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Learning Trade Options – Tips for First Time Traders

I know it can be difficult getting started with options trading since it involves planning, money management, right trading psychology, and lots of risk. However, option trading has its own benefits when compared to other investment verticals. Too often, traders jump into the game with very less or no understanding of options. Option trading gives you the flexibility to put money on specific market outcomes. It therefore is a quick way of making money, and an easier way to lose them too.

Basically option trading is a method of studying the game of stocks and betting your mind against the market. They were basically designed as risk-reducing investment tools, but have turned out more of a gambling strategy for many of them. Using it wisely is the trick or else option trading can be a very risky gamble for the inexperienced.

There are mainly two types of option contacts– ‘Call Option’ and the ‘Put Option’.

Call Options - It gives the option buyer the freedom to buy the underlying asset at the strike price within the specified period of time.

Put Options- A put option is the opposite of the call option. It gives the option buyer the freedom to trade/sell the underlying asset.

You might ask if it impossible to earn money with trading. Of course it is, but you need to take off slowly, understand the market first and then take bigger steps which may or may not earn you good fortune.

So here are 6 important tips to get started with options trading:

·         Understand stocks first to understand options– It is difficult to understand options trading unless you know how to trade stocks first. You need to analyze the market daily and understand it.You can’t be an instant winner in options trading without any stock trading experience.

·         Research, study and analyze–Study the market every day, it’s not as difficult as it sounds. Instead, you will be learning a lot of stuff. Try and grasp everything you can, along with the risks and rewards associated with it, before stepping in.

·         Quick way to earn money?- Don’t be under the impression that options will earn you 120% returns time and again. That won’t happen. It doesn't work this way. You need to understand that it could either lead you to benefits or make you suffer equally. Accepting this fact before entering the market would be a wise step.

·         Using option trading as gambling! – Options trading gives you the flexibility to round up your risks and rewards. Try not to consider them as gambling options.Study and analyze first, and then try making money out of it.

·         Sticking to basic principles - Don’t make it complicated. Using basic strategies, tried-and-tested money management principles and simple technical analysis tools will take care of your funds.

·         Staying alert helps– Try out new strategies and techniques before putting in your money. Options are risky; you can lose everything you deposited in a flash if you aren't paying attention. 

These tips were to give you a basic understanding of the subject. Using these basic steps will help you plan trading properly. Remember, this won’t make you an expert anyway. Of course, option trading can reap you maximum benefits inless time, but it can incur equal losses if you are not careful.


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Kotak Securities is one of India’s largest share broking firm offering share trading account, online trading, option trading, mutual fund and currency trading servicesalong with a research division specializing in Sectoral Research and Company Specific Equity Research. We also provide you with latest updates and news from Indian share bazaar
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