Trade Futures Robinhood

How to Trade Options on Robinhood for Beginners in 2020

Hello Friends, have you ever heard of Robinhood? It is a popular investment app that allows users to trade stocks, cryptocurrencies, and options without any commission fees. In this article, we will focus on how to trade options on Robinhood for beginners in 2020. Options trading can be intimidating, but with Robinhood’s user-friendly platform, anyone can start trading options.

What are options?

Options are financial contracts that give the holder the right, but not the obligation, to buy or sell an underlying asset at a specified price and time. There are two types of options: calls and puts. A call option gives the buyer the right to buy the underlying asset at a specified price, while a put option gives the buyer the right to sell the underlying asset at a specified price.

Why trade options?

There are several reasons why traders may choose to trade options. One reason is for hedging purposes, which involves reducing risk exposure. Options can also be used for speculative purposes, where traders hope to profit from the direction of the underlying asset’s price movement. Additionally, options can be used to generate income through writing or selling options.

How to trade options on Robinhood

To start trading options on Robinhood, you will need to apply and be approved for an options trading account. You can do this by navigating to the options trading application within the app and filling out the required information. Once approved, you can begin placing options trades.

Step 1: Choose an underlying asset

The first step in trading options on Robinhood is to choose an underlying asset. This can be a stock, cryptocurrency, or even an ETF. Once you have selected your underlying asset, you can begin to place an options trade.

Step 2: Select the expiration date

Options have expiration dates, which means that the option contract can only be exercised on or before the expiration date. On Robinhood, you can select the expiration date by clicking on the options contract and choosing the expiration date from the dropdown menu.

Step 3: Choose your strike price

The strike price is the price at which the underlying asset can be bought or sold if the option is exercised. On Robinhood, you can select the strike price by clicking on the options contract and choosing the strike price from the dropdown menu.

Step 4: Decide whether to buy or sell the option

Once you have selected the underlying asset, expiration date, and strike price, you can decide whether to buy or sell the option. Buying an option involves paying a premium for the contract, while selling an option involves receiving a premium in exchange for taking on the obligation to buy or sell the underlying asset at the strike price if the option is exercised.

Step 5: Review and place the trade

Before placing the trade, make sure to review the details of the options contract and ensure that it aligns with your trading strategy. Once you are ready, you can place the trade by clicking “Trade” on the options contract page.

What are the risks?

Options trading can be risky and is not suitable for all investors. There are several risks to be aware of, including market risk, volatility risk, and liquidity risk. It is important to understand these risks before trading options and to have a solid trading strategy in place.

Conclusion

Trading options on Robinhood can be a great way to diversify your portfolio and potentially generate income. With the user-friendly platform and commission-free trading, Robinhood is a great option for beginners to learn how to trade options. However, it is important to understand the risks of options trading and to have a solid trading strategy in place. Good luck and happy trading!

Thank you for reading our article on how to trade options on Robinhood for beginners in 2020. We hope you found it informative and helpful. If you have any questions or comments, please feel free to leave them in the comments section below. Don’t forget to check out our other articles on investing and trading!

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