Options are a great trading instrument that can allow investors to get serious leverage on an investment. For example if you invest in stock that returns 5%, that same option could return up to 100-50% return instead. There not all fun and games, as an inexperienced options trader could see their hard-earned lost within a few trades. However, if successful research and training is undertaken there is no reason why you could not make a living from trading options.

Firstly to trade options successfully a full understanding of how the Stock market works would be your first priority. Understanding the process of purchasing stock, how to do it and when to sell it. Also an understanding of basic macro-economics’ would be an advantage. This would help you understand the highs and lows of a Business cycle as well as how for example, monetary policy works. There are hundreds of texts out there available from your local library that you should become familiar with.

Once your basic understand of the Economy is understood you should start to understand some basic terms of Options trading. There is a Dictionary available from the CBOE web site that has loads of terms available for free. Before you know it, you will know the difference between Put’s and Call’s and a rough idea of how they are derived.

After this an understanding of the various strategies that can be used in upward, downward and horizontal moving economies. CBOE and thinkorswim have loads of information on the various strategies and when they should be employed on the market. Before you know it you will know that just placing a call option will generate leverage on the upside however the protection on the downside can be protected with a Bull Call Spread, thus reducing your risk substantially.

After the strategies are understood a trading system will need to be developed. This will all depend on how much risk you want to take on, your job security etc. Also a technical analyst technique may need to be developed if you feel that is the way you feel you should trade options.

Even before this, you must have an effective risk management strategy as well. There is no point in getting into a 200% profit position and then see it fall away to a loss. You must remove emotion and be systematic on your trades. Take the profits, and minimize the loss.

After this, start paper trading. Pretend money is a great way to make certain you can do it. A CBOE virtual trade account is available for free and is a great way to get into the swing of things. Once things are in the green get a good options broker! Online brokers are fine, but having to talk to someone is better in case you mistake a 1 for 10. We are human after all.

After following these steps the sky is the limit. All I can say is take advantage of your resources (Library and Internet), because there is a lot of money and financial freedom out there. I’m getting through University because of Options, you can too.