How to Purchase Stock Options
A stock option is a security that gives you the right, but not the obligation, to buy or sell a stock at a given price in the future. Stock options reduce your risk when you want to buy or sell a stock, but are not sure which way the price of the stock will go. For example, if you buy a call option--which gived you the right to buy the stock at a certain price--and the price of the underlying stock goes up, you will be able to exercise your option and buy the stock at the old, cheaper price. If the price of the stock drops, you will let your option expire and will simply not purchase the stock at a higher price.
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Instructions
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Learn as much as you can about stock options. There are basically two types of stock options: call options and put options. If you purchase a call option, you will be able to buy a certain stock at a given price; if you buy a put option, you'll get a right to sell your stock at a certain price.
An important concept in trading stock options is the strike price. A strike price is the price that you can buy or sell stocks for in the future. For example if the strike price for a buy option is $19.79, it means that you will be able to buy the stock for that price in the future.
Using options can help you reduce the risk that the underlying stocks will increase or decrease in value.
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Find a brokerage firm that will allow you to buy the options in which you are interested, and open an account with this firm. Come up with a list of brokers and compare their commissions, range of stock options available for trade, reputation and reliability. Remember, that you will be more secure if you will work with a broker that has many customers and good reputation.
Brokers also have a minimum account requirements, that is, how much money you need to deposit with them to start trading. Although margin requirements differ from broker to broker, they are typically $2,000 for opening an ordinary account and $25,000 for opening a day trading account (day trading means trading within one-day timeframe).
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Purchase the stock option you are interested in from your broker. Most brokers do not deliver you the certificate that states that you own the option, but will simply deposit it in your account at their firm. You will be able to sell this stock option whenever you like or wait till it expires and either exercise or abandon it.
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References
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