How to Trade Options in 4 Steps - NerdWallet

Learn to trade options, How to Trade Options - Learn Trading Basics from Pros | InvestorPlace

Getting your feet wet Without getting in up to your you-know-what Option trading is more complicated than trading stock.

The distinction between American and European options has nothing to do with geography, only with early exercise. Many options on stock indexes are of the European type. Because the right to exercise early has some value, an American option typically carries a higher premium than an otherwise identical European option.

And for a first-timer, it can be a little intimidating. Especially out-of-the-money calls strike price above the stock pricesince they seem learn to trade options follow a familiar pattern: buy low, sell high. Educational videos and webinars Just getting started?

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Watch our first-class video content in the comfort of your home. Because you can buy a lot of them. And remember, one option contract usually equals shares.

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And that kind of move can be very difficult to predict. Holy smokes.

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At first glance, that kind of leverage is very attractive indeed. All that glitters isn't a golden options trade One of the problems with short-term, out-of-the-money calls is that you not only have to be right about the direction the stock moves, but you also have to be right about the timing.

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That ratchets up the degree of difficulty. It needs to go past the strike price plus the cost of the option.

Every time.

How many stocks are likely to do that? So in order to make money on an out-of-the-money call, you either need to outwit the market, or get plain lucky.

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You were right about the direction the stock moved. Even if your forecast was wrong and XYZ went down in price, it would most likely still be worth a significant portion of your initial investment.

In fact, this section alone includes three plays for beginners to get their feet wet, and two of them do involve calls.

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These strategies are: buying LEAPS calls long-term options as a stock substitute selling puts on a stock you want to buy.