How to Trade Stock Futures & Options
Stock futures and options are both derivatives. That is to say that their prices are derived from the underlying stock that they represent. When you are buying stock futures or options, you are not buying the actual stock itself, but rather you are entering into a binding contract between buyer and seller.
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Instructions
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Begin by doing research on the underlying stock that you wish to trade. You will want to find a stock that is trading above its 200-day moving average if you wish to buy the stock, or below its 200-day moving average if you wish to short-sell it (make money when the stock falls).
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Check the trend on the stock. You will want to use trend lines by looking at the last three months of data. If the stock appears to be going up, then draw a line across the lows of the chart. You should see each low get progressively higher. If the trend is falling, then draw a line along the highs of the chart. You should see that each high gets a bit lower. You only want to be a buyer of a stock in an uptrend, and you want to be a short seller of a stock in a down trend.
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Find a broker that deals in single stock futures and options. A few that you might consider are InteractiveBroker, TradeStation and Optionxpress (see Resource section). If you decide to find a different broker, make sure that they are members of the FTC (Futures Trading Commission).
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Select the single stock futures or options contract that you would like to trade. You can do this by typing in the ticker symbol of the underlying stock in your broker's software. It will come up with a list of options or single stock futures contracts that you can trade.
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Select the month of the contract that you wish to trade. For an options contract, you will also need to select the "Strike Price" (the price which the options contract can be exercised at).
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Enter the number of contracts that you would like to trade (remember each contract is the equivalent of 100 shares).
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Enter the price that you would like to purchase the contracts at and select "Limit" or "Stop" order. A limit price will only get you in at a specific price, while a stop price will set a price point to buy at and once that point is crossed, the order will be entered--which means that you could get in at a slightly higher or lower price. Select either "Good till Canceled" or "For Day Only." This will tell the program whether you wish to keep the order until you cancel it, or whether the order is only good for the day. Click "Submit," then review your order and click "Place Order." Your software will give you a confirmation of the order and let you know that it is pending.
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References
Resources
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