Ready to start your options trading journey? This walkthrough will take you through the process on the eToro Options platform, step by step.
Options trading offers ways of running more advanced strategies. There are some potential pitfalls to avoid, but despite their reputation, if traded in the right way, these derivative instruments can actually help you to reduce the overall risk levels of your portfolio.
Log in to your account
To get started, log in to your account using your eToro credentials and make sure your eToro Options account is verified. If you’re new to trading options, you may need to answer a few questions to make sure you fit the profile for an options trader.
Fund your account
Once your account is registered and verified, the next step is to put funds into it. Hit the “Fund my account” button, and you’ll be presented with a couple of different funding methods. The simplest way is to transfer money from your eToro investment account, but you can also send a wire transfer from your bank. For more information on all of these methods, click here.
Tip: Funds in your eToro account are different from the ones in your eToro Options account.
Choose your option
Next, you’ll have to choose an option to trade. You can search for your favourite companies that offer stock options, and find one that you like. Then, hit “Trade.”
You can choose between a put, a call, or a spread.
Once you pick the type of option, it’s time to get into the details. Pick the date you believe will capture the move (the expiry date) and the price which you expect the stock to move beyond (the strike price).
The platform will present you with the prices of the options available on the page you select your strike price, under the “Price per contract (ask)” section. You’ll also be able to view the option’s trade risk, bid price (current value if sold), daily change in price, and break-even point.
Finally, select the number of contracts you’d like to purchase. Remember, each contract represents 100 shares.
Purchase your option
When you’re ready to purchase your option, simply review all of the relevant metrics, and swipe up on your screen.
Tip: Options trading might not be available for you depending on your country. You can check whether or not the eToro Options service is available in your country by visiting this page.
Once you’ve purchased your option, you have some choices to make. One choice is to wait until the expiry date to see what happens. If the stock moves enough in the expected direction, you could make a profit.
eToro Options will close your option at or shortly before 3:30 pm Eastern Time (ET) on its expiry date.* Any proceeds from this closing will then be placed in your available balance the following trading day. In rare instances, eToro Options will be unable to sell expiring positions at 3.30 pm ET. In these instances, clients are responsible for losses due to assignment or expiry.
If the stock does not move in the expected direction, or does not move enough, it will either be closed at a partial loss or expire worthless.
Trade your option
If you decide you don’t want to wait for your option to expire and cash out, you can sell it to someone else in the market.
You’ll have to go to your existing ticket, and decide what order type you’d like to pursue: market, limit, or trigger. To learn more about these, you can simply press the link on the screen.
If you choose a limit order, simply set your ask price (we’ll display choices for you based on what the current bid prices are), a time limit, and wait to see if someone takes you up on your offer.
Tip: Visit the eToro Options newsfeed to see what other users are trading and commenting on.
Final thoughts
Options are one more way that you can engage with the market and play a more active role in the management of your portfolio. They can be a powerful tool when used in ways that fit your strategy.
Learn more about option trading strategies by joining the eToro Academy.
* In rare instances, we’re unable to sell expiring positions at 3:30pm EST. In these instances, clients are responsible for losses due to assignment or expiry.
FAQs
- What is an options market maker?
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An options market maker is a broker or other agent who creates a market in options. They allow other traders to open options trades with them and ensure there is liquidity in the market.
- What are “out-of-the-money” options?
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Out-of-the-money options have a strike price that the underlying security has yet to reach. For calls, that means the strike price is currently above the underlying stock price. For puts, that means the strike price is below the underlying stock price. If that situation remains the same, the options will expire worthless.
- How are options different from futures?
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The biggest difference between futures and options is that when trading the former, each party is obligated to complete the transaction on the expiry date. With options, the owner of the calls or puts can decide whether they want to complete the deal, or not. Remember, the owner has the right, but not the obligation to buy or sell the stock.
This information is for educational purposes only and should not be taken as investment advice, personal recommendation, or an offer of, or solicitation to, buy or sell any financial instruments.
This material has been prepared without regard to any particular investment objectives or financial situation and has not been prepared in accordance with the legal and regulatory requirements to promote independent research. Not all of the financial instruments and services referred to are offered by eToro and any references to past performance of a financial instrument, index, or a packaged investment product are not, and should not be taken as, a reliable indicator of future results.
eToro makes no representation and assumes no liability as to the accuracy or completeness of the content of this guide. Make sure you understand the risks involved in trading before committing any capital. Never risk more than you are prepared to lose.