How to Get Started as a Beginner Trading Options

So, you’ve seen people on social media making outrageous gains (and equally death-defying losses) using options — and you’re curious what it’s all about. 

Here’s the short version: A lot of beginners (and some gambling-oriented long-termers) see options as their outlet to “get rich or die trying” — here’s the thing — it’s not that. Options are not a “get rich quick scheme” — If you think of options like that, you’re much more likely to see the latter (account dying) than the former (get rich). Sorry, that’s just the way it is. 

While it’s true that some people do stumble into superb trades that change their whole life, there are an equal number of people who blow up their entire account in search of exactly those trades. In short: If you’re trying to gamble, go play roulette. If you’re trying to speculate on the market, you’re willing to learn, and you’re interested in a way to get defined-risk leverage without leaning on questionable margin — then options trading just might be for you. 

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Here are the basics.

What are Options, and Why Should You Trade Them?

Options trading can be a great way for investors to potentially generate additional income and manage risk. Heavy focus on that second part — with so many different strategies, styles, and option-types, options can be used as a low-cost form of insurance to protect even the largest stock positions. 

However, options trading is also a complex and risky endeavor that requires a solid understanding of the market and the underlying assets. (We can help with that.)

If you’re new to options trading, it’s important to start with a basic understanding of how options work. Here’s the jargon you’ll see all over the web: An option is a contract that gives the buyer the right, but not the obligation, to buy or sell an underlying asset at a specific price and date. That may sound scary, but have no fear: 

This just explains the nuts and bolts of why options are capable of providing the amount of 100:1 leverage they offer.

When we say leverage, and when we talk about the potential of options, and why people trade them, we’re talking about trades like this:

You don’t have to buy 100 shares or sell 100 shares of anything if you’re just buying an option — you don’t even have to be able to. Most people sell options before they expire, and if the option does expire in your possession, your broker will tally it out for you.

There are two types of options: call options and put options. Call options give the buyer the right to purchase an underlying asset at a specific price, while put options give the buyer the right to sell an underlying asset at a specific price. Again, this may sound complex, but here’s the easy version: A put option is a prediction that a stock or security will go down, and a call option is a prediction that a stock or security will go up. Puts and calls are the building blocks of all options strategies. Vertical spreads, diagonal spreads, iron condors, butterflies, you name it — it’s made up of these two instruments. 

Before getting started with options trading, it’s important to have a solid understanding of the underlying asset and the market conditions. That’s so that you aren’t just guessing at the direction of the stock. You want to have a good reason for why you’re making the prediction you’re making. Every. Single. Time. 

This includes studying the historical performance of the asset, understanding the economic and political factors that may impact its performance, and keeping up with the latest news and developments. It’s also important to have a solid trading plan in place and to stick to it, even in the face of market volatility. This is something we preach heavily at Market Rebellion. When dealing with money, it’s easy to let emotions get in the way. It’s easy to see the value of a trade start moving south and think, “oh no, I gotta get out!” — Likewise, it’s easy to see the value of a trade going up and think, “Just a little more! Just a little more!”

Instead of letting emotion control you, it’s always best to have a plan of action for anything that may happen before you enter the trade. That means asking yourself, “When will I get out in the event of a bad trade?” AND asking yourself, “When will I get out in the event of a good trade?” — Write it down and stick to it. 

It’s also important to understand the different types of options strategies that are available, including buying and selling options, option spreads, and covered calls. (Market Rebellion offers services dedicated to each of these strategies run by professional options traders. If you’re interested, click here or check out our services tab for more information.) Each strategy has its own set of risks and potential rewards, and it’s important to choose a strategy that aligns with your investment goals and risk tolerance.

When getting started with options trading, it’s also important to be aware of the risks. Options trading is a highly speculative and leveraged endeavor, which means that even a small move in the underlying asset can result in large gains or losses. 

One of the best ways to get started with options trading is to start small and learn as you go. You can even paper trade using a variety of tools found online. You can use a virtual trading account to practice and gain experience before investing real money. Additionally, it’s essential to continuously educate yourself and stay updated with market trends and events.

Lastly, you can always trade under the guidance of trained stock market professionals — that’s where Market Rebellion comes in. We offer a host of professional option trading services, run by former floor traders, chartered market technicians, and professional options traders, who live and breathe trading. 

In conclusion, options trading can be a great way to potentially generate additional income and manage risk, but it is also a complex and risky endeavor. It’s important to start with a solid understanding of the market, have a trading plan in place and be aware of the risks. Remember to take things step by step, start small and learn as you go. And always consider consulting a trained professional before diving headfirst into the deep-end.