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
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.
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.
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.
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.