How do I get started on stock options?

Question

Pro/cons stock options
what stocks to pick
What program do I work with?
What fees are involved when trading?
I work full time- I'm looking for something that only needs about once a week for checkup? any recommendations?

Answer 1

I use a Brokerage account at Scottrade.

I ONLY buy covered calls, and sell to close.

The fees are a little more complex, I have not done one for a while, but I think it is $10.50 plus $1.50 per contract.

An option contract is usually for the option to buy or sell stocks in blocks of 100 shares, but that might change if, after the contract was executed, the stock splits.

What I do, is buy 100 shares of a stock (or more, but always in blocks of 100 shares). I pick a really good stock, that I am sure will go up in the long term. I wait, however, for a dip. I usually put in a limit order to buy at about 5% below the average for the day.

Then, after it buys, I wait, until the stock price increase by about 25%. This might be a month or a quarter, or more.

If/When it goes up 25%, I then put in a sell order for a covered call, for, with the following specifications:

The price is for at least 25% of the current value of the stocks.

The strike price is at least 25% higher than the current price.

The expiration date is at least 1 year from the date I bought the stocks ( for tax reasons).

At this point, I have a 25% capital gain.
I sell the covered call for 25% of the current price.

If the stock fails go up 25% by the expiration date, I get to keep the price of the covered call, and the call expires as worthless, and I may sell another covered call on it.

If the stock is up over 25% on the expiration date, the call automatically buys my stock, at the strike price. I have made about 75%. If the stock goes up way over 25%, I don't make that extra gain. I might feel bad about it, but I still made 75%.

If the stock drops by 50%, I have not lost anything. It would have to drop by over 50% for me to actually lose anything.

If the stock price drops dramatically, and I think it will go back up, the price of the covered call drops as well, and I might consider buying it back for 5% of what I sold it for.

The reason I only use covered calls, is they are relatively risk free. They actually reduce your risk if done right, whereas an uncovered call can increase your risk of loss without limit.

Answer 2

I suggest you start at the CBOE Learning Center

http://www.cboe.com/LearnCenter/default.aspx

Take the free online tutorials and courses there, and possibly some of the educational webcasts.

Ater that, I suggest you read at least one good book on options trading. Any of the books at

http://www.cboe.com/Institutional/Bibliography.aspx

should be good, so try to browse through as many as you can to pick one or two written in a manner you like.

Fees can be quite low. For example, at Interative Brokers they charge no more than $0.75 per contract traded with no minimum. If you want a little more "hand holding" while you get started you might consider Think or Swim, although they do charge a little more.

If you can only check your positions once or twice a week I recommend you stick with fairly simple and less volatile strategies, such as covered calls.

The best stocks to pick vary depending on the strategies you choose.

Answer 3

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Answer 4

Step One) Have money to lose.