Options Trading for Beginners: 8 Strategies Plus Advice from Financial Experts

Options trading for beginners might seem confusing, but it can be a money-making strategy to add to your investing toolkit if you’re an experienced trader.

You might have heard about people making money by trading options and want to give it a shot but don’t know exactly what it is. Here’s an overview of what options trading is, what the opportunities and risks are, as well as critical advice to keep in mind if you’re going to get started.

What Are Options?

“First, it is important to understand what options are and how they work. Options are a type of derivatives contract that gives the holder the right, but not the obligation, to buy or sell an underlying asset at a set price on or before a certain date,” said Michael Ryan, an experienced Financial Planner.

So Why Trade Options, Then?

Options are a popular investment vehicle among more experienced traders because there is an opportunity to make money. But it’s important to note that options trading could also lead to a considerable loss of your invested capital.

Options Trading For Beginners: 8 Basic Strategies

Buying Calls (Long Calls)

Buying calls is one of the most common option trading strategies. When you buy a call option, you gain the right to purchase shares of a stock at the strike price before the expiration date.

Covered Calls

Covered calls are the other side of the call option transaction. A covered call is when an investor owns underlying security and then sells call options on them. The call is “covered” because if the buyer of the call option chooses to exercise their options, the seller is “covered” because they can deliver the shares.

Long Straddles

If you’re unsure whether a stock will go up or down, but you’re convinced that it will experience a lot of short-term movement, employ the long straddle option trading strategy. 

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