CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 63% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Options trading offers a way to profit from market moves with flexibility stocks can’t match. If you’re an intermediate trader ready to step beyond buying and holding, options—specifically calls and puts—open doors to strategies that amplify gains, hedge risks, or even bet on stagnation.
They’re not simple, but they’re powerful once you grasp the mechanics. Let’s break down the essentials of trading calls and puts and how to use them in real markets.
An option is a contract giving you the right, but not the obligation, to buy or sell an asset—like a stock or ETF—at a set price (strike price) by a set date (expiration). You pay a premium for this right, like an insurance fee. Options come in two flavors: calls and puts.
Options trade in lots of 100 shares, so one contract controls 100 units of the underlying asset. They’re priced per share—$2 per contract means $200 total.
Options give you leverage—control big positions with less cash than buying stock outright. A $200 callcould net $500 if the stock jumps, a 150% return versus 10% on the stock alone. They also limit downside: lose the premium, not your shirt. Plus, you can profit in any market—up (calls), down (puts), or sideways (spreads). For intermediates, this versatility is gold.
Picking a Direction
Start with a view. Bullish on Nvidia? Buy a call. Bearish on Amazon? Grab a put. Use technicals—say Nvidia breaks $300 resistance with RSI climbing, signaling a call. Check implied volatility (IV) on your broker’s platform—high IV means pricier premiums but bigger expected moves.
Choosing Strike and Expiry
ATM options (e.g., $305 strike for Nvidia at $300) balance cost and probability. OTM ($310) is cheaper but needs a bigger jump. ITM ($295) costs more but has intrinsic value. Aim for 30-60 days out—enough time for your thesis without bleeding theta too fast.
Executing the Trade
On a platform like Thinkorswim, enter your order. Buy one Nvidia $305 call for $5 ($500 total). If Nvidia hits $320, the call might jump to $15 ($1,500), netting $1,000 profit. For puts, it’s the same—buy a $175 Apple put for $3 ($300); if Apple drops to $160, it could rise to $10 ($1,000), earning $700.
Managing the Position
Set a target—say, 50% profit—and exit. Use stop-losses on the option price (e.g., sell if it drops to $2) or trail based on the stock’s support levels. Time’s your enemy—don’t hold till the last week unless ITM.
Options cap your loss at the premium but demand timing. A wrong move or slow market leaves you with nothing. Leverage cuts both ways—small wins turn big, but small losses sting. Start small—one contract—and scale as you learn.
Calls and puts let you play offense or defense with less capital. A $500 option can mimic a $5,000 stock position, freeing cash for other trades. Master these basics, and you’re ready for spreads or straddles next.
Want to trade options like a pro? Start learning today with Pipup Academy’s expert-led courses—they’ll guide you through calls, puts, and beyond!
