Trading Options with Robinhood
Introduction
- Robinhood simplifies options trading.
- If beginners and less experienced traders can use it, so can you.
Steps to Trade Options on Robinhood
1. Search for the Stock
- Example: SPY (S&P 500 Index)
- Popular for trading around significant market events (e.g., FOMC meetings, job reports).
2. Choose the Expiration Date
- Determines the timeline for your trade.
- Short-term trading: Choose daily options with early expiration (e.g., September 6 or September 9).
- Long-term trading: Longer expiration dates cost more due to potential stock volatility.
3. Select the Type of Option
- Call Option: Buy if you expect the stock to go up (bullish).
- Put Option: Buy if you expect the stock to go down (bearish).
4. Set a Strike Price
- Call Options: Choose a lower strike price for higher profit chances.
- Put Options: Choose a higher strike price for in-the-money options.
Example Trade
- Buying a Call Option:
- SPY with a strike price of $390, expiration on September 9.
- Cost: $600 (6 dollars times 100 shares).
- Break-Even: $396 (390 + 6).
- Profit if SPY > $396 by expiration date.
- Risk: Full investment ($600) lost if SPY < $390.
The Bid-Ask Spread
- Bid: Price buyers are willing to pay.
- Ask: Price sellers are willing to accept.
- Robinhood typically requires paying the ask price due to market makers and payment for order flow.
Risk Management
- Risk of losing entire investment if the option expires out of the money.
- Ability to close the option prior to expiration.
- Use apps like OptionStrat to estimate profits/losses before expiration.
Alternative Strategies
- Put Option Example:
- Buy a $395 put option for $594.
- Break-Even: $389.06.
- Profit if SPY < $389.06 by expiration.
- Risk: Full $594 lost if SPY > $395.
Advanced Trading Strategies
- More than just buying options:
- Trading spreads.
- Selling options to collect premiums.
- Numerous other strategies available.
Conclusion
- Robinhood offers a straightforward platform for trading options.
- Risk management is crucial.
- Explore different strategies on the channel.
Remember to stay positive and informed in your trading journey.
Thank you for the support and engagement!