A Complete Guide On How To Trade With Options | Steps Included (2024)

A Complete Guide On How To Trade With Options | Steps Included (1)

Picture this – it’s a lazy Sunday afternoon and you’re scrolling through social media. Suddenly, you come across a post from a friend who’s made a killing in the stock market. You start to wonder, “how hard can it be?” But the thought of poring over complex financial reports and charts leaves you feeling overwhelmed. Well, fear not, my friend! We have just the thing for you – options trading.

Now, we know what you’re thinking – “options trading? Isn’t that for people with fancy degrees in finance?” But, hear us out – options trading is not as complicated as it sounds. In fact, it’s a fun and exciting way to make some extra cash. So, grab a cup of chai, sit back, and let’s explore the world of options trading, Indian style.

Let’s Understand What Is Options Trading From A Beginner’s Point Of View

Let’s say you want to buy 100 shares of a company at ₹100 per share, but you’re not sure if the price will go up or down in the next month. You could buy a call option, which gives you the right to buy the shares at ₹100 before the expiration date. If the price goes up to ₹120, you can exercise your option and buy the shares at the lower price, then sell them on the market for a profit. Alternatively, if the price goes down to ₹80, you can let your option expire and buy the shares on the market for a lower price.

Options trading is not only a way to make money, but it’s also a way to hedge against risk. For example, let’s say you own 100 shares of a company, but you’re worried that the price might go down. You could buy a put option, which gives you the right to sell the shares at a certain price before the expiration date. If the price does go down, you can exercise your option and sell the shares at the higher price, then buy them back on the market for a lower price.

As you can see, options trading is not as complicated as it seems. With a little bit of practice and knowledge, anyone can learn how to trade options.

Want to learn more about options trading? Read here

Is Options Trading Easy To Learn?

Now, you might be wondering, “is options trading really that easy to learn?” Well, the answer is – it depends. While options trading can seem intimidating, it’s not as difficult to learn as you might think. With the right resources and guidance, anyone can learn how to trade options.

One thing that might make options trading a bit easier to understand is by comparing it to playing a game of teen patti. In both cases, you have to weigh the risks and potential rewards of each move you make. In options trading, just like in teen patti, you have to decide whether to hold ’em or fold ’em, call or raise, depending on the cards you’re dealt. And, just like in teen patti, sometimes it pays off to take a calculated risk.

But, unlike teen patti, options trading is not just based on luck. With the right knowledge and understanding of the market, you can make informed decisions that can lead to big profits. So, if you’re willing to put in the time and effort to learn about options trading, you can definitely do it.

How Long Does It Take To Learn Options Trading?

Now, the burning question on everyone’s mind – how long does it take to learn options trading? Well, it really depends on how much time and effort you’re willing to put in. Some people might be able to pick it up in a few weeks, while others might take months or even years to fully grasp the concepts.

But, one thing that can definitely speed up the learning process is by learning from the right sources. In India, there are many books, online courses, and even YouTube videos that can teach you the basics of options trading. Some popular options trading books in India include “Options, Futures, and Other Derivatives” by John C. Hull, “The Complete Guide to Option Selling” by James Cordier, and “Options Made Easy” by Guy Cohen.

Additionally, there are many Indian options trading experts & Institutes who offer courses and mentorship programs, such as IMS Proschool, where you learn options trading from scratch. By learning from experienced traders, you can avoid common mistakes and get a head start on your options trading journey.

So, while learning options trading may take some time and effort, with the right resources and guidance, anyone can learn how to do it.

How To Learn Option Trading Step By Step?

Okay, now that we’ve established that options trading is not as difficult as it may seem, let’s talk about how you can learn it step by step.

Step 1: Understand the basics – Before you jump into trading options, it’s important to understand the basic concepts, such as what options are, how they work, and the different types of options. You can find many resources online that explain these concepts in simple terms, such as Investopedia’s options trading guide.

Step 2: Learn the strategies – Once you have a basic understanding of options, it’s time to learn the different strategies you can use to trade them. Some popular strategies include covered calls, straddles, and iron condors. It’s important to understand the pros and cons of each strategy and when they might be most effective.

Step 3: Practice with virtual trading – Before you start trading with real money, it’s a good idea to practice with virtual trading first. This can help you get a feel for how options trading works without risking any real money. Many online institutes such as IMS Proschool offer riskless mock trading options that simulate real trading scenarios. At IMS Proschool, you first learn options trading on Sensibull & once the course is completed, you can easily start trading in real world.

Step 4: Start small – When you’re ready to start trading with real money, start small. Don’t jump in with a large investment right away. Start with a small amount and gradually increase your investment as you become more confident in your abilities.

Step 5: Continue learning – Options trading is a constantly evolving field, so it’s important to continue learning and staying up-to-date with the latest trends and strategies. Attend seminars, read books, and join online communities to stay informed.

Want to learn options trading from the pros? Checkout IMS Proschool’s Options Trading Course

Download Options Trading Brochure

Are Options Riskier Than Stocks?

Ah, the million-dollar question – are options riskier than stocks? Well, the answer is – it depends. Options trading can be riskier than traditional stock trading, but it can also be less risky if done correctly.

One way to understand the risks of options trading is by comparing it to playing a game of cricket. Just like in cricket, there are many variables that can impact the outcome of your trade, such as market volatility, time decay, and strike price. And, just like in cricket, sometimes you’ll hit a six and sometimes you’ll get out on a duck.

But, just like in cricket, you can reduce your risk by using the right strategy. For example, in cricket, you might use defensive shots to reduce the risk of getting out. In options trading, you might use a strategy such as a protective put to limit your losses.

Overall, options trading can be riskier than traditional stock trading, but with the right knowledge and strategy, it can also be less risky. It’s important to understand the risks involved and use caution when trading options.

Which Option Strategy Is Most Profitable?

Ah, the age-old question – which option strategy is the most profitable? The truth is, there is no one-size-fits-all answer to this question. The profitability of an option strategy depends on a variety of factors, including market conditions, volatility, and the individual trader’s risk tolerance.

That being said, some strategies are more popular than others. For example, the covered call strategy is a popular choice for traders who want to generate income while holding onto a stock. The iron condor strategy is another popular choice for traders who want to limit their risk while still generating income.

But, at the end of the day, the most profitable strategy is the one that works best for you. It’s important to do your research, try different strategies, and find the one that aligns with your goals and risk tolerance.

What Are The 2 Types Of Options?

Call Options: Think of it like a phone call from your future self telling you to buy something at a certain price. With a call option, you have the right (but not the obligation) to buy a particular stock or asset at a set price (also known as the “strike price”) before a certain date.

For example, imagine you buy a call option for shares of Reliance Industries Limited (RIL) at a strike price of Rs. 2,500. If the price of RIL goes up to Rs. 3,000 before the expiration date, you can buy the shares at the lower strike price of Rs. 2,500 and then sell them at the higher price of Rs. 3,000, making a profit.

Put Options: This is like having a secret weapon against the stock market. With a put option, you have the right (but again, not the obligation) to sell a particular stock or asset at a set price before a certain date.

For example, let’s say you buy a put option for shares of Tata Steel at a strike price of Rs. 900. If the price of Tata Steel falls to Rs. 800 before the expiration date, you can sell the shares at the higher strike price of Rs. 900, making a profit even though the market price has gone down.

But wait, there’s more! Here are a few other things you should know about options:

There are lots of different strategies you can use with options, like the “covered call” strategy, where you own the underlying stock and sell call options on it, or the “straddle” strategy, where you buy both a call and a put option at the same time to try and profit from market volatility.

Options can be a bit like playing a video game, where you can earn “power-ups” by making smart trades. For example, if you buy a call option and the price of the underlying asset goes up, the value of your option will also go up, giving you more “money” to play with.

Of course, options trading also involves risks, so it’s important to educate yourself and invest carefully. But with a little bit of knowledge and a lot of luck, you might just become the next Warren Buffett!

Does Warren Buffett Do Options?

  1. Explanation of Warren Buffett’s investing philosophy

Warren Buffett is one of the most successful investors of all time, and his investing philosophy is centered around buying and holding high-quality stocks for the long term. He famously avoids short-term speculation and focuses on businesses with strong competitive advantages and reliable earnings.

  1. Analysis of his stance on option trading

While Buffett has never been a big fan of option trading, he has used options in the past to generate income and reduce risk in his portfolio. He has written extensively about the dangers of using options as a speculative tool and has cautioned against investors who use them without fully understanding the risks involved.

Do I Need INR 2,50,000 To Trade Options?

  1. Explanation of the minimum requirements for option trading

No, you don’t need Rs. 2,50,000 to trade options. However, most brokers have minimum requirements for trading options, and they vary depending on the broker. Typically, you’ll need at least Rs. 25,000 to Rs. 50,000 to decently start options trading.

B.Tips for starting with a small account

Starting with a small account can be daunting, but it’s possible to build your account over time with the right approach. Here are some tips to get started:

Start small and focus on one or two strategies that you understand well.

Use a simulator or paper trading account to practice your strategies before risking real money.

Be patient and don’t expect overnight success. Building a successful options trading account takes time and effort.

  1. Personal anecdotes on starting with a small account

When I first started trading options, I had a small account and was nervous about losing money. But I focused on learning one strategy at a time and gradually built my account over time. It wasn’t always easy, but the experience taught me a lot about risk management and the importance of having a long-term perspective.

How IMS Proschool Can Help Me Boost My Options Trading Portfolio?

IMS Proschool has recently launched options trading course but is becoming quite popular in the market. And why not, the course ensures that you donot jump into trading without becoming a pro in the subject. Here are some of the features of the course –

  • You get to practically learn options trading on Sensibull
  • Real traders with a combined experience of 15+ years teach you.
  • You can complete this course alongside graduation/job
  • If you are trying to complete the NISM series 8 certification, this course will surely help you.
  • You can apply for 100’s of jobs on Proschool’s own Job portal and easily land a job with an avg. package of 4 – 5 LPA

Excited to start your journey as an options trader?

Talk Ot Our Experts

A Complete Guide On How To Trade With Options | Steps Included (2024)

FAQs

A Complete Guide On How To Trade With Options | Steps Included? ›

The options chart is a graph that shows traders and investors the market price of options over a given period. The options chart is essentially a stock chart with options instead of stocks.

Is there a chart for options trading? ›

The options chart is a graph that shows traders and investors the market price of options over a given period. The options chart is essentially a stock chart with options instead of stocks.

Can you learn option trading yourself? ›

The process for how to learn stock options trading is quite simple. You need to immerse yourself in educational resources, and then put what you've learned to practice. But – what we recommend is to practice with paper trading before you actually spend real money on options.

Which option strategy is most profitable? ›

1. Bull Call Spread. A bull call spread strategy is driven by a bullish outlook. It involves purchasing a call option with a lower strike price while concurrently selling one with a higher strike price, positioning you to profit from an anticipated gradual increase in the stock's value.

How to start trading as a beginner? ›

Open a Demat and trading account, deposit funds, and begin trading through a broker's online platform. Remember to declare all profits from online trading for taxation purposes. Utilise trading platforms offering real-time data, stop-loss orders, and margin accounts to enhance your trading experience.

Which trade is best for beginners? ›

Overview: Swing trading is an excellent starting point for beginners. It strikes a balance between the fast-paced day trading and long-term investing.

How much do beginner options traders make? ›

How much money can you make trading options? It's realistic to make anywhere between 10% – $50% or more per trade. If you have at least $10,000 or more in an account, you could make $250 – $1,000 or more trading them. It's important to manage your risk properly by trading them.

Is it hard to learn how do you trade options? ›

You see, it's very easy to categorize options as difficult to understand, but knowing just a few basic characteristics about options makes them very useful and easy to understand. Anyone—meaning absolutely anyone—can learn how to confidently trade options.

Does Warren Buffett use options trading? ›

Throughout his investing career, Buffett has capitalized on the advanced options-trading technique of selling naked put options as a hedging strategy.

What is the best timeframe for options trading? ›

Ans: The appropriate time frame for options trading depends on your purpose and research of the trade. However, a range of 30-90 days can be a good time frame for most trades.

What is the best chart for options trading? ›

Candlestick Charts: Candlestick charts are among the most popular options charts. They showcase price movement through colored bars (candles), indicating whether prices increased or decreased during a given time frame.

How much money do I need to start option trading? ›

Most brokers require account sizes of $2,000 or less. However, trading an option account with only a few hundred dollars is not prudent. Option trading strategies work best when a trader employs only a small amount of their available capital on any one trade.

How fast can I learn option trading? ›

Now, the burning question on everyone's mind – how long does it take to learn options trading? Well, it really depends on how much time and effort you're willing to put in. Some people might be able to pick it up in a few weeks, while others might take months or even years to fully grasp the concepts.

What is the minimum amount to start options trading? ›

You don't need a considerable sum of money to become an options trader. You can start small with a capital of less than Rs 2 lakhs too. However, as you start small, you need to be a careful trader so that you can cut down on the possibility of losses and enhance the return potential of your trades.

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