How to Trade SPY Options

by Chris Ciaccia ; Updated July 27, 2017
Trading S&P 500 options can help mitigate risk and result in a profit.

Trading options can be a great way to mitigate risk and profit substantially, without having to put out tremendous amounts of money. Trading options in the S&P 500 ETF (NYSE: SPY), which is also known as "SPY" to some traders is a much cheaper way to profit than actually buying or selling short the ETF, as it is a very expensive ETF. With options, like stock, you can profit from the rise in price or the fall.

How To Trade Spy Options

Step 1

Add margin to your brokerage account. Having a margin account allows you to trade options. If you don't have a margin account, you won't be able to trade options.

Step 2

Look for a particularly strike price in the options. Depending on where you think the ETF will go, you can make a reasonable assumption, and pick a certain strike price on the ETF. A strike price is where the option expires. They are usually set in $5 increments. An example would be the $120 strike if you believe the S&P will close at 1,200. If you believe the S&P 500 will rise, you buy the call. If you believe it will fall, you buy the puts.

Step 3

Execute the trade. Trading options is different from stocks with regards to commissions, as you pay a certain fee for each contract when trading options, whereas with stocks, you pay a set commission.

About the Author

Chris Ciaccia is a former oil and gas hedge fund analyst who has been writing since 2008. He has been published in "Miner's Choice" and online at BenZinga. He graduated from Seton Hall with a Bachelor of Science in business administration and finance and a minor in communications.

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