Introduction: The Game Has Changed
Back in the day, options trading was like an exclusive VIP lounge—reserved for Wall Street pros, hedge fund wizards, and people who somehow understood what “implied volatility” meant without Googling it. But guess what? The doors have swung open. Thanks to platforms like Robinhood, now anyone—yes, even your neighbor who still thinks Bitcoin is a physical coin—can dive into options trading without coughing up hefty commissions or navigating jargon-filled trading interfaces.
However, just because you can trade options doesn’t mean you should dive in without understanding the risks. Options aren’t magic money printers (despite what your cousin on Reddit might claim). They can amplify your profits, sure—but they can also wipe out your investment faster than you can say, “Why did I sell that call?”
So before you start tapping away on Robinhood like a seasoned trader, let’s break down the essentials.
What Exactly Are Options?
Imagine you really, really want a new car. But instead of buying it today, you strike a deal with the dealership: you’ll pay them a small fee to lock in today’s price, and you have, say, three months to decide if you actually want to buy it. If the price skyrockets, you get the car for a bargain. If it tanks, you walk away, losing only that small fee.
That, my friend, is basically how options work—except instead of cars, we’re talking about stocks.
The Two Main Types of Options
- Call Options – Betting that a stock’s price will rise? A call option gives you the right (but not the obligation) to buy it at a set price before expiration. If you’re right, you profit. If you’re wrong… well, at least you didn’t buy the stock outright.
- Put Options – Expecting a stock to drop? A put option lets you sell it at a predetermined price. If the stock craters, you celebrate. If it unexpectedly surges, well… that’s the market for you.
Unlike simply buying and holding stocks, trading options means you’re juggling probabilities, time decay, and market sentiment—all while trying not to panic when your contract’s value starts fluctuating like a caffeine-fueled rollercoaster.
But don’t worry, we’ll cover all that.
Getting Started with Options on Robinhood
1. Unlock Options Trading
You can’t trade options on Robinhood straight out of the box. You need to enable it first. Here’s how:
- Open the Robinhood app.
- Tap your Profile icon in the bottom-right corner.
- Navigate to Settings → Investing.
- Scroll down and select Options Trading.
- Answer a few questions about your experience, income, and risk tolerance.
Robinhood doesn’t approve everyone for options trading. Based on your responses, you’ll be assigned a trading level.
2. Know Your Trading Level
Robinhood classifies options traders into different levels:
- Level 1 – Access to covered calls and cash-secured puts. (Beginner-friendly)
- Level 2 – Allows buying calls and puts, plus credit spreads. (Most traders start here.)
- Level 3 – Unlocks advanced strategies like iron condors and straddles. (For the pros.)
If you just muttered “Iron condor? That sounds like a secret military project”, don’t worry—we’re sticking to the basics for now.
3. Finding the Right Options Trade
Once you’re approved, it’s time to pick your first trade. But don’t just throw money at the first stock you see. Here’s what you need to consider:
- Strike Price – The price at which you can buy (for calls) or sell (for puts) the stock.
- Expiration Date – Options have a shelf life. Short-term options are cheaper but riskier. Longer ones cost more but offer stability.
- Premium – The cost of buying the option. Think of it as the “ticket price” for entry.
- Implied Volatility (IV) – A measure of expected stock price movement. Higher IV = pricier options.
- Open Interest & Volume – Indicates how liquid an option is. Higher numbers = easier to buy/sell.
How to Navigate Robinhood’s Options Interface
- Search for a stock you’re interested in.
- Tap Trade → Trade Options.
- Pick an expiration date based on your strategy.
- Select a Call (if bullish) or Put (if bearish).
4. Placing Your First Options Trade
After picking your contract, it’s time to place a trade.
Order Types
- Market Order – Executes immediately at the best price. (Can be risky in volatile markets.)
- Limit Order – You set a price cap, ensuring you don’t overpay. (Usually the better choice.)
Steps to Execute an Order on Robinhood
- Choose the option contract you want.
- Enter the number of contracts (1 contract = 100 shares).
- Select an order type (limit orders help control cost).
- Review your trade, then tap Submit.
Once filled, congratulations—you officially own an options contract. Welcome to the world of derivatives.
5. Managing and Closing Your Trade
Getting in is easy. Knowing when to exit? That’s where the real skill lies.
Your Exit Strategies
- Sell to Close – If your option gains value, sell before expiration to lock in profits.
- Let It Expire – If your option is “out of the money,” it expires worthless, and you lose the premium paid.
- Exercise the Option – If profitable, you can exercise it to buy (calls) or sell (puts) the underlying stock at the strike price.
Robinhood automates some of this, but it’s your responsibility to track your positions.
Pro Tips for Smarter Trading
✅ Start Small – Options can be a rollercoaster. Begin with manageable trades.
✅ Don’t Chase Hype – Just because everyone on Reddit is talking about it doesn’t mean it’s a good trade.
✅ Risk Management is Key – Set stop-loss orders and know when to cut losses.
✅ Watch Earnings Reports – Stocks swing wildly after earnings, making options a gamble.
✅ Understand Theta Decay – Options lose value over time. The closer to expiration, the faster they can drop.
Final Thoughts
Trading options on Robinhood is a game-changer for retail investors, but it’s not a guaranteed path to riches. It requires strategy, discipline, and a willingness to learn.
Start slow, experiment, and analyze your trades—both wins and losses. Some days, you’ll feel like a genius. Other days, you’ll wonder why you ever hit that “Trade” button. That’s part of the journey, dude!