Options Basics: Getting Started With Options
Since there are so many available options - and so many ways to tradethem - you might not know where to begin. But getting started is easierthan you think, once you determine your goals.
Know What You Want...
Beforeyou begin trading options it's critical to have a clear idea of whatyou hope to accomplish. Options can play a variety of roles indifferent portfolios, and picking a goal narrows the field ofappropriate strategies you might choose.
For example, youmight decide you want more income from the stocks you own. Or maybe youhope to protect the value of your portfolio from a market downturn. Noone objective is better than another, just as no one options strategyis better than another - it depends on your goals.
And How to Get It
Onceyou've decided upon an objective, you can begin to examine optionsstrategies to find one or more that can help you reach that goal. Forexample, if you want more income from the stocks you own, you mightinvestigate strategies such as writing covered calls.
Or, if you'retrying to protect your stocks from a market downturn, you might thinkabout purchasing puts, or options on an index that tracks the type ofstocks in your portfolio.
More Than Just a Broker
Onceyou're ready to invest in options, you need to choose a brokerage firm.Your firm may offer helpful advice as well as execute your trades. Somefirms go further by working with clients to ensure that in both visibleand invisible ways, options trading fits into their individualfinancial plans.
They also advise clients about potential objectivesand strategies, and outline the risks and benefits of varioustransactions. Some options investors choose discount firms thatcharge lower commissions, but don't offer personalized advisingservices.
But others, including both inexperienced and veteraninvestors, prefer to consult their brokers before opening or closingout a position.
Continued In Part Two...
View The Options Industry Council's post archive >