How to Learn Option Trading When You Don't Know Where, How & What to Look For
The adventure of options trading can appear monumental. To reduce any anxiety or issues related to trading options, a well-defined training regimen is necessary. The Chicago Board of Options is the global leader in options trading and is an incredible resource for free options training. In addition, you will need to have a full understanding of options before you trade them due to the risk involved. Training and education is the key to successful options trading.
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Instructions
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Start with the basics of learning options trading. Make sure that you choose a trading platform that caters to the novice trader. Most trading systems have free tutorials and live support to help you manage the process of trading options. If you don't understand a component of your trading, do not proceed until you have researched and answered any question that you may have related to options trading.
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Join an options trading club or group. Being around options traders that are successful is always a plus because you can learn from their successes and failures. Further, they can help direct or re-direct you toward behaviors and habits that enable positive trades.
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Secure a one-on-one trading coach with a proven track record. Not only will you have a personal trading coach, but you'll be able to ask questions as they arise. In addition, you will be able to learn at your own pace. Clearly define your goals with the coach. For example, if you want to be able to execute successful options trads, make sure that the coach can help you reach that goal before entering into a contractural obligation.
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Practice virtual or "paper" trading for as long as it takes you to feel comfortable with the process of trading options. A paper trading account should be available to you through your trading platform. In essence, you are trading with fake funds, so there is no risk, but you can practice as if it is real.
You will need to narrow your focus because there are thousands of tradable options. Choosing three to five options to study and follow will help you successfully paper trade options before you place real money into options trading. Refrain from funded trades until you have successfully paper traded for a while.
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Develop a Trading Plan that outlines how much capital you will trade and how much you expect to make on your trades. This plan can also include the actual options that you will trade, when you will trade them, and why you will trade them. Your goals and objections are also outlined in your Trading Plan. This plan should be written and can include a trading log of all trades that you have executed.
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Design a Risk Management Plan. Your ability to manage your risk is directly related to your success as an options trader. You will need to learn to place stops and alarms on trades to allow you to exit if the trade goes against you. As a options trader, you will lose sometimes, so expect to fully control your risk and get out of the trade. Hoping that it will reverse is not a plan. Before you enter a trade, you should know exactly when you will exit.
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Tips & Warnings
Since you will be depositing funds into a trading account, make sure that the company that you use insures your account through the FDIC (Federal Depository Insurance Corporation) so that your deposit remains safe.
As an options trader you will want to recognize that the movement of an option is much quicker than the movement of a stock, which means that you could lose your money more quickly than with stocks.
