The world of options is very exciting! The possibility of sitting in front of a computer to make a living instead of working that 9-5 J.O.B (Just over Broke) can make you want to jump into it right away! However, it is a business and like anything else it does involve a learning curve.

If you are new to the world of options trading it is easy to get lost in all the information about technical analysis, fundamental analysis, puts, calls, volatility, etc. Let me break it down in a simple way for anyone to understand. There are essentially two different types of options contracts: a call option and a put option. When you buy a call option on a stock you are speculating the stock will increase in value and when you buy a put option you are speculating the price of a stock will decrease in value.  If you buy a call option and the stock goes up in value then you make money.  If you buy a put option and the stock goes down you make money. If you buy a call option and the stock goes down you lose money. If you buy a put and the stock goes up you lose money.  This is assuming all other factors are equal.

Here are some steps to get started with options trading:

1. Training and Education:

The first essential step is to take time to get a formal education in options trading. Failure to do this will result in lost profits in your trading account!  There are several free great websites and books that can help to get you started. One great website that was put in place to help people understand the world of options is the Options Industry Council (OIC) website at http://www.optionseducation.org/.  They offer extensive information about options from beginner to advanced techniques. You can also use something called “paper trading” to see if you really understand what you have learned and apply techniques without risking real money.

2. Set Up A Brokerage Account:

In order to trade options you will need to set up a brokerage account. There are many good brokers to chose from, however you will want to do some due diligence when looking for one that will fit your particular trading needs. I recommend a good discount broker because they have low trading costs and good trading platforms.

 3.  Make A Watch List:

It is important that you follow particular stocks that you believe will have a short term increase or decrease in price. Some of the best stocks to watch are one’s that may have some recent news coming out that will have a big impact on a stock’s price. Another way is to use something called technical analysis.  Technical Analysis is done by looking at a stock’s chart and considering many factors such as: price, volume, moving averages, and volatility. Get ready to look at several charts to find stocks that have the patterns that are perfect for trading.

Start Trading!

I hope this introduction to options trading was helpful. Please feel free to post any comments.