How to Buy & Sell Stock Options

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There are two parts to buying and selling stock options, including opening accounts with stockbrokers and buying stock privately. Set up a plan for selling stock with a stockbroker with help from a personal asset manager in this free video on investing in the stock market and money management.

Part of the Video Series: Stock Market
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Video Transcript

Hello, I'm Roger Groh with Groh Asset Management. Today we're here to talk about how you buy or sell stock options. Really there are two parts to this. One is in a public company, how do you buy or sell stock options and it's pretty simple. You go to your local broker, stockbroker or you go to your local discount broker or online and you say to them I would like to open an option account. They'll look at how much money you have, how sophisticated you are and how much risk that they think that you can assume and they will let you open and buy and sell different types of options. For instance, if you're a basic investor with little options experience, they may limit you to covered call writing which basically means that the brokerage firm is going to get their money back because in an option most of the time, they lend you money. On the other hand, if you're a very aggressive, large investor and you wanted to do something like sell naked puts which aren't as quite well risky as they sounds, but they are risky, the brokerage firm is then going to be worried about are they going to get paid back. So they're going to want you to be a very well qualified investor so that they know that they're going to get the money back that they've lent to you. So that's a little bit about doing it on the public side. Fill out a form, get qualified, go ahead and buy and sell. On the private side it's a little bit different. Remember most businesses in the United States are private, not public. This can be the Burger King down the street from you, it can be the McDonald's down the street from you, it can be the stationary store, it could be any number of institutions where that company, the management of that company has given the right to employees or other people to buy stock in their business. Along with that came some booklet that talked about physically how to do it. So the first thing you have to do is get the book. And in the book it'll say if you want to buy stock options or you want to sell options, this is who to call, this is who to write, this is what you have to say in that conversation in order to make it happen. In either case, you want to setup ahead of time a plan for what to do in the event the price of the stock moves up or move down. The reason is that if an option is profitable at when the stock hits 10 dollars, you look in the paper, you see it's at 10, you rush to the broker, you say exercise, exercise, exercise and you get there and it's at 7, then all of the sudden there's no money in it. Well it's too late. So you want to setup a plan ahead of time, have it electronically setup so that if a price point is reached, the transaction will occur for you then you'll be notified. So that's a little bit about how to buy and sell stock options and I'm Roger Groh, thank you for spending a few minutes with me.

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