How to Get Started with Options
Aug 23, 2010,

How to Get Started with Options

It's much more educational and fun to learn something useful about options education or how to use options to make some money.

However, before doing that you must have a brokerage account with permission to trade options.  It may seem strange to need permission to invest your own money, but options are not for everyone and most brokers take the precautionary step of determining whether you meet certain minimum requirements.

First choose a stockbroker.  Your current broker is probably the best place to get started.  If you discover that they charge very high fees for trading options, then it's going to be necessary to shift your account elsewhere.  There is no reason to give half your profits to a broker.  It's next to impossible to succeed when commissions are high.

Next there is an application to submit.  You should be able to access that application online, but some brokers may require a signature in person, or at least via snail mail.  They ask some questions concerning your trading/investing experience etc., and should approve you for Level I trading.  That severely limits strategies you can use, but it is sufficient or most new option traders.

It's worthwhile to ask what you must do to get clearance for higher levels.

Each broker sets a minimum account balance, but because you are members of an investment club. that minimum is not going to be any problem.  the number is often in the $2,000 range.

You will be asked to read an educational pamphlet: Characteristics and Risks of Standardized Options.  It pays to take a look at this pamphlet.  It does have some useful information.

Once your broker grans permission and you place some cash into the account, you are able to trade options.  But please understand that you are probably not ready - and require some education.  Don't ignore that crucial factor.

Mark D Wolfinger

Expiring Monthly: The Option Traders Journal