With a put option , the buyer acquires the right to sell the underlying asset in the future at the predetermined price. There are some advantages to trading options. The following are basic option strategies for beginners.
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This is the preferred strategy for traders who:. Options are leveraged instruments, i. A standard option contract on a stock controls shares of the underlying security. Because the option contract controls shares, the trader is effectively making a deal on shares. Potential profit is unlimited, as the option payoff will increase along with the underlying asset price until expiration, and there is theoretically no limit to how high it can go.
A put option works the exact opposite way a call option does, with the put option gaining value as the price of the underlying decreases. While short-selling also allows a trader to profit from falling prices, the risk with a short position is unlimited, as there is theoretically no limit on how high a price can rise. With a put option, if the underlying rises past the option's strike price, the option will simply expire worthlessly.
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The maximum profit from the position is capped since the underlying price cannot drop below zero, but as with a long call option, the put option leverages the trader's return. This is the preferred position for traders who:. A covered call strategy involves buying shares of the underlying asset and selling a call option against those shares. When the trader sells the call, he or she collects the option's premium, thus lowering the cost basis on the shares and providing some downside protection.
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In return, by selling the option, the trader is agreeing to sell shares of the underlying at the option's strike price, thereby capping the trader's upside potential. In exchange for this risk, a covered call strategy provides limited downside protection in the form of premium received when selling the call option. A protective put is a long put, like the strategy we discussed above; however, the goal, as the name implies, is downside protection versus attempting to profit from a downside move.
If a trader owns shares that he or she is bullish on in the long run but wants to protect against a decline in the short run, they may purchase a protective put. If the price of the underlying increases and is above the put's strike price at maturity , the option expires worthless and the trader loses the premium but still has the benefit of the increased underlying price.
Hence, the position can effectively be thought of as an insurance strategy. The trader can set the strike price below the current price to reduce premium payment at the expense of decreasing downside protection. This can be thought of as deductible insurance. The following put options are available:. The table shows that the cost of protection increases with the level thereof.
If, however, the price of the underlying drops, the loss in capital will be offset by an increase in the option's price and is limited to the difference between the initial stock price and strike price plus the premium paid for the option. These strategies may be a little more complex than simply buying calls or puts, but they are designed to help you better manage the risk of options trading:. Options offer alternative strategies for investors to profit from trading underlying securities.
Are multiple brokerage accounts supported? Yes, we support multiple brokerage integrations under the same account. Have multiple sub-accounts IRA plus a regular Margin account at the same brokerage?
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You can also connect to each sub-account so long as you have a single login for all accounts at that brokerage. How much will it cost when the platform goes public? We have not finalized our public pricing yet. However, a few different pricing tiers will be available to make auto-trading accessible to as many people as possible. Do I have to know how to code or learn to code? You can backtest, build, and clone trading strategies all without code. In fact, you never need to code anything on our platform.
We've spent a long time building this platform to make it available to everyone, not just those who know code. Will there be a library of bot templates to use? Yes, there will be a library of public bot templates you can use to start with. And since everything was built to be interconnected, as more people continue to build bots they can choose to share them publicly so that others can clone and re-use new templates and strategies. Can I autotrade stocks and options? Yes, both stocks and options are available to autotrade. Are futures, futures options, or forex supported yet?
Currently most brokerage APIs do not support these markets. Should this change in the future no pun intended we open up additional products for trading through Option Alpha. However, this is not on our roadmap currently until brokerage APIs expand to support the functionality required. Can non-US traders use the new autotrading platform? Non-US traders can take full advantage through on of our supported brokerage partner integrations.
How does Option Alpha make money? We generate revenue through recurring subscriptions to our platform and one-time sales for non-software products like our research. Do you charge commissions or get kickbacks for trades? We charge zero commissions and receive zero kickbacks for trades from our broker partners. Our incentives are only aligned with providing the best possible experience using the Option Alpha platform, not with how many times you trade.
What if my broker isn't supported yet? If there is broker you want supported, the best thing you can do is help us push them to integrate. Our goal is to support as many brokers as possible. Anything you can do to help push them along from you end helps us move faster. Is paper trading available as well?
We built our own paper trading engine so you can choose to paper trade or live trade any bot in your account. We will allow everyone to build bots for free when we launch publicly.
How to Trade Options for Beginners
We believe that you should have as much time as you need to build and customize your bots. Whenever you're ready to turn them on and start autotrading either paper or live with real money you'll need to upgrade to one of our paid plans. Does the platform run on live data feeds? Option Alpha connects to live market data feeds.
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Can I filter trading opportunities before entering new trades? We will have the ability to filter trading opportunities before entering them. This is just a small sample, but as you can see, there's a lot of flexibility in what you can do. How often are automations run during the day?