How to Learn Put/Call Options Trading
- 1). Begin with the basics: what an option is and how it is traded. The Chicago Board Options Exchange offers free online tutorials through its online learning center at CBOE.com, and this authoritative site is an excellent place to begin your education.
- 2). Decide what type of options you want to trade, and educate yourself on the industry. It's simplest if you restrict your trading to one industry or a specific index to begin with, as you'll need to understand the market drivers in order to predict price movements. You can trade options on almost anything, so pick an industry that interests you -- chocolate, for example -- and learn everything you can about it. Make sure you understand what is bought and sold, what influences success, key players and specific companies.
- 3). Open a practice account. Nearly all online trading firms offer practice accounts, sometimes called paper trading. Most big online brokerage firms -- like eTrade (etrade.com) or Think or Swim (thinkorswim.com) -- offer options trading. Find a firm you like and try it out. This allows you to get some real-world experience, test theories and watch patterns without risking any capital. It also lets you get familiar with the trading platform itself: You don't want to lose out on an opportunity because you didn't understand the program.
- 4). Keep a diary. Record what you traded and why you did so. When you exit the trade (sell the position), note your reasons for this as well -- and what happened overall. Review your diary regularly to see what's working and what's not. Get a feel for what kind of trader you are, when your emotions begin to drive you and where you tend to make mistakes. Incorporate this analysis into your trading plan.
- 5). Find two or three reputable sources of information on options trading and on your chosen industry. The Chicago Board Options Exchange (CBOE.com) and the Options Industry Council (optionseducation.org) are great places to learn about trading strategies, while news sources like the Wall Street Journal (wsj.com) provide up-to-date industry and financial analysis. Make a practice of reviewing economic information, trading strategies and industry news on a regular basis.
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