Paper-Trading Plan for Options

To get started in paper trading for options, you may want to take three steps at the same time:

  1. Open a brokerage account or continue with the account you already have. If you have an existing brokerage account where you trade stocks, continue that activity while you follow the next two steps. If you have not yet begun to trade on any level, open a free brokerage account after researching the terms and trading costs of several brokerage firms.
  2. Complete an options-trading application with your brokerage firm. Download or request an options-trading application.
    This form asks you to specify the number of trades you execute per year and your level of experience in options trading. If you are a novice, you will be assigned a low level and probably be allowed only to open long call or put positions, at least as a start. But once you have gained some experience, you can apply to be upgraded to the next level.
  3. Find a paper-trading site that fits your needs and begin actively trading options. Check out several paper-trading sites and find one that is flexible enough for the kind of trading you want to try. Also, make sure it works. You can open a free account on several sites and navigate your way through the paper-trading feature before deciding whether to remain with a site or not. Try to think of your paper trades as real; avoid the problem of not taking the paper-trading activity seriously. Begin with a specific portfolio amount and see what kind of net returns you realize through paper trading. That is the only way to ensure that once you begin putting actual money into trades, you will know what to expect.

By applying options as a tool in specialized trading strategies, you achieve many benefits: You can expand your trading with options because they cost a fraction of stocks, limit your overall risks, and use puts for short-side positions without having to go short.
By Michael C. Thomsett
Michael Thomsett is a British-born American author who has written over 75 books covering investing, business and real estate topics.

Copyrighted 2016. Content published with author's permission.

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