Industry data shows options trading numbers are growing. But many stock traders remain hungry for options trading basics. Here’s how to get started.
Interest in listed stock options remains one of the fastest-growing trading segments, according to options industry data. But reports from the ground also tell us that growth among new users—as well as repeat volume and migration to increasingly complex and flexible options strategies—could improve, if only more stock traders knew where to start.
We often ask our readers what subjects you’re hungry for. Resoundingly, you want options coverage. And many of you want to start at the beginning. We’ve dug into our library of how-to articles, some aimed at the uninitiated, and others meant to help increasingly savvy traders build a toolbox of strategies. Keep this—the most basic of the basics—in mind: options strategies vary for a range of market conditions: bullish, bearish, neutral, high-volume, low-volume, you name it. Understanding that is a great place to start.
There’s only so much about the markets you can learn from books, right? At some point you should jump in. Experiment. Struggle. Learn. Tinker. And, ultimately, grow more confident if adding options to your investing mix is right for you. Here, part one of a four-part series that's linkable from the bottom of the introductory article. Options Lab Part 1: Why Options? Why Not?
It’s true: Options trading involves more risk, and more complex risk, than trading stocks. But what’s also true is that a lack of discipline, skimpy risk management, and spiking emotions often get in the way. Options Aren’t Dangerous, People Are: Debunking Four Myths
The covered call is one of the most straightforward and widely used options-based strategies for investors aiming to diversify portfolios and enhance returns. Options: Got Ya Covered
If you’re following option markets, you’ve likely heard chatter on the “greeks”— delta, gamma, theta, vega, and rho. But, do you know how options traders use them? Decode the Greeks: Ancient Alphabet Helps You Trade Options
With so many optionable stocks available, you can spend hours trying to find the right match for your investing objectives. In fact, too much window shopping may make it hard to take the plunge. How to Sniff Out the Options Opportunity Under Your Nose
Many option traders consider short-term premium collection strategies, otherwise known as “selling” strategies, as their bread-and-butter trades. But there are low-volatility “buying” strategies that may offer limited risk of loss if the trade doesn’t work out—and the possibility of a nice payoff if it does. Embrace the Quiet: Consider Low-Volatility Option Trades
During chaotic markets, the madness of the crowd can represent seeds of opportunity. But to take advantage, options traders must distance themselves from the noise. Option Strategies to Help Protect Your Portfolio
Many options traders are drawn to leverage. Some start by buying options outright and are immediately frustrated by theta (time decay). A deeper look at a long vertical spread maybe one way to explore a directional trade that includes options. Leveraging a Stock Hunch with Options? Think Vertical
Using the right strategy at the right time goes a long way toward upping your options cred. One-off events like major economic reports aren’t always a straightforward trade, but one options approach is aimed to create a degree of protection for stock holdings from unexpected swings. Short-Sighted on Purpose: Options to Hedge Jobs Report
Visit the Ticker Tape Options page for our latest articles. This includes a weekly check-in on what options may reveal about broad-market volatility changes.
Demand is There, Says Industry
An options industry study conducted this year found that
options users are passionate, active investors who are more likely to increase
their trading of options than their trading of stocks or bonds over the next
year. The online Harris Poll of 964 investors, conducted on behalf of the Options
Industry Council (OIC), also found that a lack of understanding of this
market’s mechanics or overall strategy knowledge is the major stumbling block
preventing non-users from trading options now.
Consider this growth. “Total trading volume of listed
options in 1995 was 1.1 million contracts—an amount that is surpassed within
the first half hour of trading today, where the average daily volume exceeds 16
million contracts,” says the OIC’s Scot Warren.
Options trading volume in 2014 was up 4% over 2013, marking
the second best volume year in history and the fourth consecutive year options
volume passed 4 billion contracts, according to OIC data.
And remember the August market slide—a China-induced, high-volume
stock retreat that has since recovered? In August 2015, two top-ten
trading volume days were recorded. Options trading volume reached 39.4
million contracts on August 21 and 32 million contracts on August 24, marking
the third and ninth highest volume days in the Options Clearing Corp.’s (OCC)
According to the OIC study (OIC is the education arm of the
OCC), 85% of listed options users consider themselves to be extremely
knowledgeable investors compared to 66% of non-users.
Editor's note: This article first ran in December 2015.
For starters, platforms to match skill levels, interactive support, and no platform fees or trading minimums (commissions, service and exception fees still apply).
for thinkMoney ®
Financial Communications Society 2016
for Ticker Tape
Content Marketing Awards 2016
Content intended for educational/informational purposes only. Not investment advice, or a recommendation of any security, strategy, or account type.
Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade. Clients must consider all relevant risk factors, including their own personal financial situations, before trading.
Market volatility, volume, and system availability may delay account access and trade executions.
Past performance of a security or strategy does not guarantee future results or success.
Options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. Options trading subject to TD Ameritrade review and approval. Please read Characteristics and Risks of Standardized Options before investing in options.
Supporting documentation for any claims, comparisons, statistics, or other technical data will be supplied upon request.
This is not an offer or solicitation in any jurisdiction where we are not authorized to do business or where such offer or solicitation would be contrary to the local laws and regulations of that jurisdiction, including, but not limited to persons residing in Australia, Canada, Hong Kong, Japan, Saudi Arabia, Singapore, UK, and the countries of the European Union.
TD Ameritrade, Inc., member FINRA/SIPC, a subsidiary of The Charles Schwab Corporation. TD Ameritrade is a trademark jointly owned by TD Ameritrade IP Company, Inc. and The Toronto-Dominion Bank. © 2022 Charles Schwab & Co. Inc. All rights reserved.