Understanding Digital Options Trading with ease

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How to Trade Options

Melissa Brock
Contributor, Benzinga

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What are Options?

An option is a contract to buy or sell a stock, usually 100 shares of the stock per contract, at a pre-negotiated price (also called the “strike price”) and by a certain date (also called the “exercise date”). Read on to learn how to trade options.

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Elements in Options Trades

You must decide, in an options trade, the following:

  • Which direction is the stock going to move?
  • How high or low will the stock price move from its current price?
  • How will the stock move during a particular time frame?

Types of Options Trades

There are two types of options you can buy or sell: call option and a put option.

Call option

This option allows the buyer to buy the contract at the specified price on or before the expiry date and is exercised by the buyer when the market goes above the strike price. Within the call option, there are two possibilities:

  • Buy call: The buyer will buy the contract as it would yield maximum profits and limited loss, which is equivalent to the premium paid to the seller initially.
  • Sell call: It is the obligation of the seller to sell when the buyer exercises his/her call option.

Put option

The buyer can sell the contract at the specified price when the market price moves below the strike price. Within the put option, there are a couple of possibilities:

  • Buy put: The buyer has the right to sell the contract when he/she thinks the prices will fall. He/she can sell the contract at his/her own will.
  • Sell put: The seller has the obligation to buy the contract. The seller enters in such a contract anticipating earnings.
Options

Understand the Risks of Options Trading

Options can be purchased speculatively or as a hedge against losses. Speculative purchases allow for the potential to make a lot of money, but only if traders can correctly predict the magnitude, timing and direction of the underlying securities’ price movement. Doing this incorrectly can result in large losses and high trade commissions. Novice traders, beware.

Options Trading Terminology

If you’re a new options trader, you’ll quickly realize there are lots of new, potentially bewildering terms. These terms also include some already covered (it’s important to review!):

  • Holder: A trader who has bought an option.
  • Writer: A trader who has sold an option.
  • Strike price: The price at which the asset will be bought or sold.
  • Expiration date: The already-agreed upon date by which the option owner must exercise his right to buy or sell the underlying security. After this date, the option expires.
  • In the money: The market price of the asset is higher than the strike price (in the case of a call) or lower than the strike price (in the case of a put).
  • Out of the money: The market price of the asset is lower than the strike price (in the case of a call) or higher than the strike (in the case of a put).

Choose a Broker

Low commissions are just the tip of the iceberg when it comes to choosing the best broker for options. Traders need to consider hidden fees, such as platform fees and data fees. Different traders have different skill levels, trading strategies and needs.

Options trading can be complicated, and beginners need to make sure to find a platform with plenty of educational resources and guidance. Advanced traders need to look for professional-grade features and research. Check out some of our favorite online stock brokers below.

eOption
Commissions
Account Min
Commissions
Account Min
1 Minute Review

eOption is a stock, fund and option trading platform that focuses on low-cost options trading. Its options trading is very affordable at just $0.10 per contract and $1.99 per transaction. The broker also offers a comprehensive options trading course that’s free and educational for both novice investors and advanced traders alike. eOption’s platform is less usable than its competitors, especially for new traders.

Futures and forex trades aren’t currently available, daily market updates are full of jargon and the platform includes very few intuitive features and explainers. Customer service options are also lackluster, and mutual fund transactions are expensive. While eOption might be a great choice for options traders, we recommend other platforms for beginner traders primarily interested in stock and ETF investing.

Best For
  • Options traders looking for low-cost options contracts
  • Beginner and advanced traders looking for options education
  • Advanced traders who don’t need a lot of platform guidance
  • Unbeatable options contracts pricing
  • Mobile app that mirrors capabilities of desktop app
  • Free and comprehensive options education
  • Confusing platform has limited assistance tools
  • Expensive mutual funds and bond trading
  • Limited stock and general investing education
  • Lackluster customer service options
eTrade
Commissions
Account Min
Commissions
Account Min
1 Minute Review

E*TRADE is an online discount trading house that offers brokerage and banking services to individuals and businesses. One of the first brokers to embrace online trading, E*TRADE not only survived both the dot-com bubble and Recession — it thrived. You can choose from two different platforms (one basic, one advanced). E*TRADE is a suitable broker for traders of most skill levels, whether you want to buy mutual funds and hold them for decades or dabble in options swing trading. E*TRADE offers a library of research and education materials to help you out.

Best For
  • Active traders
  • Derivatives traders
  • Retirement savers
  • Sophisticated trading platforms
  • Wide range of tradable assets
  • Exceptional customer service
  • Limited currency trading
  • Higher margin rates than competitors
  • No paper trading on its standard platform
TD Ameritrade
Commissions
Account Min
Commissions
Account Min
1 Minute Review

This publicly listed discount broker, which is in existence for over four decades, is service-intensive, offering intuitive and powerful investment tools. Especially, with equity investing, a flat fee is charged, with the firm claiming that it charges no trade minimum, no data fees, and no platform fees. Though it is pricier than many other discount brokers, what tilts the scales in its favor is its well-rounded service offerings and the quality and value it offers its clients.

Best For
  • Novice investors
  • Retirement savers
  • Day traders
  • World-class trading platforms
  • Detailed research reports and Education Center
  • Assets ranging from stocks and ETFs to derivatives like futures and options
  • Thinkorswim can be overwhelming to inexperienced traders
  • Derivatives trading more costly than some competitors
  • Expensive margin rates
TradeStation
Commissions
Account Min
Commissions
Account Min
1 Minute Review

TradeStation is for advanced traders who need a comprehensive platform. The brokerage offers an impressive range of investable assets as frequent and professional traders appreciate its wide range of analysis tools. TradeStation’s app is also equally effective, offering full platform capabilities.

Best For
  • Advanced traders
  • Options and futures traders
  • Active stock traders
  • Comprehensive trading platform and professional-grade tools
  • Wide range of tradable securities
  • Fully-operational mobile app
  • Confusing pricing structure to leave new traders with a weak understanding of what they pay
  • Cluttered layout to make navigating TradeStation’s platform more difficult than it should be
Robinhood
Commissions
Account Min
Commissions
Account Min
1 Minute Review

Robinhood is the broker for traders who want a simple, easy-to-understand layout without all the bells and whistles other brokers offer. Though its trading options and account types are limited, even an absolute beginner can quickly master Robinhood’s intuitive and streamlined platform. On the other hand, more advanced traders might be frustrated by Robinhood’s lack of technical analysis tools, a feature that’s now nearly universal across other platforms.

Best For
  • Beginner traders
  • Mobile traders
  • Streamlined, easy-to-understand interface
  • Mobile app with full capabilities
  • Can buy and sell cryptocurrency
  • Almost no trading analysis tools available
  • Only taxable brokerage accounts available
  • No option to open a retirement account
  • No access to mutual funds, forex or futures trading
  • Limited customer service
Firstrade
Commissions
Account Min
Commissions
Account Min
1 Minute Review

Easy-to-use and quick to master, Firstrade offers new and veteran traders alike a simple way to start investing with rock-bottom pricing. Firstrade’s platform is simple and streamlined, and it extends this convenience to its mobile app. The company’s $0 commissions on stocks, ETFs, mutual funds and even options make Firstrade especially appealing for frequent traders. Firstrade also offers margin trading, though rates are a bit more expensive than some competitors. Firstrade also currently doesn’t offer access to futures or forex trading, and some more advanced traders may dislike the broker’s simple platform.

Best For
  • New traders looking for a simple platform layout
  • Native Chinese speakers seeking research and education tools in Chinese
  • Mobile traders who needs a secure and well-designed app
  • Simple platform easy enough for even complete novices
  • Quick Bar tool for easy trading throughout the day
  • Free access to Morningstar trading reports and other news in both English and Chinese
  • Secure mobile app with enhanced security and trading features
  • Simple brokerage platform doesn’t include as many charting tools as competitors
  • No access to futures or forex markets
Interactive Brokers
Commissions
Account Min
Commissions
Account Min
1 Minute Review

Interactive Brokers (IBKR) is a comprehensive trading platform that gives you access to a massive range of securities at affordable prices. With access to over 125 global markets, you can buy assets from all around the world from the comfort of your home or office. Options, futures, forex and fund trading are also available — and most traders won’t pay a commission on any purchase or sale. IBKR is geared primarily toward experienced investors. The platform offers limited assistance and can be a challenge for new users to become acclimated to. The broker’s tiered pricing strategy can also be frustrating for traders who focus on hourly or daily price movements.

Best For
  • Access to foreign markets
  • Comprehensive mobile app that makes trading simple
  • Wide range of available account types and tradable assets
  • Comprehensive, quick desktop platform
  • Mobile app mirrors full capabilities of desktop version
  • Access to massive range of tradable assets
  • Frustrating and confusing tiered pricing
  • Bloated website that makes finding information a challenge

Before choosing the right broker , each trader needs to consider his or her trading style and which features are most important in maximizing profitability. In addition, be sure to avoid scam trading sites and platforms.

Getting approval from your broker

Brokerage houses will have to give you permission to trade options; they set limits based on how much money and experience you have before they’ll allow you to trade.

Paper Trading for Options

Paper trading is an important step for anyone serious about making a profit in the options market. It’s a way for beginning traders to perfect a trading plan before trading with real money.

That said, paper trading cannot be approached lightly! It’s possible for new options traders to not take fake money seriously, so they experiment in ways they might not with real money. Therefore, it’s possible for two things to happen:

  • They win irresponsibly, believe the market is easy, throw in real money and lose it all.
  • They lose irresponsibly, believe the market is a scam, and never try again.

It’s important to treat paper trading as if it’s real money, but some traders argue that paper trading can never replace the emotions you’ll experience when you’re using your own money.

Advanced Trading Options

Once you’re familiar with the ins and outs of limit orders and execution prices, you’ll likely be ready for advanced trading options. In addition, you’ll be experienced enough to know to reevaluate your strategy periodically, learn from your mistakes and also, your successes. There are other, more advanced trading strategies you can look into, including:

  • Straddle options: These provide equal profit potential on either side of an underlying price movement.
  • Strip options: These are a market neutral bearish strategy and it provides double the profit potential on downward price movement compared to equivalent upward price move.
  • The Greeks: Metrics, including delta, gamma, theta and vega, that advanced options traders use. These are only a few advanced terms; there are so many more that encapsulate all there is to the complex world of trading options.

Learn More About Options Trading

More complex than trading stocks, it’s necessary to educate yourself. Take classes, pay attention to forums and blogs, watch tutorial videos and download books on trading.

Track the news and know what’s going on in the world economy, and finally, talk to a real trader and ask him/her for guidance.

Seek a mentor through your brokerage firm for guidance if you’re a beginner options trader. It’ll be instrumental to your success as a trader, as there is lots of misinformation online. Many brokers have thorough education on options education. It’s complicated, so you shouldn’t go it alone. For more information and further education, visit the official website of the Options Clearing Corporation , or OCC.

If you want to take a deeper dive into options trading and strategy, we always recommend reading a great options book or taking a class from the pros – like Market Rebellion’s professional trading courses.

Digital Options By IQ Option: A New Binary Trading App That Changes The Way Options Are Traded

Digital Options By IQ Option: A New Binary Trading App That Changes The Way Options Are Traded

If you are into binary options trading, you probably know that there are tons of apps that just exist – and don’t get the job done effectively. The traditional, old and outdated features are something that needs a radical revolution. Or, something that binary option broker named IQ option has foreseen on time.

The result is here – a new tool named Digital Options that is ready to present traders with a new set of opportunities. Completely new, radically changing the concept of trading and with an array of flexible instruments, the app makes binary options trading smoother than ever before.

Wondering what’s inside this app in terms of features? Well…

Digital Options: The Set Of Features That Makes Binary Options Trading Easier

Whether you are new to the concept of binary options trading or have been trading for years, the first feature you should know is the flexibility and easiness of using Digital Options. The app has undergone a lot of phases in testing, where the manufacturer (IQ Option) considered all the possible opportunities, wishes and propositions from all the traders who found binary options trading to be a pain with all the present apps at that time.

That is how IQ Option was developed – as an app that is very simple to use, straightforward and flexible.

Basically, the fixed profitability of each transaction is gone in this new app, and the need to expect the results in accordance with their expiration time is also a feature that IQ Option decided to remove. Instead, Digital Options presents the market with a set of new features including:

  • Advanced trading options for any asset
  • Various profit level settings and independent risk
  • An array of extra features for more trading flexibility

Digital Options implement higher payments than binary options – up to 900%. This makes it potentially 5 to 6 times more than with standard binary options. The maximum loss amount remains the same though: in case of unsuccessful trade, the amount invested in the option is lost. When it comes to risks, they can be managed more efficiently thanks to different strike prices with different payouts and risks calculations.

On top of that, the strike-price level can now be moved up or down (increased or reduced). Hence, every trader has the opportunity to sell and buy their digital options in real time and lock-in profits – even if the price goes down! Still, the amount of the sale will be as further as the strike depending when the option was sold.

To sum the features up, Digital Options introduces us to a completely new way of trading and allow us to select our preferred ratio of risk and profit. This is the perfect app that allows maximum flexibility for all binary options traders.

Don’t Know How To Trade Digital Options? Relax…

There are tons of people who are new to the concept of digital options trading. In order to explain this process to you, you should only know that there are five main lines that appear on the screen every time you order. This is what is known as a ‘strike’ in the trading terminology – a level the asset has to reachor exceed during its expiration period.

Here, every level has its own profitability and risks calculations and it is up to the trader to make a move taking into consideration these data. So, all you need to do to trade digital options is to know which asset to select and which command to sell (call or put), therefore deciding whether you will buy or sell the option.

Traders know that binary options needed a change – and now have Digital Options, a new way of trading. This helps everyone estimate risks at first sight and know how much to trade with.

The Bottom Line

It is safe to say that Digital Options by IQ Option is an app that completely changes the game of binary options trading – and takes it to a whole new level.

Even if you do not pick it up well from the start, there is a 24/7 support team to answer all of your questions (in 14 languages) and a base of over 15 million traders and investors who are always ready to trade and see growth.

The app itself has already received a lot of awards and certifications of excellence, such as the ‘Best Mobile Platform’ and the ‘Best Platform For Binary Options’ awards.

So, are you joining in the new world of trading as we know it?

RISK WARNING: The financial services provided by IQ Option carry a high level of risk and can result in the loss of all your funds. You should not invest money that you cannot afford to lose.

Digital Options By IQ Option: A New Binary Trading App That Changes The Way Options Are Traded added by S. Jack Heffernan Ph.D on September 7, 2020
View all posts by S. Jack Heffernan Ph.D →

Understanding Option Trading

An option provides the owner the right to buy or sell an asset at a pre-determined price before or on a certain date. Options are basically of two types – Calls and Puts. A call provides the right to the owner to buy an asset while a put provides the right to the owner to sell an asset. Trading options can be very profitable for the owners. However, it is important to gain a proper knowledge and an understanding of options trading terms.

This infographic has been designed to make it easier for you to understand option trading.

Edited December 16, 2020 by Kim

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