How To Trade Options: Free Guide 2024

How To Trade Options: Free Guide 2023

Options trading is an attractive form of investing that appeals to many traders due to its potential for high returns and the possibility of greater control than other types of investing. It allows investors to speculate on price movements in underlying assets without actually owning them, thus offering the advantage of limited risk compared with buying the asset outright.

To be successful when trading, it is important to understand how money options work and develop a strategy for predicting whether the price of an underlying asset will rise or fall at a predetermined point in time. This guide will provide you with an overview of all aspects related to stock options trading, including definitions, terminology, strategies for success, and useful resources for further learning. 

Additionally, it is important to understand the risks associated with options trading and to approach this type of investing with caution as there is always the potential for losses. With a thorough understanding of it and its many facets, however, traders can capitalize on price movements in underlying assets and enjoy potentially significant returns.

What is Options Trading?

Options trading is a type of financial derivative that involves buying and selling contracts that give the holder the right, but not the obligation, to buy or sell an underlying asset at a predetermined price before a specified expiration date. Options contracts can be based on a variety of underlying assets, such as stocks, commodities, currencies, or indices.

Pros & Cons of Options Trading

Options involve risks and are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. 

But it can offer several benefits, such as providing investors with a way to hedge against risk, generate income through premiums, and potentially achieve high returns with a lower initial investment. However, there are also drawbacks to options trading, such as the potential for significant losses, the need for extensive knowledge and experience, and the complexity of options contracts.

How Does Options Trading Work?

Options trading is a type of financial derivative that involves buying and selling contracts that give the holder the right, but not the obligation, to buy or sell options of an underlying security at a predetermined stock’s price (strike price) before a specified expiration date. Traders can use options to speculate on the direction of an underlying asset’s price or to hedge against potential losses.

The price to purchase an option is called a premium, and it’s calculated based on the underlying security’s price and values. Intrinsic value and extrinsic value. Intrinsic value is the difference between an options contract’s strike price and the current price of the underlying security. The extrinsic value represents other factors outside of those considered in intrinsic value that affects the premium, like how long the option’s intrinsic value is good for.

Definition of Strike Price

The strike price is the price at which the holder of an options contract can buy or sell the underlying security. It is the predetermined stock price at which the option will be exercised if the holder chooses to do so.

A lower strike price has more intrinsic value for call options since the options contract lets you buy the stock at a lower price than what it’s trading for right now. If the stock’s price remains $100, your call options are in-the-money, and you can buy the stock at a discount. Conversely, a higher strike price has more intrinsic value for put options because the contract allows you to sell the stock at a higher price than where it’s trading currently. 

The Role of Strike Price in Options Trading

The strike price is a crucial element of trading because it determines the profit or loss potential of an options contract. The relationship between the strike price and the underlying asset’s market price at the time of expiration determines whether the option is in-the-money, out of the money, or at the money. If the stock falls slightly, goes sideways, or stock rises slightly, the options will expire worthless with no further obligation, he says. 

How Options Trading Works

Options trading involves buying and selling options contracts. Buyers of options contracts pay a premium for the right to buy or sell the underlying security at the predetermined strike price. Sellers of options contracts collect premiums in exchange for taking on the obligation to sell or buy the underlying asset classes at the strike price if the buyer chooses to exercise the option.

When that specified time ends and the option expires, it no longer has value and no longer exists. 

Different Types of Options Trading

How To Trade Options: Free Guide 2023

There are two main types of options trading: calls and puts. Call options give the holder the right to buy the underlying asset at the strike price, while put options give the holder the right to sell the underlying asset at a specific price.

Calls Options Trading

Call options trading allows traders to speculate on the upward price movement of the underlying asset. Basically, a call option is If the stock’s price of the underlying asset rises above the strike price, the trader can exercise the option and make a profit.

Puts Options Trading

Put options trading allows traders to speculate on the downward price movement of the underlying asset. If the price of the underlying asset falls below the strike price, the trader can exercise the option and make a profit. Should the long put option position expire worthless, the entire cost of the put option position would be lost.  If you sold an option, you can choose to buy the option back (to close the options position) or allow the option to expire worthless. 

With call and put options, you need the underlying asset’s price to rise or fall to break even, which is a dollar amount equal to the premium paid plus the strike price and you pay a premium to buy this option contract.

As an option buyer; a put option gives you the right, but not the obligation, to sell shares at a stated price before the contract expires. 

Differences Between Short-Term & Long-Term Options

Short-term options buyers have a shorter expiration date than long-term options. Short-term options can offer quick profits, but they are riskier and require more attention. Long-term options can provide more stable returns, but they require a longer investment horizon.

Differences Between American & European Options

American options can be exercised at any time before the expiration date, while European options can only be exercised on the expiration date. American options are typically more expensive than European options because of their greater flexibility.

How to Trade Options 2024: 5 Basic Steps

It’s best to have a pretty solid understanding of trading under your belt before you dive into options. Then you should outline what your investment objectives are, such as capital preservation, generating income, growth, or speculation. 

Choose a Reliable Options Trading Platform

Before you create a brokerage account. First, select a reputable brokerage services platform that offers options trading with low fees, user-friendly interfaces, and reliable customer support depending on your investment objectives. In addition, the U.S. Securities and Exchange Commission (SEC) requires that brokers approve customer accounts for stock trading only after you fill out an options trading agreement.

Pick Options to Buy/Sell Based on Stock Price

Choose options to buy or sell based on the current stock price on the stock market and the direction you expect it to move.

Predict the Strike Price of the Option

Determine the strike price of the option that will result in the most profit if the underlying stock moves in the desired direction.

Place Your Options Trade

Enter the order to buy or sell the option through your trading platform. Whether you use technical analysis or fundamental analysis, or a hybrid of both, remember that past performance is not indicative of future results. Price of the underlying security or commodity of the time to expiration Implied volatility based on market influences and future date outlook. 

Track Your Order

Monitor your options trade to track any changes in the underlying stock price and determine if it’s time to close the trade or adjust your stock position.

The Top 2 Options Trading Platforms

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Firstrade is a great option for those looking for a low-cost, user-friendly trading platform with access to research and educational resources. While it may not be the best fit for advanced traders or those looking for a mobile app, Firstrade’s affordability and ease of use make it a solid choice for many traders.

Firstrade is a great option for those looking to trade options, with its low commission fees and user-friendly trading platform. One of the standout features of Firstrade is its $0 commission fee for options trades, which makes it an affordable option for traders. Additionally, the platform is intuitive and easy to use, making it a great choice for beginners.

Another advantage of Firstrade is its access to research and educational resources. The platform offers a range of research tools, including analyst ratings and market news, to help traders make informed decisions. Firstrade also provides educational resources, such as articles and videos to help traders improve their knowledge and skills.


TradeStation is an excellent choice for experienced traders looking for advanced trading tools and features. The platform’s customization options and competitive pricing make it a standout in the industry, and its educational resources and tools are valuable assets for traders looking to improve their skills and knowledge.

TradeStation is a powerful trading platform that offers a wide range of tools and features designed to meet the needs of experienced traders. One of the platform’s standout features is its advanced trading tools, which allow traders to create and test their own options trading strategies.

TradeStation’s customizable charts and indicators make it easy for traders to track market trends and make informed trading decisions. The platform also offers advanced order types, such as conditional orders and order triggers, which can help traders execute options trades more efficiently.

TradeStation offers a range of educational resources and tools to help traders improve their skills and knowledge. These resources include webinars, articles, and video tutorials on a range of trading topics. Additionally, TradeStation’s community forum provides a space for traders to connect and share insights and strategies with each other.

Final Thoughts

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. 

However, options trading can be a useful tool for investors to hedge against substantial risk or speculate on the specified price movement of underlying assets. It’s important to have a solid understanding of the risks and rewards of options trading and to choose a reliable platform and strategy before getting started. Talk to your wealth management team for expert investment advice and remember that your investment decisions should be based on an evaluation of your own personal financial situation, needs, risk tolerance, and investment objectives.

Frequently Asked Questions (FAQs)

Is there an annual fee for Ohio LLCs?

Unlike most states, Ohio does not require LLCs to file annual reports. However, there are some annual fees associated with your Ohio LLC. These include annual registered agent fees and annual taxes among others.

Do LLCs pay taxes in Ohio?

LLCs themselves do not pay taxes in Ohio, only the members do. However, Ohio Commercial Activity Tax applies to most Ohio business entities including LLCs. The tax is based on gross receipts for your business and is calculated at a small series of marginal rates.

Do you need an LLC operating agreement in Ohio?

An LLC operating agreement is not mandatory in Ohio. However, you should still consider it an essential step to forming an LLC in Ohio. It highlights how your company is managed and each member’s ownership. 

Is Ohio a good state for an LLC?

Ohio is a good state to start an LLC that is likely to operate in the state for an extended period of time. It is one of the states that doesn’t require filing an annual report. In addition, their tax rate is friendly. 

What happens if I don’t use my LLC?

If you don’t use your LLC, you will be held liable for the debts and taxes of the LLC. You are expected to use your LLC and file a tax return as per the state requirement. 



Noah Edis
Noah Edis, BA
Business & Binary Advisor
Noah Edis is a writer and entrepreneur with a wealth of experience in online businesses and marketing. When he's not working on his latest project, you can find him playing competitive dodgeball or pursuing his personal interest in business process automation.


Kristina Knight-1
Kristina Knight, Journalist , BA
Content Writer & Editor
Kristina Knight is a freelance writer with more than 15 years of experience writing on varied topics. Kristina’s focus for the past 10 years has been the small business, online marketing, and banking sectors, however, she keeps things interesting by writing about her experiences as an adoptive mom, parenting, and education issues. Kristina’s work has appeared with, NBC News,, DisasterNewsNetwork, and many more publications.

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