Discover how to trade options in a speculative market.
Learn the basics and explore potential new opportunities on how to trade options.
The options market provides a wide array of choices for the trader. Like many derivatives, options also give you plenty of leverage, allowing you to speculate with less capital. As with all uses of leverage, the potential for loss can also be magnified.
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Explore the information and resources below to learn how to trade options. If you have questions along the way, contact a specialist for help.
Understanding the Basics.
A long option is a contract that gives the buyer the right to buy or sell the underlying security or commodity at a specific date and price. There is no obligation to buy or sell in the contract, but simply the right to “exercise” the contract, if the buyer decides to do so. An option that gives you the right to buy is called a “call,” whereas a contract that gives you the right to sell is called a "put." Conversely, a short option is a contract that obligates the seller to either buy or sell the underlying security at a specific price, through a specific date. When the buyer of a long option exercises the contract, the seller of a short option is "assigned", and is obligated to act.
To make this clearer, let’s use a real world analogy… Let’s say you’re shopping for an antique grandfather clock and find the perfect one at the right price: $3,000. But you won’t have the cash for another three months. You talk to the owner and he agrees to sell it at that price in three months with a specific expiration date, but you have to pay $100 for him to agree to the contract. After three months, you have the money and buy the clock at that price.
But maybe it’s discovered that the clock was owned by Theodore Roosevelt, which makes it worth $10,000. You have the right to exercise your option and buy it for $3,000, netting you a profit of $6,900 (minus transaction costs). On the other hand, let’s say it’s discovered that’s it’s not an antique at all, but a knock-off worth only $500. You’re under no obligation to exercise your option and buy it at $3,000, so you can opt not to buy it at all and simply let the contract expire. Although you’re still out the $100, at least you’re not stuck with a clock worth a fraction of what you paid for it. From the option seller's perspective, in the first scenario he gets the $100, but is later forced to sell the clock at less than true market value. In the second scenario, he keeps the clock, and the $100 you paid in premium.
If you understand this concept as it applies to securities and commodities, you can see how advantageous it might be to trade options. For a relatively small amount of capital, you can enter into options contracts that give you the right to buy or sell investments at a set price at a future date, no matter what the price of the underlying security is today.
Trading Options.
Some things to consider before trading options:
Leverage : Control a large investment with a relatively small amount of money. This allows for strong potential returns, but you should be aware that it can also result in significant losses.
Flexibility: Options allow you to speculate in the market in a variety of ways, and use a number of creative strategies. There are a wide variety of option contracts available to trade for many underlying securities, such as stocks, indexes, and even futures contracts.
Hedging: If you have an existing position in a commodity or stock, you can use option contracts to lock in unrealized gains or minimize a loss with less initial capital.
Setting Up an Account.
You can trade and invest in options at TD Ameritrade with several account types. You will also need to apply for, and be approved for, margin and option privileges in your account.
Choosing a Trading Platform.
With a TD Ameritrade account, you’ll have access to options trading on our web platform, as well as on our two more comprehensive platforms: Trade Architect, and thinkorswim. Trade Architect is ideal for those traders first starting with options. It features fundamental tools, such as P&L charts, option strategy chain filters, and other tools that can give you ideas and the ability to test your strategy.
The thinkorswim platform is for more advanced options traders. It features elite tools and lets you monitor the options market, plan your strategy, and implement it in one convenient, easy-to-use, integrated place. Also, if you plan on participating in complex options trades that feature three or four “legs,” or sides of a trade, thinkorswim may be right for you.
In addition, TD Ameritrade has mobile trading technology, allowing you to not only monitor and manage your options, but trade contracts right from your smartphone, mobile device, or iPad.
Developing a Trading Strategy.
Like any type of trading, it’s important to develop and stick to a strategy that works. Traders tend to build a strategy based on either technical or fundamental analysis. Technical analysis is focused on statistics generated by market activity, such as past prices, volume, and many other variables. Charting and other similar technologies are used. Fundamental analysis focuses on measuring an investment’s value based on economic, financial, and Federal Reserve data. Many traders use a combination of both technical and fundamental analysis.
Whether you use technical or fundamental analysis, or a hybrid of both, there are three core variables that drive options pricing to keep in mind as you develop a strategy:
Price of the underlying security or commodity.
Time to expiration.
Implied volatility based on market influences and future outlook.
With both Trade Architect and thinkorswim, you’ll have tools to help you analyze these variables and more. You’ll also find plenty of third-party fundamental research and commentary, as well as many idea generation tools. You can even “paper trade” and practice your strategy without risking capital. In addition, you can explore a variety of tools to help you formulate an options trading strategy that works for you. You can also contact a TD Ameritrade Options Specialist anytime via chat, by phone 866-839-1100 or by 24/7.
Building Your Skills.
Whether you’re new to investing, or an experienced trader exploring options, the skills you need to profit from options trading should be continually developed. You’ll find Trade Architect, is a great way to start. For veteran traders, thinkorswim, has a nearly endless amount of features and capabilities that will help build your knowledge and options trading skills.
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See what sets us apart from the rest with our top 6 reasons to choose TD Ameritrade .
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Trade commission-free for 60 days plus get up to $600* Offer Details.
#1 for Long-Term Investing.
Market volatility, volume and system availability may delay account access and trade executions.
Educational resources are provided for general information purposes only and should not be considered an individualized recommendation or advice.
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.
Past performance of a security or strategy does not guarantee future results or success.
TD Ameritrade, Inc., member FINRA / SIPC. This is not an offer or solicitation in any jurisdiction where we are not authorized to do business. TD Ameritrade is a trademark jointly owned by TD Ameritrade IP Company, Inc. and The Toronto-Dominion Bank. © 2017 TD Ameritrade.

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Market volatility, volume and system availability may delay account access and trade executions.

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Value – TD Ameritrade does not charge platform or subscription fees to access our forex trading platforms. Commission and financing charges still apply.
thinkorswim – Professional-level tools and technology heighten your forex trading experience. Access every major currency market, plus equities, options, and futures all on one platform.
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Execute your forex trading strategy using the advanced thinkorswim trading platform. Plus, with paperMoney ® , you can use real market data to test your theories and strategies without risking a dime.
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If you’re a serious forex trader, you want serious technology that’s going to keep up with you day and night. With thinkorswim you get a completely integrated platform that features everything you need to perform technical analysis, gain insight, generate new ideas, and stay on top of the international monetary scene.
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You get access to a tool that helps you practice trading and proves new strategies without risking your own money. TD Ameritrade’s paperMoney is a realistic way to experiment with advanced order types and test new ideas. Sharpen and refine your skills with paperMoney.
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thinkonDemand is an innovative tool that lets you test your forex trading skills and mettle against a variety of possible scenarios and market conditions based on an enormous historical database.*
What Your Financial Services Firm Should Be.
See what sets us apart from the rest with our top 6 reasons to choose TD Ameritrade .
See How We Stack Up.
Compare TD Ameritrade to other leading financial services firms.
Best for Long-Term Investing.
For five years in a row, we ranked #1 for Long-Term Investing in Barron's 2017 Online Broker Survey.
Check the background of TD Ameritrade on FINRA's BrokerCheck.
Trade commission-free for 60 days plus get up to $600* Offer Details.
#1 for Long-Term Investing.
Diversification does not eliminate the risk of experiencing investment losses.
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TDAmeritrade Introduces Currency Trading Because Investors Are Bored Out Of Their Wits Trading Stocks.
Here's your real story of the day.
On top of its existing options platform, TD Ameritrade is introducing forex and futures trading for its retail clients (they'll bbe able to trade these things from the company's ThinkOrSwim platform).
The reason is that investors are bored out of their minds trading stocks. Stocks are now totally correlated with each other, and the only action is at the macro level.
Seriously, when you have the yen trading like a biotech stock waiting for FDA approval, THAT's where at home investors are going to want to be.
So is the TD Ameritrade news indicative of peak-macro? Does this mean, in a contrarian way, that stock-picking is about to come back?
Seems doubtful. As long as more and more of the economy is under the grip of the government, then it's the government-level where the action is going to be, and that means trading currencies, or if you do trade stocks, trading them in relation to currencies.