knowledge and experience, but time is of the essence, I have 2 months before school starts where I can do anything I only have 100$ in my bank. How can I learn the most with the little money I possess? So far I've purchased books from Amazon but that's it. ( understanding stocks and understanding options 2e) so how did y'all learn? I don't have enough money for these expensive $200+ courses. I will not enter the market until I have paper traded and developed a strategy and I know the risks involved but how can I learn? There's not much free info out there they all assume u know basic options trading knowledge which I do not.
Mian97:
Ask 100 people and get over 100 different answers!
Options, unlike equities, add additional dimensions to trading. While you may use options merely as leverage to implement strategies similar to directional trading of equities, the least complex option trading in my opinion. You may also use options for complex and varied strategies. I do not know what area of this vast field you wish to pursue.
You will need to ask yourself what specifically are you desiring to accomplish. Hence my original comment about understanding what you really are attempting to accomplish. There is no one who understands all option trading in detail. --- People find what they wish to accomplish, then pursue that specific area. -- Some people only trade Iron Condors, some do Calendars, some only Naked PUTs, some Covered Calls, some use options for more advanced mean reversion trading with heavy management, such as the M3 trade, the list is infinite.
I'm guessing that you have no interest in any of these if your timeframe is 2 months.
Question:
1) are you already successfully trading equities? (without options)
2) why are you interested in options, and what is your expectations?
Perhaps answers to these questions may lead to more helpful info.
Ask 100 people and get over 100 different answers!
Options, unlike equities, add additional dimensions to trading. While you may use options merely as leverage to implement strategies similar to directional trading of equities, the least complex option trading in my opinion. You may also use options for complex and varied strategies. I do not know what area of this vast field you wish to pursue.
You will need to ask yourself what specifically are you desiring to accomplish. Hence my original comment about understanding what you really are attempting to accomplish. There is no one who understands all option trading in detail. --- People find what they wish to accomplish, then pursue that specific area. -- Some people only trade Iron Condors, some do Calendars, some only Naked PUTs, some Covered Calls, some use options for more advanced mean reversion trading with heavy management, such as the M3 trade, the list is infinite.
I'm guessing that you have no interest in any of these if your timeframe is 2 months.
Question:
1) are you already successfully trading equities? (without options)
2) why are you interested in options, and what is your expectations?
Perhaps answers to these questions may lead to more helpful info.
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There are hundreds of very well produced youtube vids covering everything from basic strategies to the most complex.
My advice is, don't try this now. If I read your post correctly, you only have $100. Commissions will kill you at that level. You can do it with a $1000, but you better be a damn good intuitive stock picker.... and I mean like being able to predict the next day's move of a volatile stock. (nflx, FB, aapl are good ones) If you are good at that, you can easily make $100/trade after commissions.
Note...You will also be shackled by the BS SEC rule of "3 roundtrip trades in a 5 day moving window" as you don't have 25K in your account. Ask your broker to explain that to you. Holding overnight can wipe you out (or can make a nice return), so round trip daytrades of the weekly expiration chains is the safest way to go. I have taught this method to several retired old foogies that once they catch on, make enough to pay for their tee-times every week. But they also have the money to lose. Its sounds like you don't. So be careful and good luck. And a salute to you for your quest and pursuit of knowledge. Study hard in school.
My advice is, don't try this now. If I read your post correctly, you only have $100. Commissions will kill you at that level. You can do it with a $1000, but you better be a damn good intuitive stock picker.... and I mean like being able to predict the next day's move of a volatile stock. (nflx, FB, aapl are good ones) If you are good at that, you can easily make $100/trade after commissions.
Note...You will also be shackled by the BS SEC rule of "3 roundtrip trades in a 5 day moving window" as you don't have 25K in your account. Ask your broker to explain that to you. Holding overnight can wipe you out (or can make a nice return), so round trip daytrades of the weekly expiration chains is the safest way to go. I have taught this method to several retired old foogies that once they catch on, make enough to pay for their tee-times every week. But they also have the money to lose. Its sounds like you don't. So be careful and good luck. And a salute to you for your quest and pursuit of knowledge. Study hard in school.
Thanks for the responses. since at one point, all of y'all were complete beginners and had no knowledge about this stuff like me, if u could go back in time to when u were like me and knew nothing, what would u tell urself? What would you change(it terms of what u did)? What tips would u give urself?
I recommend you do some paper trading or just running numbers on a piece of paper yourself
The commissions you are looking at will eat up all your profit, and if you make a mistake it will not be fun.
I suggest:
1) Read several web sites that show the different option strategies
2) Use Pen & Paper to work through some examples to make sure you understand the basic maths of the transactions (not even talking about Greeks here, just basic underlying/option maths)
3) Post a couple examples that are worked through and see if someone notices if you made a mistake or not
4) Practice on a paper trading account (not to get used to trading, just to get used to using the tool)
5) Then try with a simple/safe equity & option contract that has minimal loss potential
The commissions you are looking at will eat up all your profit, and if you make a mistake it will not be fun.
I suggest:
1) Read several web sites that show the different option strategies
2) Use Pen & Paper to work through some examples to make sure you understand the basic maths of the transactions (not even talking about Greeks here, just basic underlying/option maths)
3) Post a couple examples that are worked through and see if someone notices if you made a mistake or not
4) Practice on a paper trading account (not to get used to trading, just to get used to using the tool)
5) Then try with a simple/safe equity & option contract that has minimal loss potential