How to Trade Options

Your step-by-step guide to trading options

Find an idea. Choose a strategy. Enter your order. Manage your position. We’ll help you build the confidence to start trading options on the E*TRADE web platform or our best-in-class1 OptionsHouse platform today.
 

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STEP 1

Identify potential opportunities

Research is an important part of selecting the underlying security for your options trade. E*TRADE provides you with a rich collection of tools and information to help you research and analyze potential opportunities and find options investing ideas.  

Analyst Research with Tip Ranks

Fundamental company information and research

Similar to stocks, you can use fundamental indicators to identify options opportunities.

  • Find potential underlying stocks using our Stock Screener
  • Assess company fundamentals from the Snapshot, Fundamentals, and Earnings tabs. Read research reports from Morningstar, Thomson Reuters, Market Edge, and Trefis.2
Charts with 1 year view

Robust charting tools

Use our charts to examine price history and perform technical analysis to help you decide which strike prices to choose.

STEP 2

Build a trading strategy

It's important to have a clear outlook—what you believe the market may do and when—and a firm idea of what you hope to accomplish. Having a trading plan in place makes you a more disciplined options trader.

Options Center with calls and puts

Explore options strategies

Up, down, or sideways—there are options strategies for every kind of market.

Options Strategy Optimizer

Strategy Optimizer

Use the Strategy Optimizer Tool to quickly scan the market for potential strategy ideas based on your market outlook, target stock price, time frame, investment amount, and options approval level.


Options chain buying calls

Options Chain

Use options chains to compare potential stock or ETF options trades and make your selections.

  • See real-time price data for all available options
  • Consider using the options Greeks, such as delta and theta, to help your analysis
  • Implied volatility, open interest, and prevailing market sentiment are also factors to consider

STEP 3

Test your strategy

Before you place your trade, visualize and test your trading strategy using E*TRADE tools.

Options Analyzer demo

Options Analyzer

Use the Options Analyzer tool to see potential max profits and losses, break-even levels, and probabilities for your strategy. Watch our demo to see how it works.

Options Income Backtester

Options Income Backtester

The Options Income Backtester tool enables you to view historical returns for income-focused options trades, as compared to owning the stock alone. Start with nine pre-defined strategies to get an overview, or run a custom backtest for any option you choose.

Options Income Finder

Options Income Finder

Use the Options Income Finder to screen for options income opportunities on stocks, a portfolio, or a watch list. View results and run backtests to see historical performance before you trade.

STEP 4

Execute your trade

Select positions and create order tickets for market, limit, stop orders, and more straight from our options chains. 

Watch this brief 2-minute video to see how you can quickly and easily place options orders on the E*TRADE web platform, click by click.

If you ever need assistance, just call 800-387-2331 to speak with an Options Specialist.3

STEP 5

Create an exit plan

Most successful traders have a predefined exit strategy to lock in gains and minimize losses. This is an essential step in every options trading plan.

Set alerts

Weigh your market outlook and time horizon for how long you want to hold the position, determine your profit target and maximum acceptable loss, and help manage risk by:

  • Establishing concrete exits by entering orders at your target and stop loss price
  • Using alerts to stay informed of changes in the price of options and the underlying
  • Adopting one of our mobile apps so you can access the markets wherever you are

STEP 6

Adjust as needed, or close your position

Whether your position looks like a winner or a loser, having the ability to make adjustments from time to time gives you the power to optimize your trades.

Add, close, or roll your positions from the portfolios page
Add, close, or roll your positions on options trade ticket

Remember, just because there's an expiration date on an option doesn’t mean you have to hold it until it expires.

  • You can always choose to close your position any time before expiration
  • You can also easily modify an existing options position into a desired new position

How to do it: From the options trade ticket, use the Positions panel to add, close, or roll your positions. You can also adjust or close your position directly from the Portfolios page using the green Trade button.

STEP 1

Identify potential opportunities

Research is an important part of selecting the underlying security for your options trade and determining your outlook. Start with some of the most widely used research tools on the OptionsHouse platform.

Image for Fundamental company information section

Fundamental company information

Similar to trading stocks, use fundamental indicators to help you to identify options opportunities.

Image for robust charting and analytics section

Robust charting and analytics

Use embedded technical indicators and chart pattern recognition to help you decide which strike prices to choose.

Image for LiveAction scanner section

LiveAction scanner

Run reports on daily options volume or unusual activity and volatility to identify new opportunities.

STEP 2

Build a trading strategy

It’s important to have a clear idea of what you hope to accomplish. Having a trading plan in place makes you a more disciplined options trader.

Image for options strategy

Choose your options strategy

Up, down, or sideways—there are options strategies for every kind of market.

Image of options chain with long call

Select the strike price and expiration date

Your choice should be based on your projected target price and target date.

  • Use the options chain to see real-time streaming price data for all available options
  • Consider using the options Greeks, such as delta and theta, to help your analysis
  • Implied volatility, open interest, and prevailing market sentiment are also factors to consider

STEP 3

Test your strategy

Before you place your trade, visualize and test your trading strategy on the OptionsHouse platform
using the Snapshot Analysis tool.

Image of Snapshot Analysis long call

Use the Snapshot Analysis tool to visualize:

  • Potential maximum profit
  • Potential maximum loss
  • Breakeven levels
  • Earnings and dividend dates

STEP 4

Execute your trade

OptionsHouse gives you the flexibility to set up one-click trades from the options chain for faster order entry. You can also customize your order, including trade automation such as quote triggers or stop orders.

Watch this brief 3-minute video to learn how to quickly and easily place options orders on the OptionsHouse platform, click by click.

If you ever need assistance, just call 800-387-2331 to speak with an Options Specialist.3

STEP 5

Create an exit plan

Most successful traders have a predefined exit strategy to lock in gains and minimize losses. This is an essential step in every options trading plan.

Image of alerts

Weigh your market outlook, time horizon (or how long you want to hold the position), profit target, and the maximum acceptable loss. Consider the following to help manage risk:

  • Determine concrete exit points for every trade with predetermined profit and loss targets
  • Place stop loss orders to help manage downside risk
  • Set up alerts to stay abreast of price changes

STEP 6

Adjust as needed, or close your position

Whether your position looks like a winner or a loser, having the ability to make adjustments from time to time gives you the power to optimize your trades.

Image of positions page for covered call

Remember, just because there’s an expiration date on an option doesn’t mean you have to hold it until it expires.

  • You can always choose to close your position any time before expiration if you want
  • You can also easily modify an existing options position into a desired new position

How to do it: From the Positions page on the OptionsHouse platform, you can easily adjust, roll, or close an options position.

More resources to help you get started

Boost your options knowledge

The E*TRADE Knowledge Center has a wealth of on-demand resources for both new and experienced options traders. It's a great place learn the basics and beyond.4

Get specialized options trading support

Have questions or need help placing an options trade? Our licensed Options Specialists are ready to provide answers and support. Call them anytime at 800-387-2331.