Sunday, February 15, 2015

Options Trading Account - How Do I Open an Account For Trading Options?

The first step to opening up an options account is to open up a brokerage account. In case you already have a brokerage account, you can either call a representative from the firm or go online and get the account approved for trading options. If you dont have a brokerage account, you'll have to start by researching the different options available (no pun intended).

Our recommendation would be to look for the following - (1) Knowledgeable representatives with whom you can discuss basic and advanced options strategies (2) Online tutorials and articles about options trading (3) Most importantly you would want the options software or tools provided by this brokerage that provides you the best price possible while executing your trade. Also, if you get really serious about trading, you might also want the brokerage to provide tools to 'backtest' your strategies against historical data. In simple words, backtesting is applying your trading strategy to historical stock prices to determine the profitability of your ideas. This a good way to select your better trading ideas from the not so good ones.

Once you have selected the brokerage, you have to complete the options agreement before you start trading options. The purpose of this agreement is to determine your knowledge/experience trading options, your financial ability to deal with losses and how much risk you are willing to take. Depending on your experience, you will get approved for one of the following different levels of option trading:
Level 1: Selling Covered Calls
Level 2: Buying Calls And Puts
Level 3: Straddles, Spreads and The Strangle
Level 4: Selling Naked Puts And Calls
Level 5: Selling Naked Indexes
If you have never traded options before or have limited experience, you would be approved only for levels 1 and 2. This is because if you got involved in the more sophisticated trading strategies and lose your entire investment and then some. In this scenario your broker could be liable for the losses. After you have read and understood the agreement you have to sign and date it.
After signing off on the agreement, you will receive the brochure 'Characteristics and Risks of Standardized Options'. This is a very important document that you should read carefully. As the name suggests it highlights all the risks associated with trading options.
Now that you are familiar with opening a basic options trading account, are you ready for options trading examples? Visit to take your options trading knowledge to the next level.