Online Options Trading - 7 Step Process of Trading Stock Options

Module 6: Trading Options
Lesson 1: Online Options Trading

This online options trading module will teach you the seven step process of trading stock options.

Learn how to trade stock options by answering three simple questions; what to trade, when to trade, and how to manage risk and profits.

The lessons are designed to reveal the exact stock options trading system that I use.

I'll walk you through each step and in the final lessons you'll watch me make a trade!

That's it! It's a shame that it has taken all of the prior lessons just to teach you three simple questions, but hey, that's just the nature of stock options trading; deal with it (smile).

No I'm kidding, and I'm certainly not implying that online options trading is that easy, BECAUSE IT'S NOT.

There are more "crash and burn" options trading stories then there are "rags to riches".

You need to really let that point sink in!

Essentially Modules 1-5 were designed with single bits of information about stock options trading. Apart from one another, the lessons can't really teach you how to trade stock options.

However, all combined together they create a powerful winning combination.

Are you excited? Are you ready to dive into stock options trading and learn how to make the kinds of returns you've seen elsewhere on the site?

I'm excited! Do you know how impatient I've been writing all the other tutorials? I wanted to start here, but I had to give you all the other stuff first.

Ok let's get started; let's learn how to trade stock options. Before you read further be sure to join our newsletter.

Each month through our Trading Insight Newsletter, subscribers are given free trades, hot stocks, and general guidance to help them learn how to trade stock options.

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What is Online Options Trading?

I want to briefly go over this term to ensure you don't become confused by the terms options trading and online options trading. It essentially means the same thing. Online options trading is just another way to say you're trading options online.

Without going into a long boring history lesson just know that in the past it was very common for option traders to place trades over the phone through a broker.

As a matter of fact my initial mentor used to talk about how he had to call his broker up in the morning before he left for work to place his trades.

He had a full service broker. They do most of the research and work for you and you often make the final decision. You get more hand holding and someone to talk to on a continual basis.

Now with the influx of discount brokers traders can now go online and place option trades themselves through the broker's site, hence the term online options trading.

Discount brokers provide the platform to trade and you do all the research and place the trades yourselves. The costs are usually considerably lower than a full service broker.

This is just a general overview and not meant to turn you into a history expert. I just wanted to clarify the term online options trading.

If you do a search online for the term you'll most likely see brokerage sites dominating the first few pages.

Why? Because they want you to "trade options online" through their company so they can make money off of the commissions they charge you.

Online options trading is a very profitable business especially since you have millions of individuals looking for the "big score."

Trading Stock Options

The great thing about trading stock options is that you can make money whether the stock market is going up, down, or trending sideways.

This is vastly different than some of the traditional forms of investing where your hard earned dollars rise and fall in value with the stock market.

If you recall from Module 1 stock options are contracts that give you the right to buy or sell a stock. Not all stocks have listed options, but the ones that do have numerous options available. These options can be bought, sold, or traded.

Stock options are derivatives. They are derived or come from the existence of stocks. IBM stock options are created for IBM the stock.

Technically speaking, the term derivative refers to how the price of these contracts is derived from the price of the stock. Their value is dependent on the price of the stock it was created for.

Generally speaking, the option's value will rise and fall in sync with the stock price.

One very important point to keep in mind is that stock options mirror the movement and quality of the company stock it represents.

If you trade the stock options of a crap company then those options won't be worth a crap. Not many people will be trading them and they won't have attractive price movement.

Good stocks have good options to trade.

You want to trade high quality options. In order to do this you have to pick good stocks.

Remember that point because people always ask me why I trade the same type of stock options even though the stock market is going down. The reason I trade this way is because quality companies have quality stocks with attractive price movement both up and down.

Online options trading intimidates most people. If you recall with online options trading, you're doing the work. There is no broker researching stocks for you. You have to do the research on your own and often people feel like they don't know what they're doing.

The good news is I've spent years learning how to do it and I've finally learned what I feel is the absolutely best method of finding quality stocks and it only takes about 20 minutes.

Sorry I'm getting ahead of myself, that's in the next lesson. Below is the simple 7-step process I'm going to walk you through to equip you to be a savvy online options trading investor.

7 Step Process of Stock Options Trading

What to Trade?

  1. Fundamental Analysis: fundamental analysis is the first step in the process of trading stock options. Fundamental analysis builds the foundation of a successful trading business.

    You can't find quality trades on a consistent basis unless you have quality stocks that produce these trades. Fundamental analysis is where you sift through the thousands of stocks listed on the stock market and pull out only the best.

  2. Creating a Watch List: only a select few stocks will survive the sifting process. The list will be further narrowed down by using a bit of technical analysis (looking at the charts). The charts that look promising will be placed on a list. This list is called a watch list. This will be the list of stocks you review each night, or week, looking for potential option trades.

When to Trade?

  1. Technical Analysis: technical analysis is not only used to create your watch list, but also to find option trades. You're going to use technical analysis to look for certain price patterns and you're going to use technical indicators to assist you with getting in and out of the trade.

  2. Potential Trades: you've found a few stocks that look promising, you've done a more in depth analysis, and now you've found a potential trade. This is where you look over the option chain and pre-select the options that you're going to buy or sell.

  3. Follow Through: If your deeper analysis turns out okay, and you've found options you can afford, then you create follow through rules. Follow through rules essentially say that if Stock "A" does "B" then I will do "C". You only place a trade when your follow through rules have been met!

How to manage risk and profits?

  1. Exit Strategy: stock options trading involves far too many variables beyond your control. You must have an exit strategy planned out before you enter a trade. It's a way to manage risk. It's like buying car insurance. You're protecting yourself in the event of an accident.

  2. Money Management: the true path to riches is to keep more money then you spend or lose. You will find it's rather easy to make money.

    The hard part is keeping it. Following a few money management rules will help you keep your options trading profits.

Now that the 7-step process has been revealed, it's time to learn how to trade stock options...


Do not proceed further unless you fully understand Modules 1-5.

I understand that ultimately you want to learn how to earn extra income for yourself and your family, but my job is to make sure you learn the right way.

The stock market isn't going anywhere. If it takes you 6 months longer to become a millionaire then so what, you're still a millionaire.

My recommendation is that you start from Module 1 Lesson 1: explain option trading and go back through the whole course. Grab a piece of paper, take notes, and fully understand the concepts.

Okay enough of my ramblings...

If you are ready to begin the step-by-step process of trading stock options, then please proceed to Lesson 2: The Best Stocks to Buy.

Module 6: Trading Options

Module Lessons

  1. Online Options Trading
  2. Best Stocks to Buy
  3. Stock Watch List
  4. Stock Trend Analysis
  5. Stock Option Chain
  6. Paper Trading Options
  7. Trading Exit Strategy/Money Management

Module Instructions: According to how the site is set up, you are now in Module 6: Lesson 1 (Online Options Trading). For the most effective learning experience, read through each lesson in this module one by one, in the exact same order as they are listed in the table of contents to the left.

Return to the top of this page, "Online Options Trading"

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