Options Trading 101: What is options trading and how to buy options

Best brokers for options trading
Broker | Commissions | Features |
---|---|---|
BrokerFutu Securities | CommissionsPremium x 0.2% (as low as HK$3+HK$15 Platform Fee) | FeaturesSmooth interface |
BrokerWeBull | CommissionsUS$0 | FeaturesCommission free and $0 platform fee for US stock options trading |
BrokeruSmart | CommissionsUS stock options: Commission US$0.45/contract (Min. US$1.5/transaction) Platform fee US$0.3/contract | Features
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BrokerChief Group | CommissionsPremium x 0.25% (as low as HK$50) | Features
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BrokerSaxo Market | CommissionsAs low as US$2/lot | FeaturesCompetitive commissions |
BrokerTD Ameritrade | CommissionsUS$0.65/contract | Features
|
What is options trading? Is it risky to invest in options?
An option is a contract which gives the buyer the right rather than the obligation to buy or sell the underlying asset, depending upon if it is a call or a put at a set price on or before an agreed date.
Options give the buyer the right, but not the obligation, to buy or sell an underlying asset at a specific price. For example, if you expect the price of a currency to rise over the next few weeks, you can buy a call option which gives you the right to buy on or before an agreed date. The price you pay to buy the option is called the ‘premium’. The more the market value increases, the more profit you can make.
However, you don’t need to exercise your right if it stays below your strike price, you can let it expire. In this case, all you have lost is simply the premium you paid.
What is margin?
In order to write or sell options, an investor must deposit cash or securities in their account which is known as margin to enjoy the upside or the downside of buying options.To be more specific, margin is often measured as a percentage of the total value of the open position.
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Other options terminology
Expiration date
Strike price
The Greeks
Advantages of options
- Limited risk but limited profit potential: An investor can make more profit if the market value increases. However, there is no need to exercise the right if it stays below the strike price, one can just let it expire.
- Flexible investment choices: Option is one of the most flexible investment choices, which can be used to apply a bullish, bearish or neutral strategy to generate income, or for hedging or speculation.
- Low capital requirements: Investors can take a position with very low capital requirements. For example, an investor can do a lot in the options market with US$1,000 although the choices will be very limited in the stock market with just US$1,000.
Risks of options trading
- Subject to expiration and strike price: An option is subject to an expiration and strike price. Option holders can only exercise the right within these limitations.
- Lower liquidity: Many individual stock options have little volume. Since option holders have options trading at different strike prices and expirations, the option that you are trading will be very low unless it is a popular one.
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What are call and put options?
Call options
A call option gives the investor the right to purchase an asset at a strike price until expiration. Essentially, those who buy call option contracts bets that the asset's price will rise. The more the price rises, the more valuable the option contract will be.
For example, one XYZ 120 call option gives the owner the right to buy 100 XYZ shares for $120 each (strike price) despite the market price of the shares until expiration. Appreciation above $120 represents the potential payout.
Put options
A put option gives the owner the right to sell an asset at a strike price until expiration. Essentially, those who buy put option contracts bets that the asset's price will fall. The more the asset's price falls, the more valuable the option will be.
For example, you bet that shares of XYZ company will drop below $100 per share and by purchasing a put option, you have the right to sell 100 shares at $100 per share. If the XYZ company's stock drops to $90 then you could exercise the option and make profit.

Options strategies
Trading options | When to use | How it works | Risk | Profit | Premium |
---|---|---|---|---|---|
Trading optionsBuy a call option | When to useMarket price rises rapidly | How it worksThe more the price rises, the more profitable it will be | RiskLost all premium | ProfitUnlimited | PremiumN/A |
Trading optionsSell a call option | When to useMarket price drops slightly | How it worksThe more the price falls, the more profitable it will be | RiskUnlimited | ProfitPremiums | PremiumAvailable |
Trading optionsBuy a put option | When to useMarket price drops rapidly | How it worksThe more the price falls, the more profitable it will be | RiskLost all premium | ProfitUnlimited | PremiumN/A |
Trading optionsSell a put option | When to useMarket price rises slightly | How it worksThe more the price rises, the more profitable it will be | RiskUnlimited | ProfitPremiums | PremiumAvailable |
Call and put options - buying and selling guide
Buy a call option
Sell a call option
Buy a put option
Sell a put option

Factors that determine option pricing
Current price
Expiration
Volatility
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Types of Options
Currency
Stock
Index
Commodities
How to trade options?
Through brokerages
Contract for difference (CFD)

FAQ
What option trading strategies are effective?
- If market price rises rapidly, you can consider buying a call option. Conversely, it’s wise to buy a put option. If the market price rises slightly, you can consider selling a put option. Conversely, it’s wise to sell a call option.
What is the risk of trading options?
- If you buy an option, all that you can end up losing is your premium if the price doesn’t go your way. However, the loss is unlimited if you are a seller.
What does expiration mean?
- It refers to the time at which an option holder can no longer exercise the right to trade an option.