How to Trade Options

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Video Transcript:

Hello, traders. Welcome to the Think or Swim Tutorial and the fourth module, Trading. In this lesson, we are going to learn how to place option trades from the Think or Swim platform.

Options trading on thinkorswim platform

To be able to place an option trade, you have to go to the Trade tab and then go to All Products. Right here, we are looking at Apple or the Apple stock. And if you click on the option chain arrow, the option chain will drop down. And here you can see the different options with the days till expiration, the option multiplier and, to the far right, the implied volatility. Now if you click on one of the options, you are going to be able to see on the left side the available call options and to right side the available put options.

Right here, you can see the different strike prices for every single option. And, as you can see, we have two callers on the call options side and two callers on the put option side. These denote the out of the money and in the money options. Remember that a call option is in the money when the price of the underline is above the strike price and the put options are out of the money when the underline price is higher than the strike price.

Trading Options on TOS

You can choose to look at different numbers of strike prices with this drop down menu right here. Right now, we are looking at chain strike prices but you can look at 14 or you can actually manually modify it. Now that we know this buying options is easy, we are going to look for an out of the money call option to buy. In order to buy this call option just click on the ask price of the strike price that you want. If you want to buy a put option, you click on the ask price of the strike price that you want. If you want to sell an option, it’s the same thing but you click on the bid price of the put option that you want to sell. And if you want sell a call option, you just click the bid price of it.

Now we are going to buy this 3:15 October 15 call option and when you right click on the ask price, you can see that the order entry tool appears on it. Now we are going to be buying 10 contracts or 10 options at the market price right now. So you just confirm. And right here, you can see that you have the order description in the order confirmation dialogue. You are going to buy 10 Apple on 10 weekly on a 117 strike price. The max profit is infinite. The max loss is $3,100 because $3,100 is the actual buying power that you need in order to place this trade. And then again, you have the resulting buying power of stock and options. And you just send it. And right now we have been filled and you can see that we now own 100 weeklies with a 117 strike price.

The Think or Swim platform also enables you to place complex options trades within the option chain. In order to do so, you just choose your strike price, right click on the ask price and then you can buy cost them. I’m sorry. You can buy a single option of vertical, a diagonal, a straddle, a butterfly, a condor, iron condor, etc.

Adam

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Adam is an experienced financial trader who writes about Forex trading, binary options, technical analysis and more.

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