Easy To Learn Options Trading Tips & Strategies to Use in 2020

A lot of veteran stock traders feel options trading is easy to learn, all you require is buy options on stocks that will do well. Is it...

A lot of veteran stock traders feel options trading is easy to learn, all you require is buy options on stocks that will do well. Is it that simple? The simplicity leaves when you find there is not one type of option instead, there are two, and either of these has endless strike prices and expiration dates. Truth is stranger than fiction. So, you realize options trading are much more than stock trading.

Today’s post is cantered around options trading and includes, easy to learn trading tips regarding how to trade options, and then maximize profits from each trade while minimizing loss.

Learning the Fundamentals of Call & Put Options is Basic

To be able to successfully do options trading, it is pertinent to learn what call options and put options are. All stocks in options trading involve call options and put options.

Call options lets you buy a stock at a fixed price notwithstanding, what price the stock is; but put options let you sell a stock at a fixed price notwithstanding what price the stock is. Simply said, if you buy a call option & the stock’s price appreciates, your trade will make a profit since you are allowed to buy at a price lower than the stock price.

That being the case, you would buy call options when you perceive a stock is appreciating. Contradictorily, put options let you sell a stock at a fixed price. So, if you buy a put option and the stock price depreciates, the put option returns a profit since you are allowed to sell at a price higher than the stock price. 

Must Read: Getting To Know The Benefits And Disadvantages Of Commodity Trading

So, now you know the fundamentals of what is option trading? However, you should learn some tricks and strategies regarding options, to help you when you start trading.

Utilize Capital You Can Stand to Lose

This is a basic advice which almost all beginner options trader decide to disregard it. Utilizing only capital you can bear to lose means if you aim to lose maximum $200 in one trade, then you should plan to lose no more than $200 in buying options in one trade. The best thing is that the leverage you get helps you to make a good profit, even though you have a small capital outlays, and despite you getting it wrong, all you can lose is $200, and that is the maximum loss.

Try New Options Strategies on Virtual Trading Apps

This tip means to never use actual funds for options strategies that you haven’t tried before. Try to practice new options trading strategies on the virtual trading app, provided for by your broker. In case, your broker doesn't even have this service, its’ time to switch over to a new broker, that provides this service. This is an important tip when you are learning - how to trade options?

Buy Options Only With Minimum 3 Months To Expiration

Unless you are a razor-sharp stock picker, always buy options with a minimum 3 months to expiration. There’s nothing more disappointing to see your positions expire, even before the stock movement is just starting.

Use a Clever Hedging Strategy With Put Options

Maybe the best way to use put options is buying them like a hedge against your stocks. In case you own stocks that are held as a long-term investment goal, choose to buy LEAPS put options expiring 6 months to 1 year, as protection against cataclysmic drops.

When it comes to learning how to trade options, the best tips are to use funds you stand to lose, trying new strategies for options on a virtual trading app, and also hedging your stock holdings, to protect against cataclysmic drops.