Start to Trade

Placing an order for a stock is very similar to placing an options order. Call your brokerage firm and tell them which option you want to buy, if you use a live broker. Name the options symbol, the strike price, and provide the expiration date. Specify the number of contracts you would like to purchase, next. Decide on neither a specific price you are wiling to pay for the option (i.e., use a "limit order") or place your order "at market" (i.e., a "market order"), which means you will receive the best available price at the specific moment your order hits the trading floor, finally.

You will have to meet certain funding requirements before the brokers will accept your options order, with most brokers. You must have the necessary funds to cover any margin requirements, for example. Your broker will require you to open a margin account, to trade options. You will still be asked to trade on margin for example, even if you are not going to borrow money from your broker.

• The amount of money you must have in your account at the time you place an order, is the "Initial Margin Requirement". The funds must therefore be deposited into your account before any orders can be accepted;
• The "Maintenance Margin" is calculated as a minimum margin per outstanding contract; you must maintain that amount in your account in order to be able to hold an options position.

Your broker will send you several agreements, after you have met these margin requirements, among them the documents entitled "Characteristics and Risk of Standardized Options" and "Understanding Stock Options". If you have only just started to trade options, these texts are very useful.

You may place an order with your broker, after you have opened an account and met the margin requirements discussed above.

You must decide how much of your money you can safely put at risk, before you begin investing in options. We recommend no more than 10% of your portfolio if you are new to options.

Options trader should remember:

• Your option loses time value, with every passing day
• To be an options buyer is the easiest way to profit from options. You simply buy puts if you think the index will fall, or calls, if you think the index will rise
• You win your bet, if the index price rises above the strike price of your call option, or if the index falls below the price of your put option
• If the index does not move the way you thought it would, you could lose the entire premium you paid for your option.
• You could lose the entire premium you paid for your option, if the index not move the way you thought it would

Knowing how and when to take profits, is just as important as selecting the right option and paying the right price. Most options buyers lose because they fail to take profits properly and not because they buy the wrong option.

• You must get ready to act when your option begins to show a profit.
• Get ready to sell your position if the index drops by 5%(if you bought a call option), or if it rises by 5% (if you bought a put option).
• Sell your position and pocket the profit if your option is in the money and the index makes a big move in your favor.
• Also take profits if your option is in the money, moves past the strike price and enters its last week before expiration.

Cutting your losses is just as important as taking profits.

• To cut your losses, is the hardest part in convincing yourself.
• You will not last as an options player, if you do not cut your losses quickly.
• If you own an option that has fallen by 50% or more, sell it and close out your position.