Getting Started With Options 

Many beginning option traders never actually trade options. They suffer from inertia and don`t take the time and effort to get started.  

One way to start is to "play it on paper." But this can be quite different than actually trading options. Having real money on the table changes the entire game.  

The best way to gain experience is to start trading on a very small scale until you gain some skills and confidence. If you buy low-priced options you don`t have to put a lot of money at risk to begin trading. 

You Must Open an Options Account with a Broker 

In order to trade you must open an options account with a broker. 

Make sure to use a discount broker. Internet trading can provide you with great discount options commissions.  

You won`t survive the options game if you don`t get a discount.  If you use a full service broker ask for a big discount on commissions. 

While we do not recommend the services of any specific broker, the following brokers have worked successfully with option traders for years. 

They are: Benjamin & Jerold. Call 800-446-5112, international investors call 312-554-0202. This brokerage is an options specialist that also allows options trading in IRAs -- very rare. They also will hold your stop losses -- a very valuable service. Ask for Jerry Kopf. 

Charles Schwab, 800-435-4000, international traders call 510-465-8800. This is one of the biggest discount firms in the U.S. Schwab does not have the lowest rates but the company is easy to work with and has little or no minimum account requirements. 

Call one or more of the above brokers. Feel free to ask questions, ask about account minimums, costs and the like. 

Making Money with Options 

The beginning trader should always have both call options and put options in his portfolio. 

In the short-term the stock market is a "random walk." 

No one knows what it will do from one day to the next, from one week to the next, or even one month to the next.  To make short-term option profits you must play both sides, especially in light of the increased volatility the market has today compared to just a few years ago.  

You should also buy low-priced call options or put options as recommended in our newsletter, Option Tactics. They can turn into a profit almost overnight. 

But just as important, this volatility makes it doubly important to take profits when you have them. 

How to Take Profits and Cut Losses 

When we say "take profits" in Option Tactics  we mean to sell half of your position. For example, if you bought four option contracts, sell two of them. 

Our target prices are always set for at least 100% gains, so anytime you sell half your position you will be taking your original investment off the table.  

Then let the rest ride for possible future gains. 

You are taking this "ride" on the market’s money, and this is the money with which you should be swinging for the fences and the shangri-la of option buyers — potential home runs. 

But just as important, you have to protect your profits when you have them. If an option on which you are "riding" begins to lose value, immediately close the position and take the rest of your profits. 

The easiest way to monitor this is with the underlying stock price.  

Our rule is that if the stock reverses direction by 5%, close the rest of your position. 

How to Profit in a Falling Market 

No matter what the current market conditions are it is always a good idea to be ready for a sudden pullback.  

In this day and age a long and drawn-out bear market is unlikely to happen. Computer-driven trading and push-button money transfers will make a bear market happen almost overnight. In this scenario most investors will be unable to get their money out in time. 

So it pays to have some "portfolio insurance" to guard against a market collapse.  Options can be used for this. And even if the market itself doesn`t collapse individual stocks do almost every day. 

You can also use options to profit from these short-term moves. In both cases you are using the same strategy.  The strategy is to buy put options. 

A put pays off when the price of a stock declines. Buying a put option is as easy as buying a call option.  

Questions & Answers

Question: How many positions should I take? 

Answer: This answer depends on your own financial situation.

Obviously, the more funds you have available, the more you can devote to buying options. 

As a rule of thumb no more than 10% of your total funds should be used for buying options. 

Take that 10% and divide it over a one year period, and that`s how much you can invest monthly. 

Question: I’m not certain how to get started.

Answer: Proceed in this order...   

1) Read and study our detailed reports right here.   

2) If you decide to subscribe to our newsletter, review our recommendations. You should be certain you know how to implement our recommendations.  

3) If you do not already have an options account you must open one. You may do that with your existing broker or open a new account. Use a discount broker such as the ones we`ve listed above. Every broker has different requirements for opening an account.    

4) If you are a new options trader you will need to build up some experience. Depending on your personality you may want to use this training time to "paper trade" where you only follow the recommendations and do not actually invest any money. Or you may prefer to invest a small amount of money to get started. Use this "training" time to build up experience before you actually invest money. 

Our recommendations in Option Tactics give you all the information you need to place your order. All you have to do is decide how many option contracts you want to trade and then read the information to your broker. 

Unless you’re an experienced options trader start trading slowly. 

The 10 Basic Rules of Options Trading 

1) Be patient. Decide how much you`re willing to risk in options during the next twelve months don't invest everything right away. 

2) Diversify. Don`t put all your eggs in one basket. Take at least two or three positions. Spread your purchases over one year. 

3) Minimize your risk. Pay as little as possible for each option. And always be ready to cut your losses. 

4) Plan before you play. If you do not have a game plan it will be more difficult to profit. Ultimate Option Strategies lays out a game plan for you.

 5) Don`t be greedy. The downfall of 90% of all options investors is greed. 

6) Maximize your leverage. Try to find options that will increase in value by at least 200%. Buying cheap options is the first step in this strategy. 

7) Buy options on high volatility stocks. You have a limited amount of time to work with, your best plays are on volatile stocks like those recommended by Ultimate Option Strategies. 

8) In general, buy out-of-the-money options. These options normally have lower prices, and less risk. 

9) Buy undervalued options whenever possible. 

10) Be patient. Contrary to popular belief, buying speculative options is not a game that requires action everyday. Successful options buying requires patience and selectivity. It is the only way to win this game.

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If you are ready to trade options and want a game plan that has historically made money every year since 1983 -- look at Ultimate Option Strategies.