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The Beginner’s Guide to Trading Options in 2022

The Beginner’s Guide to Trading Options in 2022

Last updated on October 1st, 2022 at 10:23 am

Are you new to the world of trading options, or do you feel like it’s too complicated for you? This blog post is here to help. We’ll discuss what an option is, how they work, and why they’re so important in today’s market. 

Even if you have no idea where to start with playing the stock or securities market, this article will teach you everything that you need to know about trading options!

What are the Options?

Options are a contract between two parties – one party is the buyer and the other is the seller. If you’re buying, it means that you have some sort of investment in mind. 

The writer of this option contracts holds no obligation to buy or sell anything unless certain conditions are met by both you and them (the person who sold you the option). 

So what do you get for buying an option?

When you buy an option, you have the right but not the obligation to purchase or sell a security at a set price within a certain time frame. 

For example, let’s say that Company A is trading at $50 (KES5K) per share and you think that it will go up in the next month. 

You can buy an option on Company A for $500 (KES50K), which gives you the right to purchase 100 shares at $55 (KES5500) each within 30 days of buying or selling it.

If everything goes according to plan and Company A does go up in value, then you will make a profit between what you paid for your options contract – let’s say $500 – and the price at which you exercised your option, let’s say $5500. 

This would give you a total profit of $5000 (KES500K)! 

On the other hand, if Company A drops in value and is only trading at $40 per share when it comes time to exercise your option, then you would only be able to buy 100 shares for $4000 instead of the original 100 shares for $5500. 

In this case, you would lose money on the deal because you bought the option for more than what Company A was actually worth at the time.

This is why options are such an important investment tool – they allow investors to speculate on future movements in stock prices while controlling risk by limiting how much they’re willing to lose if the stock price falls.

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Plus, they offer a variety of bonuses and promotions that make trading even more profitable.

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How do Options Trading Work?

Now that you understand what an option is, let’s take a look at how they work. 

When you buy an option, you’re essentially buying the right to purchase or sell a security at a set price within a certain time frame. 

The person who sells you this option is called the “writer” and they hold no obligation to actually sell or buy anything unless both parties agree. 

If everything goes according to plan, then when it comes time for you to exercise your option (meaning that you want to purchase or sell the security at the set price) the writer will have already sold or bought the security for you at the agreed-upon price. 

However, if the security has moved in a different direction than you predicted then the writer can either sell or buy the security at whatever price it is currently trading at. 

This gives you some protection against losing money on your investment, but remember that you still have to pay the premium (or price) for buying the option in the first place.

Why is Trading Options so Important?

Options are one of the most important tools that investors have when it comes to trading stocks. 

They allow investors to speculate on future movements in stock prices while controlling risk by limiting how much they’re willing to lose if the stock price falls. 

They’re also a great way for beginner traders to get started because they don’t require as much capital as buying shares of stock.

How To Start Trading Options

a).  Decide what you want to invest in – this could be a particular company or stock, or you could choose to invest in indexes or ETFs

b). Choose the type of option that best suits your investment goals 

c). Find a reputable options broker who can help you get started trading options. There are many different brokers to choose from, so make sure to do your research before choosing one.

d). Learn the basics – there are many great resources out there that can teach you about options trading. Once you have a basic understanding of how they work, you’ll be ready to start trading!

Now that you understand what an option is and how it works, let’s take a look at the different types of options that are available to you.

The two basic categories of options are calls and puts. 

What is a call option?

A call option is an option contract that gives its buyer the right to purchase a security at a certain price within a designated time frame. 

If you buy a call, it means you have some sort of investment in mind and are expecting the value of this investment to increase over time. 

The person who sold you this option contract holds no obligation to actually sell or buy anything unless both parties agree. 

What is a put option?

A put options contract gives its owner the right but not the obligation to sell securities at set prices within defined timelines. 

Put options give owners protection against unfavorable changes in stock prices because they have already obligated themselves to selling their stocks for pre-defined prices if needed. 

Owners will be forced out of these contracts if the security’s market price falls below the set price they agreed to.

What is Binary Options Trading?

Binary Options are a type of option where the trader takes either a yes or no position on whether an underlying asset will increase/decrease in value at some point in the future. 

Types of Binary Option Trades:

a). High/Low 

This is by far one of the most popular binary options traders choose to trade because of its simplicity. 

These trades are marketed as having a high probability of winning because the trader is simply expecting whether or not an asset’s price will increase by some point in time.

b). 60 Second

This option gives traders just one minute to predict whether or not they believe that an underlying security/asset will either increase or decrease in value before the option expires. 

If they are correct, then their trade is considered a winner and will result in them receiving an award equal to the percentage of profit that was predicted at the time of opening the option (traders can usually predict how much they want to win).

c). Long Term

Traders are given a certain amount of time to predict how much an underlying security/asset will change in price before the option expires. 

This type of trade has longer odds, but is limited risk because it won’t cost any more than what was set at the beginning of the contract (if you buy a call option for $50 and that stock doesn’t end up going above that price, then you won’t lose any money).

d). Short Term 

This type of option usually has a much shorter timeline in which traders have to predict whether or not an asset will increase/decrease in value before the contract expires. 

These options are generally risky because they allow for unlimited losses if the trader is incorrect.

These are just a few of the different types of options that traders can choose to trade; there are many more available!

Best Online Trading platforms for Options

Choosing an online broker is a very important decision and there are many different factors to consider. Make sure to do your research before signing up with any broker. 

You’ll want to find one that offers the platforms and tools you need to trade options successfully.

Here are some of the best online brokers for trading options: 

1). Scottrade

Scottrade is a great broker for beginners because they offer a wide range of educational resources and support. 

They also have a user-friendly platform that makes trading options easy.

2). Olymp Trade

Olymp Trade is a newer online broker that has been gaining popularity among beginner traders. 

They have many different types of options available to trade, but they are best suited for more advanced investors with an extensive understanding of how options work.

GET FREE $10,000 TO YOUR DEMO ACCOUNT

Olymp Trade offers you the unique opportunity to make money online fast and easy. With their platform, you can trade in stocks, currency pairs, commodities, and indices.

Plus, they offer a variety of bonuses and promotions that make trading even more profitable.

✅ Trade with $1
✅ Earn up to 90% profits
✅ Easy deposits
✅ Fast withdrawals

3). Expert Option

Expert Option is a broker that specializes in binary options trading. 

They offer a wide variety of options to trade and have a user-friendly platform that is perfect for beginners.

4). IQ Option

IQ Option is a binary options broker that also offers traditional stock and ETF trading. They have an excellent mobile platform, which makes it easy to trade on the go. 

5). Binomo

Binomo is a rapidly growing and popular broker that specializes in binary options. They offer many different types of options to trade, including high/low and 60 second trades.

There are many different types of options available to traders, each with their own unique benefits and risks. It’s important to understand the basics of how they work before you start trading them. 

With a little practice, you’ll be able to start trading options like a pro!

Most beginners make the mistake of trading on emotion instead of sticking with what they know and using tested strategies for success. 

While it’s important not to ignore your gut feeling, you should also be willing to do your own research and learn as much about the market, trading strategies, your broker/platform, etc. before you start investing real money into binary options.

Avoiding Binary Scams

There are many scams out there that most traders fall prey to when they’re first starting out in this industry; stick with brokers that have a proven track record and are regulated by a reputable organization. 

Binary options trading can be a great way to make money, but it’s important to understand the risks before you start trading. 

By educating yourself on the basics of how binary options work, you’ll be able to minimize those risks and start making successful trades!

GET FREE $10,000 TO YOUR DEMO ACCOUNT

Olymp Trade offers you the unique opportunity to make money online fast and easy. With their platform, you can trade in stocks, currency pairs, commodities, and indices.

Plus, they offer a variety of bonuses and promotions that make trading even more profitable.

✅ Trade with $1
✅ Earn up to 90% profits
✅ Easy deposits
✅ Fast withdrawals

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Kevin Freelancer
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I'm Kevin and I'm excited to share everything I've learned about making money online through blogging and content creation. I'm an affiliate marketer, so I know a thing or two about how to make a profit. Check out my blog for tips, tricks, and tutorials on how to make money online!

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