Learn the fundamentals of options trading
Options are contracts that give you the right (but not obligation) to buy or sell a stock at a specific price before a certain date.
Call Options: Right to BUY at the strike price Put Options: Right to SELL at the strike price
Each contract represents 100 shares of the underlying stock.
Strike Price: The price at which you can buy/sell the stock
Expiration Date: When the option contract expires
Premium: The price you pay for the option contract
In-the-Money (ITM): Option has intrinsic value - Call: Stock price > Strike price - Put: Stock price < Strike price
Out-of-the-Money (OTM): No intrinsic value, only time value
At-the-Money (ATM): Stock price ≈ Strike price
Delta: How much option price changes per $1 move in stock - Calls: 0 to 1 (or 0 to 100) - Puts: 0 to -1 (or 0 to -100)
Gamma: How much delta changes when stock moves
Theta: Time decay - how much value lost per day - Always negative for buyers - Always positive for sellers
Vega: Sensitivity to volatility changes - Higher IV = Higher option prices
IV (Implied Volatility): Expected future volatility priced into options
Buying Calls: Bullish bet with limited risk - Max Loss: Premium paid - Max Gain: Unlimited (theoretically)
Buying Puts: Bearish bet with limited risk - Max Loss: Premium paid - Max Gain: Strike price - premium
Covered Calls: Own stock, sell calls against it - Income strategy - Limits upside potential
Cash-Secured Puts: Sell puts, keep cash to buy stock if assigned - Income + potential stock acquisition below market price
Step 1: Get Approved for Options Trading Apply through your broker (usually requires experience/net worth)
Step 2: Learn with Paper Trading Practice without real money first - master the mechanics
Step 3: Start Small Begin with buying calls/puts (defined risk strategies)
Step 4: Track Everything Journal trades, note what worked and what didn't
Step 5: Education Never Stops Markets evolve, keep learning and adapting
Common Mistakes to Avoid: • Buying cheap, far OTM options • Holding options too close to expiration • Not understanding assignment risk • Ignoring earnings dates • Over-trading (commissions add up)