Want to be an Options Trader?

Welcome to the Options Trading section of Young Money. Each week, I’ll start by covering some topics that will educate you on options trading, and then I’ll list a trade or two that I did during the week with an explanation of why.  I will post actual trades that I make so you can keep track of them and determine if I'm successful or not. 

I highly recommend visiting a brokerage site and opening a “paper” account or fake money account (think downloading poker software and playing at the fake money tables).  This way you can understand how the strategies work and you can get comfortable with the software at the same time. If you ever decide to load the account with your hard-earned dollars and pull the trigger, that’s up to you. 

Goals
A. Trade while you’re at work
B. Keep the shirt on your back
C. Put a Porsche in the garage of your future home

Ready? Now, let’s translate that strategy into investment speak.

Q: I want returns larger than the diversified ETF portfolio my Dad keeps telling me about, but I’m not a day trader and I don’t work on Wall Street. Got any suggestions?

A: First, get rid of that Porsche idea.  You trade to trade well—which means you write up your game plan and you stick to it.  Yes, there is money at risk, and agreed, we’re not learning to trade options to promote world peace; but we’ve got to be in the right mindset.  The strategy we’re going to use is about grinding out our gains by hitting singles and doubles.  We’re not looking for that “three-bagger” you keep hearing about on Mad Money and we’re not trying to overhear hot stock tips in the hopes of finding the next “Google when it was at 80.”

We’re going to go over two basic strategies—vertical spreads and calendar spreads, which is options trader’s language for simultaneously buying and selling options with different strike prices and expirations in order to take advantage of premium decay, while limiting or defining our risk so that we always have strict control over how much capital we could lose at all times.

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Comments

Thanks! Im still trying to learn as much as I can about investing and this article was very informative!

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