Getting started with options: What, Where, When and How much should I start with?

What are options? (Credit: Investopedia)

Options are a type of derivative security. They are a derivative because the price of an option is intrinsically linked to the price of something else. Specifically, options are contracts that grant the right, but not the obligation to buy or sell an underlying asset at a set price on or before a certain date. The right to buy is called a call option and the right to sell is a put option. People somewhat familiar with derivatives may not see an obvious difference between this definition and what a future or forward contract does.

When, Where and How do i start?

Most people will do the first thing that comes to mind which is jump right in and fund their account all because they see big gains on twitter.. STOP RIGHT THERE!!! 

When? Its up to you! If your looking to expand different strategies this is a good one to learn.

Where? and How  Start by paper trading with fake money to get an idea of how things work. Thinkorwim offers a simulator. Below is the link. Try it out for a few weeks even to a month.

How? How much does one need to start? The amount is up to you. Its what you are comfortable willing to risk. I personally feel start small and build it. If you have a 10k account start with trades in range between $50-$150 this way you are managing risk.

Probability of profit vs. probability of loss ( Credit: Understanding Risk Schwabs)

For traders who define risk as the probability of profit vs. probability of loss, the amount at risk is generally a lesser consideration, because a loss is not anticipated. This type of trader will typically focus on strategies in which the probability of profit is much higher than the probability of loss. Assuming the trader’s forecast on the underlying security is ultimately correct, a single use of any of the following strategies would generally be considered low risk:



$500 to $50k challenge: Trading $SPX and more

If your familiar with my past challenges this is basically all summed up as one. First challenge ever I turned $120/$200 into $48k in two weeks trading only “OPTIONS”. Next challenge was $300 into $7k until AT&T no signal cost me big time… now this time I will try to do it again.

Starting with only $500 goal is to compound gains day after day. Until I hit the goal of $50k. Once I get there I will then either work on a newer challenge turning that amount into another amount. Also follow me on TWITTER @TRADEWITHNINJA

Description of Trade:

Using only $500 capital

BrokerEtrade(for executions) ThinkOrSwim (for charts and UI)

Account Type: Cash Account( which allows me to trade using the cash available. in which goes around the PDT rule).

Goal of challenge:

– Wire out initial starting capital($500) when over $5k

– keep position size small unless comfortable with size and take profits when present

– stay close to “ITM” In the Money as possible

– less lottos until account is manageable

– hedge when possible but keep focus on gut side

– #SeeProfitTakeProfit

– max 2 trades a day

Hope my Journey opens up the minds of those who think this is impossible. Below will be the account balance and trades. Stay Tuned!

Challenge Initiated 


DAY 1: 4/9

BTO $SPX 2665c 7 contracts @ .392= $280

STC $SPX 2665c 5cons @1.35 =$675

STC $SPX 2665c 2cons @.70 =$140

BTO $SPX 2555p 2 contracts @ .50= $100(-100)

BTO $SPX 2615p 3 contracts @ .2833= $88

STC $SPX 2665c 3 contracts @ .1.20= $360


DAY 2: 4/10

BTO $SPX 2570p 2cons @2.95 =$600

STC $SPX 2570p 2cons @1.35 =$270(-330)

BTO $COP 63c 20cons @.28 = $560

BTO $STX 63c 3cons @.48= $144

BTO $SPX 2750c 7cons @.05= $35

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