How to Trade Options

Share this articleOptions trading has evolved dramatically since the days when brokers stood shoulder to shoulder in trading pits. The adrenaline of open outcry trading, whether in commodities, Treasury futures or equities, was reserved for the well connected. Three decades on, the democratization of financial markets has been turbocharged by technology and social media, allowing practically anyone with a brokerage app to buy or sell options with a few taps.Investors, whether retail newcomers or veterans of the dot-com era, often look to options as a way to navigate volatility. They aren’t a cure-all for market anxiety, but options can provide a strategic advantage and, for some, a dose of excitement.One key attraction of options? The ability to place bigger bets with less money.Your risk if the stock doesn’t move the way you hoped depends on whether you’re buying or selling.Traders sometimes liken it to picking up pennies in front of a steamroller.Once you join the action, you’ll find yourself among a diverse cast of participants, all with distinct motives for trading options.That language of the trade extends further: Delta tracks sensitivity to the underlying price, gamma measures how quickly that sensitivity shifts, and vega captures exposure to volatility. Used wisely, options trading can boost returns or hedge losses—but retail traders would do well to remember that options carry far more risk than passive investing. If you’re going to go around picking up pennies, you’d better be certain you can escape the steamroller.More On Bloomberg