How Do I Buy Options on TD Ameritrade?
You can buy options on TD Ameritrade by logging into your account. Click the Trade tab on the top of your screen. Click on Options, and click New Order. Under Select Option Type, choose between calls and put options. Enter the number of contracts you want to buy or sell in the appropriate box. Enter the underlying security's ticker symbol. Click Next to proceed with placing your order.
TD Ameritrade has a selection of options trading tools and platforms, including the ability to buy stock index options online. Keep reading to learn how.
1. Sign Up for TD Ameritrade
You'll need a brokerage account to buy options on TD Ameritrade. You can open an account online by visiting the trading platform's homepage and clicking Open An Account.
Provide basic information, such as your name and address, and more specific information about how you plan to use their services (if you're starting out or if this is for personal or business purposes).
When you enter all the information into the system, click Submit Application at the bottom of the page. This will send an email with instructions for setting up your account to begin trading.
2. Research and Select the Stock
Once you have decided on an options strategy, it's time to start researching the stock, ETF or index to trade. Do your homework before buying any options.
3. Determine Your Strategy and Factor in Commissions
Determine which strategy is right for you. You can buy put options to profit from a decline in the underlying security price.
For example, if you own shares of Company XYZ and want protection against any further downward movement in share prices, you could buy one or more puts on XYZ at a $100 strike price (in-the-money).
This would give you the right to sell 100 shares of XYZ at $100 per share until the expiration day occurs. If your short position expires due to a sharp rise in share prices above $100, you keep the premium paid by purchasing those specific contracts.
On the other hand, if share prices fall below $100 before the expiration date arrives, all losing trades will be closed out automatically by TD Ameritrade.
4. Identify the Expiration Month and Strike Price
Next, you'll want to identify the expiration month and strike price you want based on your strategy. Options have expirations from 90 days to as far out as 30 years, so you must understand what each month entails for risk management and profit potential.
You can use the option chain tool to see how implied volatility (IV) changes concerning an underlying stock's price over time. IV indicates how much movement you can expect in your option price if there is movement in the underlying security.
5. Submit a Market Order
A market order is the most common type of trade. You place an order to buy or sell without specifying a price. In other words, you tell your brokers that you want to buy 100 shares, and they will execute the transaction at whatever price they can, assuming buyers are willing to pay that price. If there's no volume, meaning not many people want it, there's no guarantee they can fill your order.
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