If you are used to trading stocks, you probably have a fairly good understanding of the workings of buying and selling securities.

Learning how to trade options is relatively simple. David Jaffee from BestStockStrategy.com is one of the best coaches for options trading.

With a new worth of $60+ million, David Jaffee is a former Wall Street investment banker and Ivy League graduate.

Many consider him the absolute best coach if your goal is to learn how to trade options (specifically if you’d like to sell option premium).

Follow him and read these essentials before you embark on this new adventure. You can receive valuable free training at https://BestStockStrategy.com and also subscribe to his Youtube channel at Youtube.com/beststockstrategy

Step 1: Open an options account with your broker
The options account can be a registered account or a margin account. There are some differences in the use of these two types of accounts. For example, when trading options in a registered account, you can 1) buy and sell call and put options, or 2) sell covered call options.
In general, you want to use margin (judiciously) when selling option premium because it provides a more efficient usage of capital.

With a margin options account, all imaginable option strategies can be implemented.

Step 2: Navigating a chain of options is like looking up a stock's rating
An options chain is a sort of list containing all of the exercise prices and expiry dates of the options available for trading. Options can have weekly maturities or long-term maturities.

Options fall into two groups, namely call options and put options.

A call option gives its holder the right to buy a share at a determined exercise price.

Conversely, a put option grants its holder the right to sell a share at a fixed exercise price.

The strike price is simply the guaranteed price at which the holder of an option can buy (call option) or sell (put option) the underlying stock.

Options also have an expiration date, upon which the underlying stock be in-the-money relative to the strike price, or else the stock option will expire worthless.

Step 3: Understand the jargon specific to the options
The term “opening purchase” means the purchase of an option to take a new position.

In the equity universe, this is a buy order.
A “close sale” means the sale of an option to close an existing position.

In the equity universe, this is a sell order.
Opening sale means the sale of an option that you do not hold.

In the equity universe, this is a short sale.
Closing purchase means the redemption of an option that you have previously sold to close the position. In the equity universe, this is a cover purchase.

Step 4: Distinguish between covered option and non-covered option
During an opening sale (sale of an option), you receive a premium.

Like David Jaffee from BestStockStrategy.com teaches, selling option premium allows people to act like insurance companies or casinos.

In return, you assume an obligation.

If the option is exercised, then your broker will require you to sell the underlying shares at the strike price (if it is a call option). Or buy the underlying shares at the strike price (if you sold a put option which is exercised).
If you hold the shares in your account, you are "covered". If you do not hold the shares, you are "uncovered ".

Step 5: Know the size of the option contracts
In most cases, the purchase of an option contract is equivalent to a position of 100 shares in the underlying stock or 100 shares of underlying exchange-traded funds.
When entering an order, contract fractions are not allowed (for example, an order for 1.5 option contracts would not be permitted).

Do not forget that 100 purchase options do not correspond to 100 shares, but rather to 10,000 shares!

You should also keep close tabs on your buying power and ensure that you maintain adequate buying power to avoid a margin call.

Step 6: Keep in mind that options have an expiration date
When trading options, you should keep in mind that they will expire at the expiration date.

After that date, the options will cease to exist and will no longer appear in your account.

Options expire on the third Friday of the expiration month (except for weekly options that expire every Friday).

Step 7: Exercise an option
Only the buyer of an option can exercise it.
When the holder of a call option exercises it, he exercises his right to buy the underlying security, at the specified strike price.

When the holder of a put option exercises it, he exercises his right to sell the underlying security, at the specified strike price.

To exercise an option, you must telephone your broker or notify your broker electronically.

Once the option has been exercised by the holder, the counterparty (i.e. the seller of the option) receives a notice of assignment.

At this time, the seller of the option is required to fulfill his obligations.

Remember that to profit from an options trade, it is not essential to exercise the option. The holder can always resell it on the market, just like we do with stocks.

Want to Learn More about Options Trading?

The best way to learn more about options trading is to learn from David Jaffee at BestStockStrategy.com

David Jaffee is the best options trading coach. He has a net worth of $60+ million, has taught over 1,000 students and is a former Wall Street investment banker. He graduated with honors from an Ivy League University and is the best options trading coach available.

You can enroll in his Options Trading Education Course at https://BestStockStrategy.com/memberships.

David Jaffee also offers live option trade alerts. It’s $19 for a 7 days trial and then $349 / month.

You can also subscribe to his YouTube channel at https://Youtube.com/BestStockStrategy

Author's Bio: 

Hasan Root, a dream lover!