How to buy call or put option (go long)

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If you want to profit from sudden stock or index rise or fall and you do not want to commit large sums of money to buy stock or sell it short, consider purchase of Call or Put options instead. As an option buyer, your profit potential is unlimited and risk is limited to the price of the option.

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Instructions

Difficulty: Challenging

Step1

Research the online brokerage services specialized in option trading (e.g. OptionXpress)- compare option trading fees and services
Open an option trading account with the brokerage service you choose
Transfer funds to your brokerage option account

Step2

Learn the details about simple option trading
Decide which stock or index you want to purchase options on
Decide if you want to purchase call or put options
Call will capture rise in stock price, while put will profit if the underline stock falls

Step3

Decide the strike price of the option you want to purchase
Out of Money options will be cheaper than At-the-money or In-the-Money options but chances of making money will be reduced

Step4

decide the time frame of the option (longer options will be more expensive)
purchase the options on your trading account
sell option before expiration (last day of trading is the third friday of the correspondent month)

Tips & Warnings

Learn as much as you can about options and terminology
All the big brokerage firms have an option of so called papertrading or mock trading - try that until you get a grip
Option prices are hard to predict so try to get some feeling for option price behaviour first
if you already have stocks you can hedge or protect from stock fall by purchasing put options
if you accure significant profits sell before the expiration
do not wait for profits to turn into losses
be very conservative and pick options that move slowly but steadily in the begining
most people lose money trading options
option trading is extremly risky

Comments

sellindexvol said

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on 12/14/2007 i happen to be a professional options trader. the reason i am commenting is; i have a friend of my close friend who is being sold a scam imo. they started out by telling me williams options trading would not cost much besides a chart package, then later after many meetings they are told an advanced package would cost in the range of 10k. i very strongly stated this would transpire on the first day i heard this. now these people are heavily into this scam, and most likely will not turn back (promises of 25% per month). i was proven correct in my prediction much sooner than i expected and was low on the cost estimate. i only can tell anyone who wants the riches promised that the only way is through well chosen books written not by the hype authors, but by current and retired professionals, watching price action, and learning how volatility effects values.