Time to geek out!

But FIRST!  strategy Knowledge checklist


Before we get started on the option strategies for beginners, please check the list below to make sure that you know the following:

1.) Difference between options and stocks

2.) What options are

3.) Strike prices

4.) Market Trends


option strategies for beginners

strategy #1  "Buying calls"              Bias: Bullish                            Level- Easy

When learning to trade option strategies for beginners, the first one is buying a call is one of the first things you learn. Remember, I said BUYING. You can also sell a call, but we are not discussing at this time.  Buying a call give you certain rights. ( Options are a contracts) and when you are "buying" it means you have rights!

Photo courtesy of project options


See this photo to above? The buyer of a call has the RIGHT to BUY 100 shares of a particular stock at a strike that they chose! If you are unsure of what strike prices are, learn about them here.

Buying a call- Your Trend should be Bullish

When buying a call, your bias is bullish. Meaning it needs to be directional. Extremely directional. Buying calls make money from directional bullish trades.

Why?

Enjoy the story below!

Story example


Lets say you bought a call on Apple (Ticker symbol: AAPL) at the $100 strike price. You now have the RIGHT to buy 100 shares of Apple at $100/share ($100 strike price).

You did this because you believed the stock was going to go up. The next day, the President of the USA announces that SpaceX will be using Apple as its core systems in space. And BOOM! Investors and traders begin pouring into the Apple stock and the next day Apple is worth $120/share.


What do you have the right to do? That's right! Buy 100 shares of Apple at $100/share!

Now you have (2)TWO choices...exercise that right or sell the right to someone else. 

HINT: We just sell the right to someone else! Meaning, hit SELL! And all the profit is then locked into your account! Not to shabby when starting off our option strategies for beginners huh?


Strategy #2  "Buying a put"      Bias-Bearish            Level: Easy

Option strategies for beginners number 2 is "Buying a put." When buying a put, it is the exact opposite of buying a call. You need the stock trend to be going down. Like with a call, buying a put also gives you rights. But in this case, it gives you the right to SELL 100/shares at whatever strike price you chose.

Photo courtesy of project options

The trend needs to be directionally DOWN. So how can you make money when buying a put and the stock is falling?! 

STORY TIME!

STORY EXAMPLE #2


Lets say you bought a put on Boeing (Ticker symbol:BA) because you believed the stock was going to go down, and you bought it at the $150 strike price giving you the right to buy 100/shares of Boeing at $150/share.

 The next day, Boeing reports massive trouble with their new 737 engines. Because of this, all 737's are grounded. Investors and traders alike begin selling the stock like hot cakes. 

The next day, Boeing is trading at a whopping $100/share! 


What do you have the right to do? That's right! SELL 100/shares at $150/share even though Boeing is currently trading at $100/share! 

You have 2 (TWO) choices...exercise your right and sell literally 100 shares at $150 each, or just SELL the CONTRACT! 

HINT: We just sell the contract and take in the profit :)


What is your favorite options strategy?

Do you have a favorite strategy that you always use when trading?

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