How to Trade Options on E-Trade

by Hunkar Ozyasar ; Updated July 27, 2017
Options involve high risk and high return.

Items you will need

  • An account with E-Trade
  • Options trading application form

E-Trade has a user-friendly trading platform and offers extensive options brokerage services. After opening an account with E-Trade, you need to fill out an additional application and obtain approval for options trades. Once approved, you should familiarize yourself with the user interface on the options screen and follow a number of options before making large trades. Always remember that options involve far greater risks than stocks. Their values can easily decline to zero, and often do.

Step 1

Open an account with E-Trade. Visit E-Trade and apply to open an account. Since all accounts need a signature, you must send in at least some of the forms by mail or deliver them by hand to a local E-Trade branch. You will be asked to provide a U.S. residential address, date of birth, Social Security number or tax ID number and the name and address of your employer (if applicable). Upon acceptance, you must fund your account either electronically or with a mailed check.

Step 2

Apply for option trading privileges. Once your account is up and running, you can apply for the right to trade options. Since your signature will already be on record, this application can be made on-line. You will be asked to detail your investment experience and assess your risk tolerance. This step is to ensure that investors fully understand the dangers involved with options and are capable of making informed investment decisions about these complex instruments.

Step 3

Get to know the interface. After the approval of your options trading application, thoroughly familiarize yourself with the user interface on the options trading screen. You can access the options page for a particular security by typing the ticker symbol of the stock in the "quote" box on the upper right hand corner and, once you receive the quote, clicking on the "option chain" link. Here, options are classified by their expiration date. Select the expiration date you are interested in from the drop-down menu for a list of all options on a particular security with a specific expiration date.

Step 4

Start small. Even if you have traded stocks in the past, keep in mind that options have unique characteristics. Watch the options market closely and understand how options prices move in response to changes in the value of the underlying stock before you make actual trades. When you do, start small and do not put all of your eggs in one basket.

Warnings

  • Unlike stocks, bonds or currencies, options can easily lose 100 percent of their value. While most financial instruments will usually retain some of their value even under the most adverse circumstances, the value of an option can easily decline to zero and often will. This means you can lose every penny invested in an option, and you must therefore trade options very carefully.

About the Author

Hunkar Ozyasar is the former high-yield bond strategist for Deutsche Bank. He has been quoted in publications including "Financial Times" and the "Wall Street Journal." His book, "When Time Management Fails," is published in 12 countries while Ozyasar’s finance articles are featured on Nikkei, Japan’s premier financial news service. He holds a Master of Business Administration from Kellogg Graduate School.

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