Start to Trade
Placing an options order is very similar to placing an
order for a stock. If you use a live broker, call your brokerage firm
and tell them which option you want to buy. Name the options symbol, the
strike price, and provide the expiration date. Next, specify the number
of contracts you would like to purchase. Finally, decide on either a
specific price you are willing to pay for the option (i.e., use a ï¿½limit
orderï¿½) or place your order ï¿½at marketï¿½ (i.e., a ï¿½market orderï¿½), which
means you will receive the best available price at the specific moment
your order hits the trading floor.
With most brokers, you will have to meet certain funding
requirements before they will accept your options order. For instance, you
must have the necessary funds to cover any margin requirements. To trade
options, your broker will require you to open a margin account. Even if you
are not going to borrow money from your broker (i.e., trade on margin), you
will still be asked to do so.
- The ï¿½Initial Margin Requirementï¿½ is the amount of money
you must have in your account at the time you place an order. Initial margin
funds must therefore be deposited into your account before any orders can be
- The ï¿½Maintenance Marginï¿½ is calculated as a minimum
margin per outstanding contract; you must maintain that amount in your
account in order to be able to hold an options position.
After you have met these margin requirements, your broker
will send you several agreements, among them the documents entitled
"Characteristics and Risk of Standardized Options" and "Understanding Stock
Options". These texts are very useful, especially if you have only just
started to trade options.
After you have opened an account and met the margin
requirements discussed above, you may place an order with your broker.
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