When you are first learn how to trade options it is incredibly important that you don’t lose your shirt.  Or your coat or hat or car either.  While working to trade options is certainly no beginner’s task, there’s a new things that you can do to ensure that you have some time to learn the business.  As with anything there is a learning curve, and unfortunately if you don’t get this one quickly you can lose a lot of money.

First you need to make a spread.  Basically a spread is where you purchase calls and puts.  So if the market is consistently moving in one way then purchasing only calls or puts (depending on how the market is swinging) is a great way to make money.  If you are unsure which direction the market will turn next but you still feel it will make a jump one way or the other, a spread might be a good idea.  You also don’t have to spread your money evenly between the two.  How you spread your money is entirely up to you so go with your gut feeling.  If you just feel that the market is headed one way but aren’t totally sure, put more money in that area and spread it out on the other side just in case.  For example, if you feel there’s a better chance of the options going up then purchase more calls than puts.  But even it out so that you don’t lose everything.

When you learn to trade options try to buy options that don’t expire right away.  Many people can work out which way a stock will go with just a little practice, but it is almost impossible to know when it will move that way.  Even the most experience traders would have difficulty in predicting that one.  So when you buy options that don’t expire very quickly, you will have time to observe how your stock is moving.  If it suddenly makes a big jump then make a move on your options then.  If it doesn’t move for a while then you’ve wisely given yourself time to wait for the big jump.  Unless a stock has a habit of moving very rapidly then try to get an extended option or it won’t be worth your money.

When you are learning anything its important to study the subject as a whole, this is true when you learn to trade options.  It would be unwise to research only the stocks that you are interested in buying options in.  It is imperative that you research the market as a whole.  Many factors influence what happens in the stock market every day from earnings, policies, and unemployment.   So even if your stock is doing fantastic something could happen to the market in general which creates a dramatic shift before the end of the day.  Make sure that you have researched everything with the market before making your move.

Also important with how to trade options successfully is tracking your earnings and losses.  So you should create a spreadsheet.  Make a chart of which of your options were successful and which were not.  Indicate which of these were puts and which were calls.  While you learn to trade options this is an important tool to let you track your successes.  This will let you see the areas you are a strong trader and the areas that you need to work on a bit more.  This way you can learn from your mistakes and avoid making them again.  Of course you will never have a 100% success rate; that is virtually impossible.  But you can make a decent living with practice and persistence.