Trading Options – learning to trade options: Instructions 2022

Mark Norgate
October 14, 2021
Many traders see trading options as hazardous investment products. But let's dig a little deeper into the universe of options, and it quickly becomes clear that options are also a great way to limit risk.
trading-options

Many traders see trading options as hazardous investment product.

But let’s dig a little deeper into the universe of options, and it quickly becomes clear that options are also a great way to limit risk.

Here you can expect tips and tricks about the investment product of options so that you too can enrich your everyday trading with this essential topic.

Table of Contents

What is options trading? Our explanation & definition:

The options are derivatives. These give the trader the right to buy or sell a digital asset at a predetermined time and price. The value of an option is made up of various factors. On the one hand, there is the term of the option contract. Furthermore, the underlying value of the price also plays an important role, as does general volatility.

Therefore, the options are speculative bet related to an underlying asset (underlying). More precisely, it is about the possible development of this underlying asset. The digital assets that can be traded with options are, for example, stocks, forex, indices, commodities or government bonds.

The options belong to the derivatives group, and the term derivative comes from Latin: which means to derive. So why are the options a derivative? Because their price, in turn, depends on the price of the underlying asset.

The best brokers for options trading compared:

Rating

Min. Deposit

Min. Spread

Assets

Views

Positive Reviews

Negative Reviews

Likes

4.9/5
250
0.07
  • Commodities
  • Forex 40 +
  • Metals
  • Stocks
  • Indices
  • Cryptocurrencies
85
2
4.5/5
250
0.07
  • Metals
  • Forex
  • Indices
  • Cryptocurrencies
  • Commodities
  • Stocks

 

254
82
3
58
4.9/5
250
0.07
  • Forex 40+
  • Metals
  • Commodities
  • Stocks
  • Indices
  • Cryptocurrencies

 

480
80
3
50
Experiences from Securedbrokers to options trading providers

Anyone who has the necessary know-how can dare to trade options. The options trading experience minimises the risk of suffering a total loss with this trading strategy. Within a short time, traders can make high profits with this options strategy.

However, you should optimise your trading skills beforehand and look for a recommended broker. In addition to optimising your own options trading strategies through active trading – for example, via a demo account – you should also be inspired by the options trading experiences of successful traders.

trading-options-call-put

Do the technical terms put you off?

If you look around for the first time in the area of ​​options trading, you will come across some unknown and seemingly complex technical terms from the financial and investment sector. Inexperienced traders are likely to be less comfortable with terms such as put options or call options.

Accordingly, it is important to familiarise yourself with the most important terms before trading options to grasp the trading structure better and not jeopardise the entire system.

Learn Options Trading: Our Options Trading Wiki

We now take a look at some of the most important terms used in options trading. This knowledge is essential as a basis for this complex subject area.

Options trading

The traders do not acquire digital assets such as stocks, commodities or government bonds per se, but speculate on the development of the prices of these investment products.

Put and call options

There are always two sides to options trading: the buyer and the seller. The put option is about the right to sell a share. The call option is about the right to buy a share – or another digital asset.

Amount of capital in options trading

To make options trading a reality, you need a recommended broker. These usually require a minimum deposit of 250 euros when opening an account.

Who invented it – and why?

Options trading dates back to ancient Greece. There they were already speculating on the olive harvest. But, even then, it was about making a profit with the right nose.

Learning Options Trading: The Most Important Technical Terms

As already indicated, you should internalise the most important technical terms before starting to trade options.

At this point, we would like to introduce four of the most important terms from the field of options trading:

Strike, Call, Put and Premium.

Strike

The strike is the warbetsrant’s exercise price and is one of the most important features of all. It is good to know that the strike determines the cost specific to the underlying asset. It is therefore clear at what price the underlying is bought or sold when the option is exercised. It should be noted that the base value and the exercise price do not necessarily have to be identical!

Call

The call warrant guarantees the trader the right – but not the obligation! – to buy an underlying asset after a specified period at a likewise specified exercise price. As a rule, this involves speculating on the increase in a price to benefit from the difference between the base value and the exercise price.

Put

The put warrant, in turn, guarantees the trader the right – but not the duty! – to sell an underlying asset after a fixed period of time at a fixed strike price. Should the price fall, the traders benefit from the resulting difference.

bonus

The premium is the price of a warrant. The premium is primarily determined by the term and the probability of whether the exercise price will be exceeded or undercut at the end of the term.

If you look closely, it quickly becomes clear that the shorter the term, the lower the probability that the price will change significantly. Longer terms are, therefore usually more expensive.

What trading strategies are there? First test options trading on a demo account:

Options trading comes with some risks. Accordingly, one is well advised to take a closer look at an options trading demo account in order to learn how to trade options. The various online brokers usually have an options demo account that gives you an insight into the world of options trading.

But: The options trading demo account mostly shows embellished trading results, which would probably be lower in reality. So it is not important to be impressed by the possible profits but to concentrate entirely on the trading experience.

In order to learn options trading strategies, one should orient oneself to successful traders and their methods. Ultimately, options trading differs fundamentally from buying stocks. When learning the options trading strategies, one encounters the “Greeks”: Delta, Vega, Gamma and Theta. These statistical values ​​help beginners to understand the world of warrants.

Speculations with Olives?

This game, of course, development goes back to ancient Greece. At that time, people bet on the yield of the olive harvest. Today olives are no longer so popular when it comes to options. Instead, most traders focus on stock options when trading options.

When implemented, the concept means that the trader secures the right to buy or sell a share at a certain point in time for a set price. However, the trader is not then obliged actually to purchase the stock.

The aim is, of course, to make a profit by trading options. However, this only works if the trader is correct in his forecast of the share price development. The share price must reach a certain market value within the specified period for the purchase of the option to pay off.

The volatility of the securities throws a spanner in the works for many traders. As a result, options trading continues to be considered a risky endeavour that many traders do not dare to attempt. However, with the right basic knowledge and a little practice, options trading is an interesting way to increase profits and minimise risk.

The “Greeks”

Delta describes the sensitivity of an option concerning changes in the price of the underlying asset. The option price changes depending on the change in the underlying asset, which can be expressed in points. However, not every change in the underlying leads to a change in the value of the option.

Vega describes the underlying volatility and shows the amount of change in the price of the option with a one per cent change in the volatility of the underlying. Delta is about the sensitivity of the delta value concerning the price change in the underlying.

Finally, it is about theta, the time value of an option. The closer the expiry date of an option comes to the trader, the more the theta value can vary.

To get all these small but important terms and values ​​under one roof, you should look for a reputable online broker who has useful analysis software on offer. This makes options trading much easier.

What are the characteristics of good options trading software?

What are the characteristics of good options trading software?

If you want to trade options successfully, you should secure promising software. The software must deliver reliable real-time data. Long-term warrants in particular, are easier to plan if real-time trading is possible.

Furthermore, as a trader, you should also get a news ticker with real-time news to stay up to date with what’s happening worldwide. After all, these events also have an impact on the stock market. Finally, of course, it is ideal if an online broker fulfils several of these criteria so that you can find all the necessary data at a glance in a relaxed manner.

Are there any investment alternatives to trading options?

In addition to trading options, there are, of course, many other forms of investment. It is advisable to orient yourself broadly here and rely on a wide variety of investment objects, forms of investment, and trading strategies. This diversification ultimately makes it possible to hedge the portfolio against total loss. If you choose a well-established online broker, you have the opportunity to let off steam there.

Plan ahead

As with every investment and every trade, you should think about this step in advance. There are very different factors to consider depending on which investment, trading strategy, and type of investment the trader chooses. For example, you should look around for a reputable online broker who makes trading options possible.

It’s not just about trading options with different digital assets and making them as easy as possible to implement. In the meantime, an account with a recommended broker can be created within a few minutes and options trading can sometimes even take place via applications for mobile devices.

Preparation also includes acquiring the necessary specialist knowledge.

If options trading is risky too, we recommend regular Trading (of stocks, currencies, commodities and cryptocurrencies ) in our test-winning broker ROinvesting.

Options trading Conclusion – Our experience and recommendation

trading-options-conclusion

We have now learned a lot about trading options. Now let’s summarise the most important tips and tricks for trading the warrants.

On the one hand, inexperienced traders should expect the transaction costs incurred. If you haven’t had enough options trading experience yet, you could be surprised.

Trading options may incur custody fees, brokerage fees, and trade executions. You should find out about these costs thoroughly before you start trading.

By the way: profits from trading in warrants are subject to a withholding tax of 25 per cent.

Before preparing the next tax return, it is certainly advisable to talk to a competent expert. Losses can conveniently be claimed as income-related expenses.

Staying cool is the top priority

Furthermore, it is always important to keep a cool head. This is not always easy, especially for beginners, because the stock market can get hot. Therefore, traders should never act out of a short-circuit reaction but always based on a strictly calculated trading strategy. The acquisition of basic knowledge also includes technical terms such as put option, call option, premium and strike.

If you want to put your knowledge to the test, you can treat yourself to a test ride at any time via the platform of an online broker because there are enough providers who have a demo account on offer. You should use this to gain your first financially risk-free option trading experience. In doing so, you usually quickly notice where your skills still need to be optimised.

In general, one should always keep in mind that trading options is a highly risky affair that can lead to a total loss. If you don’t feel comfortable with this risk in your neck, you should concentrate on other forms of trading. Fortunately, there are more than enough of them.

4.9
4.9/5

Our recommendation: Trading at Investby

Our recommendation: Trading at Investby

  • The broker provides an Islamic Account
  • It provides a dedicated account manager
  • Receive customised investment news
  • Trade with a variety of assets
  • There’s no deposit limit
ABinvesting Review
4.5
4.5/5

Our recommendation: Trading at ABInvesting

  • Acknowledge the financial markets through education material 
  • Free VPS is available 
  • Get a swap discount of 50 per cent 
  • Islamic Account is available to traders 
  • Select account types of your interest
4.9
4.9/5

Our recommendation: Trading at PrimeFin

  • Fifth decimal available 
  • Spreads begin from 0.03 pips
  • Commission is zero  
  • Full 10-hour support  
  • News alerts and VPS for traders

FAQs

Trading options are possible through various online brokers. In order to find the right candidate, you should compare the different offers. The factors of the software offered, the costsare highly risky and the range of digital assets must be taken into account.

Trading options are possible with a wide variety of digital assets, such as stocks, futures, currencies and interest-bearing securities.

Free scenario calculators can be found on the Internet that enables dealers to run through various scenarios. A helpful gadget when it comes to familiarising yourself with the different trading options.

To be successful with trading options in the long term, one should be very familiar with the financial sector and the technical terms. Of course, this takes time and effort to familiarise yourself with this specialist area. Therefore, you should also bring a small amount with you to start trading.

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