Stock Trading Education

TradeKing Options

You’d qualify as a Rookie Options Trader in our book if you’re a beginner. You’ve placed just a handful of options trades over the course of your career, if any at all. You may not feel confident that you know how to research option ideas or trades. Rookies may have heard about implied volatility, but you may not really understand it (or perhaps you don’t realize how important, in fact crucial, it is). You’re probably aware that news can affect trade outcomes, but you may not feel proficient at turning the news into potentially successful trade opportunities. You may not fully understand how an option trade becomes profitable, or how to respond if you’re experiencing an unrealized gain or loss.

As a Rookie Options Trader, here are the basics you should master:

• The difference between in-the-money and out-of-the-money options
• The difference between intrinsic value vs. time value
• How implied volatility affects option pricing
• The difference between historical and implied volatility
• How and why option prices lose value as expiration approaches
• How and why to exit an option trade prior to expiration

Rookie Option Traders can improve their skills by:

• Reviewing option strategies geared to the Rookie skill level
• Learning how to use TradeKing’s Options Pricing Calculator
• Learning how to use TradeKing’s Probability Calculator
• When ready and after you understand the risks, buying deep in-the-money calls sparingly if using long options as a substitute for owning stock
• Checking the news regularly for your underlying symbol before making option trades and while option positions are open
• Staying on the sidelines within one week of any important news event, such as an earnings announcement from the company
• Finding potential option trades with TradeKing’s Options Scanner from iVolatility.com
• Anticipating and planning for all possible outcomes for your investments, not just the positive scenarios
• Inquiring members of the Trader Network to explain their trading analysis
• Attending or watching TradeKing’s free educational webinars, geared to the Rookie skill level

Rookie Option Traders should steer clear of the following:

• Do not buy out-of-the-money options, especially in high quantities
• Resist the urge to buy low-priced options because they “seem cheap”
• Do not hold positions in options within one week of the underlying company’s earnings announcement, or other planned news event
• Resist the temptation to hold positions through expiration week
• Do not trade strategies labeled for more advanced traders
• Do not short naked options – this could expose you to unlimited risk