Learning different strategies for trading stock options online is really not that difficult. The difficulty comes in the fact that for each trading strategies you are presented with many choices of what to do. Stock market traders really have only three decisions to concern themselves with. Stock traders can either, buy, hold, or sell. However, when you trade stock options the choices are endless. Perhaps this is why they call them options.

Selling covered calls is one of the strategies to be considered. While it may not be necessarily easy to learn the options strategy of selling covered calls, especially in the beginning, is widely considered a conservative option strategy. Generally selling covered calls is used to generate income or cash flow, which makes it very popular among both professionals and individual investors. Some options traders consider selling covered calls a bit boring. However, I have never spoken with anybody who thinks it is boring to make money.

What does it mean to sell covered calls? When you sell a call on the stock that you own, it is known as a covered call. The word covered means that your position is protected because you own shares of the stock you are selling. Essentially when you sell a covered call, you are selling the buyer the right to buy your stock. So that when you sell a covered call, you must own the stock. You have sold the rights to sell the stock to the buyer and the buyer now controls the rights to the stock until the expiration date. The main reason you sell covered calls and give up your right to sell the stock is that you want to make money. You will receive compensation from the buyer known as the premium. That is why you sell covered calls to begin with.

The reasons for selling covered calls and the advantages they have are twofold. You can use the options to bring in income or increase cash flow or you can use the options is a way to sell a stock that you own. Other advantages include that you receive a premium but still own the stock. That means if the stock goes up in price you receive capital gains. You can also use a covered call strategy to sell stock you are thinking of selling anyway. There are always buyers who will gladly give you their money.

Selling covered calls can be likened to buying a house and rented it out. The difference is you’re not renting your house you are renting your stocks. There are also certain tax advantages to selling covered calls. Make sure to contact your tax advisor to see if you qualify. Be sure to check other information on trading options online and choosing profitable covered calls.

Finding a profitable call option takes a measure of skill understanding and knowledge of how options are priced. Let’s get into some basic explanations and definitions. Who knows you may be ready to buy call options very soon.

As we have stated and as we will repeat an option contract gives the owner the right to buy the underlying stock or security at a specified price, its strike price for a fixed period of time. In other words until its expiration. You have the right, but are not required, to buy the stock at a price listed in your options contract. Remember you have the right but are not under any obligation to do so. For this right you pay a premium to the seller for the rights to controlling the stock. You are in control of the stock when you buy call options.

Obviously buying calls is a strategy that is used by traders to increase income. Generally when you buy a call option it means you are bullish on the market, the index, or the underlying stock. You are hopeful that a particular stock or security will rise in value quickly so that you can take your profits and move on in the shortest amount of time.

How do you make money when you buy calls? There are essentially a number of ways this works when you buy call options. First you can buy the call with the plan to eventually buy the underlying stock, this is called exercising your option. You can also, after buying the call sell the option for profit. Most traders have no interest in buying the stock and look to profit from selling their options. Obviously selling their options at higher price than what they pay. And finally if the stock does not work out you can allow the option to expire worthless or perhaps sell the option for a minimal loss.

There are a number of advantages to buying calls. One of the most attractive advantages of buying calls is the low-cost. A stock valued at $25 a share may not be affordable for everyone, but a call contract is only one dollar. You get to participate in the movement of the stock without having to purchase it outright. Buying call options also allows investors to be involved with pricier shares of stock. A $300 stock is very expensive, even if you only buy 100 shares. Options allow you to participate in the stock for a fraction of that cost.

Call options give you the advantage of leverage, and that may be the most significant advantage call options have for individual investors. Because of the smaller investments in particular issues, there is less risk because you are investing less. If buying call options sounds too good to be true, remember it still takes skill to develop a trading strategy and execute the strategy on a day-to-day basis. Call options also allow individual investors to diversify a portfolio that they may otherwise not be able to accomplish. Call options can be an inexpensive method of adding to your position without disrupting your diversification principles.

We will stress again and again the necessity of educating yourself before you begin trading options online. If it was easy everyone would be doing it with success. It is not easy, however, it is easier with knowledge. Paper trading with options should be a first order of your education process. Once you establish a strategy for choosing options and underlying stocks you can trade real money. However, until then, unless you just have more money than you know what to do with, try paper trading options first.

The expiration date is listed on every options contract. Essentially all options contracts ceased trading on the third Friday of each month at 4 PM Eastern standard Time which is when the market closes. Traditionally this is known in trading circles and on television as options expiration day. On the third Friday of each quarter thousands of options contract expire simultaneously. This is referred to as triple or quadruple witching day. The market has a tendency to be very volatile on these days.

Unlike stocks, which exist indefinitely, unless a company goes out of business or merges with another, every options contract as an expiration date, sometimes it occurs in a month, sometimes longer. Because of the expiration date options can be more of a risk than stocks. The pressure of the clock ticking makes them riskier in and of itself. The upside is, that since you know in advance that the option will expire, you will have that time to make your profits. The more time left on option contract the more valuable the contract.

We will expand on the types of options, however, there are essentially two types of stock options. They are a call and they put in with these types of options you can only take two actions by or sell. Do not be misled by the various names and fancy sounding trading strategies for trading options. Remember there are two types and you will be either buying or selling calls or puts. Especially for a beginning options trader, keeping the terminology basic and a trading strategy elementary will help you to succeed and trading options online.

Your brokerage firm generally handles all your options trades, so you must begin with a brokerage account. After your brokerage account is open you are now ready to open at auctions account. You can fill out most of the forms online and this will be the first step trading options online. Most brokerage accounts have a required minimum to open the account. This amount will vary from firm to firm however you can expect a minimum of $2500.

In days gone by you had  to rely on a stockbroker to make an options trade. However, because you can now trade options online you can make your own trades. The commissions on such trades are dramatically lower than they were in the past because of this. While you may consider the expense of commissions when choosing an online firm, you also want to deal with knowledgeable representatives who may be able to offer guidance and discuss basic and advanced options trading strategies. You will want a firm that offers various software and analytical tools that can route your trades quickly to the best bid and ask price. In short, you will want to find a brokerage firm that offers the most for your money in the way of tools and resources.

If you plan to borrow money from your broker to purchase stocks or in this case options, you are buying on margin and need to open your margin account. If you decide to open a margin account at your brokerage firm, you will have to fill out a margin agreement for your brokerage account which is similar to making credit application. Since you are in effect borrowing money a brokerage firm or run a credit check and will require you to fill out a questionnaire. The questionnaire will largely consist of your ability and financial resources to handle the margin. If your credit is good you should have no trouble getting the application approved.

Margin is similar to a credit card and margin gets many people in trouble. You do not have to use margin to trade options online, and it would probably be best not to buy stocks on margin. However you can.

Setting up an account for trading options online will also require you to sign in options agreement in order to trade options the purpose of the agreement is that the brokerage firm wants to determine how much knowledge and experience you have. They will want to know that you fully understand the risk of trading options and if you have the financial ability to take care of any losses. It will answer questions about your net worth, your bank, your employer, your experience and knowledge with trading stocks and options, and how much risk you’re willing to take. If you have never traded options before you will likely only be approved for basic options trading.

It’s likely you will be allowed to sell covered calls and by calls and puts. You are beginning a relationship with your brokerage firm and the firm will be very cautious with you especially if you are a beginner to trading options. Make sure you read the agreement thoroughly and understand it completely before signing. While that may seem like basic information for some reason options agreements are seldom read or understood.