Learning to Trading tips requires patience. Fortunately, there are many courses and tools that can help investors in this process. Selling covered call options to generate income is a great way to take your first steps in the options market before moving to buying call or put options.
We will examine these two basic strategies that are suitable for first-time investors who are on their first option. Use the online options to easily explore, analyze and visualize these strategies before trading. To be successful, it is imperative to understand the potential risks and returns of an operation before executing it.
Covered call writing
The writing of covered call options is a basic strategy that does not add any additional risk, while generating income through the writing of call options on shares held in the portfolio. It can be used in almost any market situation and does not have to be used with bullish or bearish forecasts. Start by selecting short-term options (3-7 weeks) with strike prices that have a low probability of being in the market at maturity (delta of 20 to 30). In addition, the writing of covered call options does not require an active daily monitoring of the position before the end of the week is imminent. Watch the recording of our webinar to learn more about this strategy and best practices for generating income through covered call options (“Generating Income using Covered Calls”).
Purchase of options to buy or sell
In the event of a strongly bullish or bearish forecast for a stock or exchange-traded fund (ETF), the purchase of call or put options is a basic strategy for speculate according to these forecasts while incurring a limited risk. It can be used when the price of the underlying shatters a floor or a ceiling or, conversely, when it does not succeed and turns around, always depending on whether the investor’s forecasts are bullish or bearish. Buying call options based on bullish forecasts or buying put options following bearish forecasts is a simple way to get started. Choose options with a maturity of approximately 1 or 2 months and a strike price slightly in the price (delta 60). Be sure to clear your position before maturity, once you’re bullish or bearish forecast for the stock or the ETF’s share is confirmed or contradicted. A very common mistake is to keep a buy or sell option too long. Watch the recording of our webinar on trading your first option (“Trading Your First Option”) for advice.
There are many other things to learn about option trading. Having the right tools will make learning easier and intuitive. Resources such as the Stock Exchange’s Stock Option Reference Manual and Online options are very useful for beginners. Print the infographic document of this ticket for your first option operation.
Getting Started Guide to Option Trading
If you are used to trading stocks, you need to have a pretty good understanding of the workings of buying and selling stocks. Undertaking option trading is relatively simple. Here are some essentials before embarking on this new adventure.
Open an option account with your broker
The option account can be a registered account or a margin account. There are some differences in the use of these two types of accounts. For example, when trading options in a registered account, it is possible (1) to buy and sell call and put options or (2) to write covered call options. Other option strategies are not permitted because of Canada Revenue Agency regulations. On the other hand, in a margin option account, all option strategies imaginable can be implemented.
Browsing an option string is equivalent to viewing an action’s rating
A chain of options is like a list of all the strike prices and maturities of the options available for trading. An example of a chain of options is presented below. Options may have weekly maturities or long maturities. The options are divided into two groups, namely call options and put options. A call option gives the holder the right to purchase a share at a specified exercise price. Conversely, a put option grants the holder the right to sell a share at a set strike price. The strike price is simply the guaranteed price at which the holder of an option can buy (call option) or sell (put option) the underlying stock.
Opening Purchase means the purchase of an option to take a new position. In the stock universe, this is a purchase order.Closing Sale means the sale of an option to close an existing position. In the stock universe, it is a sell order. Opening Sale means the sale of an option that you do not hold. In the stock universe, it is a short sale. Close Purchase means the redemption of an option that you previously sold to close the position. In the equities universe, this is a hedge purchase.