Beginner’s Guide To Options Trading


Given that the Singaporean stock exchange doesn’t offer options, it is little wonder that options trading is not as famous as Forex trading or stock trading.

However, as the options marketing is available for the highly volatile US stock market, those who know about options trading have been capitalizing on the wild swings to make loads of money for themselves.

What exactly are options and what are the advantages of trading them?

Allow us to shed some light on this lesser known financial instrument that makes tons of money for those who know how to use it…

What Is Options Trading?

Actually, most of us have actually experienced options trading at one point of your lives or another.

For those of you had purchased a BTO flat before, do you remember paying $2,000 for an agreement to buy your flat unit when you were at HDB?

That’s actually an option!

You basically paid $2,000 to purchase the option to buy your house at the later date. And that makes you an options trader! (Well, sort of…)

While options are commonly associated with houses, did you know that you can buy and sell options for stocks as well?

Why Do People Like To Trade Options?

Little Money Required – This is the reason why options are the perfect instrument for first time investors.

People who are starting out often do not have much capital to begin with. Asking them to invest via traditional methods would require a lot of upfront capital and that would immediately put them off.

Trading options would give them a chance to invest, even if they do not have as much capital as the big players.

Generate Regular Cash Flows – Trading options allows you to collect a regular stream of cash flow.

Unlike dividends where you have to wait for each quarter’s results before dividend can be paid out, trading options can give you a monthly or even weekly cash flow!

Ability to Profit Regardless Of Market Direction – Unlike stocks, options can be traded on the way up and on the way down.

That means you have twice the number of opportunities to profit! Even if the market is crashing or experiencing a recession, you still can make money via options.

You do not have to worry about markets crashing ever again!

How Do You Get Started Trading Options?

First, you need to open an account with an options broker. Most people usually trade options on the American stock market as options trading is not available on the Singapore Exchange.

Some of the commonly used brokers to trade options are thinkorswim, Options Xpress and Interactive Brokers.

While thinkorswim and Options Xpress both have an office here in Singapore, Interactive Brokers makes it up by being the cheapest broker by a huge margin.

Once you’ve funded your account, you’re all ready to trade options!

Bonus: How You Can Increase Your Options Returns!

Options trading, like any other form of trading requires a sort of discipline. It is easy to make money, but keeping it is the hard part!

Professional traders achieve more trading success by creating a trading system that works for them. All they need to do is to follow their system strictly to make money and avoid losses.

While it’s not possible for beginners to create their own trading system, the street smart amateur would be able to leverage on the expertise of others. They can still profit by copying the proven systems of successful traders.

Alternatively, you can find a trading mentor that will guide you through the process.

A mentor can help to shorten your learning curve and also provide more personal and immediately help. This is probably the better option for traders who are just starting out.

Find A Options Mentor

Image Credits: tckpublishing.com

Why do you prefer to trade options?

Share with us in the comments below!

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