Trading Options for Beginners 101 – Strategies, Basics, Explained For Dummies: Tutorial 18

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You’d qualify as a Rookie Options Trader in our book if you’re a beginner. You’ve placed just a handful of options trades over the course of your career, if any at all. You may not feel confident that you know how to research option ideas or trades. Rookies may have heard about implied volatility, but you may not really understand it (or perhaps you don’t realize how important, in fact crucial, it is). You’re probably aware that news can affect trade outcomes, but you may not feel proficient at turning the news into potentially successful trade opportunities. You may not fully understand how an option trade becomes profitable, or how to respond if you’re experiencing an unrealized gain or loss.

As a Rookie Options Trader, here are the basics you should master:
The difference between in-the-money and out-of-the-money options
The difference between intrinsic value vs. time value
Why an option is priced the way it is
How implied volatility affects option pricing
The difference between historical and implied volatility
How option pricing is affected when the underlying security moves up or down in price
How and why option prices lose value as expiration approaches
How and why to exit an option trade prior to expiration
What assignment is and why it cannot be prevented once it occurs
Rookie Option Traders can improve their skills by:
Reading and studying Options: The Basics
Visiting the Rookie’s Corner at
Reviewing option strategies geared to the Rookie skill level
Learning how to use TradeKing’s Options Pricing Calculator
Learning how to use TradeKing’s Probability Calculator
When ready and after you understand the risks, selling 30-day covered calls since the downside risk is similar to owning stock
When ready and after you understand the risks, buying deep in-the-money calls sparingly if using long options as a substitute for owning stock
Checking the news regularly for your underlying symbol before making option trades and while option positions are open
Staying on the sidelines within one week of any important news event, such as an earnings announcement from the company
Finding potential option trades with TradeKing’s Options Scanner from
Anticipating and planning for all possible outcomes for your investments, not just the positive scenarios
Engaging members of the Trader Network to help you work through trading ideas
Inquiring members of the Trader Network to explain their trading analysis
Journaling your trades with Trade Notes to record your trading thought process
Attending or watching TradeKing’s free educational webinars, geared to the Rookie skill level
Learn how to avoid common option trading mistakes that fellow rookie traders make
Rookie Option Traders should steer clear of the following:
Do not buy out-of-the-money options, especially in high quantities
Resist the urge to buy low-priced options because they “seem cheap”
Do not hold positions in options within one week of the underlying company’s earnings announcement, or other planned news event
Resist the temptation to hold positions through expiration week
Do not trade strategies labeled for more advanced traders
Do not short naked options – this could expose you to unlimited risk


ethan george says:

trading binary options, remember it is either you win a trade and make a profit or lose the trade and lose your investment in that trade as well. This means that you should stick to trades that offer the highest probability of coming out as a winner. If the movement of the value of an asset is dependent on a news item, make your trade before the rest of the market catches up by trading with options in the seconds, 1 minute options or even the 5 minute options. It will be your experience and knowledge that will enable you to make the right trade within the right expiry period. The lesson learned here is that you should be on top of things when it comes to live financial news and live reports. You can do this by contact…

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