A beginner’s guide to options trading

This is not financial advice. Please do research before investing money.

In the stock market there is only one way to make money; buy low and sell high. This method has always been the go to method for investing. Warren Buffett a man of many talents, used this method to accumulate as many shares as he can, he rarely sold and was able to acquire massive amounts of wealth in his life time. The buy and hold method is a great long term investment strategy that allows one to make money as time passes. There are other ways to acquire this same amount of wealth but its much riskier. One of these methods is called “Options Trading”.

What’s options trading?

In the simplest terms, Options Trading is determining whether or not a stock would go up or down by a given date. So if you think that a stock would increase to X by next week then you will profit; If you think that the stock will decrease by next week then you will profit. Instead of buying shares of a company you would instead be buying contracts linked to that specific company.

Contracts are a form of risk management that gives you the right to buy 100 shares of a given stock a certain price point. So if a stock will be at $10 next week and its $1 now, you would have the right to purchase 100 shares of that stock for $1 instead of $10 (example).

After you require the contract, you will then have the option to either exercise or sell the contract to other buyers.

Using the earlier example. If you exercise the contract, you will be able to purchase those 100 share for $1 and sell for $10. This will turn your $100 into $1000 with a profit of $900.

If you decide to sell the contract, you will be able to profit off the market cost of the contract (profits will vary).

Option contract prices can be affected by expiration dates. These dates can vary from a day to years but depending on the time you pick the price can vary….

Platforms

Robinhood

TD Ameritrade

Fidelity

E * Trade

Webull

Trade-station

Just to name a few.

Closing

Option contracts have both its pro and cons but its a very lucrative and fast paced practice. The risks of options trading are higher so be cautious, and do research before doing any investing.

If you want to hear more about options trading be sure to watch our podcast over on Spotify.