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Beginner Strategies You Should Know Already Before Options Trading

Are you an options beginner? Just started options trading?

Introduction


The stock market can be a scary place, especially if you're new to trading. But it's also exciting and full of potential. For example, with the right education you could learn how to trade options yourself - and that way you don't have to trust your money with someone else!


Determine the type of option you want to purchase.


To begin, you need to determine the type of option that you are going to purchase. There are two types: a call option and a put option. As you can tell from the names, a call is most profitable when the stock price increases, while a put is most profitable when the stock price decreases. To calculate their intrinsic value, add up all of their profits if the stock goes up or down by one dollar (50 cents for each point).


To determine whether it’s best for your situation to buy put or call options, ask yourself what kind of movement would benefit your portfolio more? If you want your portfolio to increase in value, then buying calls will help achieve this goal—as long as they aren’t overpriced! However if there are times when things don't go according to plan and losses are incurred during periods where volatility is high (i.e., when unexpected market events occur), then owning some puts could provide valuable protection against those risks too!


Make a list of stocks and ETFs that fit your criteria.


The next step is to make a list of stocks and ETFs that fit your criteria. This list should have all the companies that are in your target sector, but also exclude any company that you don't want to own at this time. Finding companies that meet these criteria can be done in several ways, such as with an online stock screener tool or by reading news articles on individual companies and using the ticker symbol as a search parameter.


The key here is to choose stocks and ETFs that fit your criteria—it's important not to waste time researching investments beyond what makes sense for you given where you're at in your investing journey.

Once you've made this list, it's time for phase three!


Set up your charts for technical analysis.


It's important to set up your charts for technical analysis before you begin trading. This will allow you to take full advantage of all the tools and features that an online charting platform has to offer.


While there are many chart types, time frames, indicators and settings available on a platform like TradingView, it can be overwhelming when starting out. There are dozens of different combinations that could work for your strategy (from high-level overviews of an entire market or sector down to minute-by-minute updates on individual stocks).


It's not necessary to use every tool available just yet; but it is important that you understand how each one works so that you can take advantage as needed later on down the road.


Pick a strike price, expiration date and strategy.


You can now pick a strike price, expiration date and strategy. The strike price is the price at which your option can be exercised. Next, you need to decide on an expiration date for your option. Finally, you should decide on the type of option you want to buy: call or put. If you buy a call and it expires in-the-money (ITM), it means that its current market value exceeds that of its intrinsic value by enough of a margin so as not to make sense anymore and therefore it will expire worthless with no payout whatsoever.


If instead this happens with a put, then all profits will be realized immediately because any amount greater than intrinsic value is all profit; however if ITMs are not covered sufficiently by time decay alone before expiration then they too will expire worthless without payouts due again because of insufficient profits being realized before expiry


Write down the plan you want to implement with this trade.


Write down the plan you want to implement with this trade.

This is an important step because it helps you stay on track and be realistic about what you are doing. The plan should be a list of the steps you will take to achieve your desired outcome, but it should also include some flexibility so that you can make adjustments if things don’t go as planned.


Without a plan in place, it’s easy for traders to get overwhelmed by emotions or distractions, which can lead to poor decisions that hurt their bottom line.


A well thought-out trade strategy will help keep things simple and avoid overcomplicating things by putting too much focus on one aspect at a time rather than looking at the big picture first before splitting up tasks into smaller pieces (or moving onto another task entirely).


Place the order online or over the phone - but first...


Before you place your order, check the price of the stock or ETF. You'll want to make sure that it's trading within the parameters you're looking for. The same applies for options: check the bid/ask spread and volume of those options that interest you. If there's an unusually wide gap between these two points (the difference between what buyers are willing to pay and sellers are willing to accept), wait until it narrows before placing your order.


Not every strategy will be right for every trader and if this beginner strategy doesn't suit your style or risk tolerance, then don't force yourself into using it just because I said so!


Review your stock market trading plan before hitting submit on that order!


Before you hit the “submit” button, make sure you have a trading plan in place. And then, double check your plan before placing an order. You should review your trading strategy and the risks associated with it before placing any trades.


Are you ready to take those risks? Do you understand the trade and its potential gains? If not, take some time to do so before making a decision on whether or not to proceed with this particular trade.


With the right kind of education, anybody can learn how to trade options themselves.


Options trading is a great way to make money and the best part is that with the right kind of education, anybody can learn how to trade options themselves. There are many options trading courses available, as well as many options trading books.


You can also learn more by getting our course Back to Fundamentals or even joining our Trading Group Community that takes the guessing out of purchasing Stock Options. Take some time to find an option course or book that suits you best and start learning more about this exciting area of investing! You can even learn more from our very own course Back to Fundamentals to start your options trading journey!


Conclusion


We hope the above beginner strategy of option trading was helpful! If you want to learn more about options trading, we recommend reading through some other guides on our blog. You can also check out some other articles on this topic here:

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