We’ve made this options trading tutorial page to try to make it easier for people to find the educational content on this site. There have been a lot of posts about day trading activity and such and as a result it can be a bit of a challenge for beginners to find their way on this site. It is my hope that if this is your first foray on this site that your find the level of information you are looking for. High leverage investing is not for the faint of heart, and sometimes individual positions taken will expire worthless. If you can stand to make an investment of this kind full well knowing that you may los your entire position, then this options trading tutorial is for you. If you can’t stand the idea of taking a position and acknowledging the possibility (or in some cases the LIKELIHOOD) that you will lose the entire investment – then you have no business reading this site.
Options trading is in many cases an effort at hedging risk. When you enter into a hedged position, there is a high probability that one position will expire worthless. The reason we do these sort of trades will be explained later, but the point you need to understand now is that SOMETIMES – in fact FREQUENTLY we take positions that are likely to be worthless eventually – with the reason being that if we missed some critical bit of information or something dramatic happens in the world and our MAIN position collapses – we’ll have the hedged position to fall back on and recoup some or all of our losses.
Options Trading Tutorial: The Basics of Options Trading
With that said, I suggest you read on, beginning with the basics of options trades. Buying long positions where you either go long the underlying security (a call option) or you go short the underlying security (a put option). In the post below we describe the mechanics and fundamental math of these types of trades.
Options Trading Tutorial Part 1: Basics of Long Options Positions
Once you have a good understanding of the principals behind buying power leverage that comes with using options you should have an appreciation of why these trades are so popular. One of the issues in dealing with these sorts of trades is the amount of capital needed to earn a decent return on a reasonably small movement of money in a relatively short time span. That is after all the key takeaway: in order to make money options trading you need to be able to make a decent return on your investment in a short period of time. If you are counting on large stock movements to earn a decent return on your capital then chances are you did not have enough money to put to work in the first place and should not have invested in options at all.
Options Trading Tutorial Part 2: Economies of Scale and When Not to Trade Options
If there is one thing I hope people learn from this options trading tutorial is that sometimes and option trade is not the right investment for you. People with less than $10,000 to invest should NOT consider trading options because frankly the economies of scale just aren’t going to work for you unless you have a sizeable chunk of money to put to work. People with a small amount of capital to invest ought to consider binary options trading instead.
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