I’m trying Options Xpress to trade options. I think they are excelent because:
- There a minimum amount required to open an account
- Provide free education
- Low commision, see here. Maksimum $14.95 PER option contract. In their website, they compare their rates with Schwab, Ameritrade, Scottrade, E*Trade, and Fidelity. To get lower rates you need to trade more than 35 times in a quarter. If you trade $300, the commision will be about 5% of your trading. You need to have profit more than 5% to get even. So trade above $300.
- Easy to open
Although there is no minimum amount to deposit, I think you should prepare $1000 to get started. Lower than that you can lose money for commision.
Long call is the basic of option strategy. For beginner, it is the perfect strategy for their first option. A call is an option to buy stock. When buying call option, you are hoping that the underlying will go up. You might know that securities give a target price higher than its current price. In that case, you might want to buy call option. You can sell your stock option when it reaches its target price. Beware of the effects of time decay. Sell your option before the final month before expiration. For example stock ABC is trading at $18.62 on February 20,2008. We want to buy the January 2009 $20.00 strike call for $2.44.
This means that the call premium is $2.44. This is the risk you are taking. You can loss all this money when it reach its expiration date. The reward is unlimited as the stock price rises. You will breakeven at $18.62 + $2.44 = $21.06. The long put is the reverse of long call. Long put is usually cheaper than long call, because stock tends to move higher.
Summary:
- Buy long call or long put, when you are certain that the stock will go into your favor to have the leverage advantage.
- Sell the long preferable one month before expiration, because time decay accelerates exponentially in the last month before expiration.