Steps to take before trading options



Are you Ready to Trade Options?

Before you are allowed to trade options, there are certain requirements:
  • If you don't already have one, you must find a broker and open an account.


  • You are required to open a margin account You don't have to use margin to trade, but the account must be opened.


  • If you decide to write covered calls, you must deposit your stock certificates into your brokerage account. Very few of today's investors hold their own certificates.


  • You are required to receive (and read) an educational pamphlet.

  • Although not a legal requirement, you should educate yourself before you begin trading. That's why you came to this site. Your broker or financial planner shouldo be a good source of information, but don't expect much because many are option ignorant.

  • If use a full service broker, find someone who encourages the conservative use of options and don't get involved with a broker who wants you to speculate with options.

  • Be certain you understand any strategy before allowing anyone to tell you how to trade.

  • Do not give your broker trading discretion over your account. Make your own investment decisions. Taking advice is okay, just be certain you understand what the broker is doing, and have the final word. If you are not comfortable with the information provided, find someone else to help you. The branch manager of your brokerage firm can recommend another rep to help you.


  • If you are comfortable making your own decisions, online brokers are far less costly


  • If you want to learn about options without relying on a broker, beginner's books are available.

  • We offer half-day seminars to introduce you to options and teach you how to use options conservatively.

Additional information to help you when trading:

  • The options exchanges. Links are provided to each of the exchanges (in the USA) where options are listed for trading


  • Option quotes are available online - either from the option exchanges, or your broker. When considering the purchase or sale of a specific option, it's essential to know the current market price. These links provide slightly delayed (20 minutes) quotes, which are sufficient for some purposes.


    • When in the process of making a trade, your broker must provide live quotes. If live quotes are not available, find another broker.

  • When you are ready to consider the theoretical value of an option as part of the decision making process, a calculator is provided.


  • After you have an understanding of volatility and how it affects the option prices, data on the historical volatility of each stock is available

    Access to Loans Essential in Volatile Economy, Markets



    Caveat:

    Don't believe everything you find on the Internet. There are people with vested interests who are more than willing to have you believe things that benefit them. This is especially true in chat rooms and news groups. The good news is that there is a world of helpful information to be found, and it is our goal to provide information to allow you to get started trading options.

    Visit my blog for frequently posted opinions, lessons, and a variery of material to help you trade options effectively.


    Required reading

      1. Characteristics and Risks of Standardized Options Prior to your buying or selling options, your broker is required to send a copy of Characteristics and Risks of Standardized Options. It is very basic, and helps a beginner to understand the risks involved when using options. Copies can be obtained from your broker, The Options Clearing Corporation (OCC), or any of the options exchanges. Don't go out of your way to obtain a copy, as you will no doubt wind up with more copies than you want. If you are anxious to begin, you can read a copy online from the Chicago Board Options exchange here

      2. Understanding Stock Options Contains additional useful information. The OCC has an online version. Your broker may not send a copy of this pamphlet when you open your account, so ask for one
    Reading about options Books are an excellent source of information on options and options trading. Everything from introductory texts for the novice to advanced books for the professional trader is available. Check out your local libraries and bookstores and browse. I wrote The Rookie's Guide to Options just for you - the options novice who want a clear understanding of how options work and how to make money using them. I share my experiences of more than 30 years (since 1977).

    The Options Exchanges

    Visit these sites to see how each exchange describes its products. They offer educational information, literature, classes, and options quotes. The Options Clearing Corporation (OCC) is worth a visit, as they offer essential literature for the novice.
  • The American Stock Exchange
  • The Chicago Board Options Exchange
  • Philadelphia Stock Exchange
  • International Securities Exchange (ISE)
  • Boston Options Exchange
  • OCC. Options Clearing Corporation