Placing an options trade
- Search the stock, ETF, or index you’d like to trade options on using the search bar (magnifying glass)
- Select the name of the stock, ETF, or index
- Select Trade → Trade options on the detail page
https://robinhood.com/us/en/support/articles/placing-an-options-trade/
To place an options trade on Robinhood, here’s a step-by-step guide:
- Search for the Underlying Asset: Use the search bar (magnifying glass icon) at the top of the app to find the stock, ETF, or index you want to trade options on.
- Go to the Options Chain: On the detail page of the selected asset, tap on Trade, then select Trade Options.
- Select Your Strategy (Optional): Robinhood might present you with basic or advanced options strategies depending on your approval level. You can choose a pre-built strategy or customize your own.
- Choose Expiration Date: Scroll horizontally to view different expiration dates. The expiration date is displayed below the strategy and underlying security.
- Select Strike Price: Strike prices are listed from high to low. Scroll up or down to find the desired strike price.
- Choose Call or Put: Decide whether you want to buy or sell a call option (betting on the price going up) or a put option (betting on the price going down).
- Determine Your Action:
- Buy to Open: To initiate a long call or long put position.
- Sell to Open: To initiate a short call or short put position (requires a higher options level and involves more risk).
- Buy to Close: To close an existing short option position.
- Sell to Close: To close an existing long option position.
- Enter Order Details:
- Quantity: Specify the number of contracts you want to trade (each contract typically represents 100 shares).
- Order Type: Choose between:
- Limit Order: You set the maximum price you’re willing to pay (when buying) or the minimum price you’re willing to accept (when selling).
- Market Order: Your order is filled at the best available current price (not always recommended for options due to potential price slippage).
- Price: If using a limit order, enter your desired price (premium) per contract.
- Time in Force: Choose between:
- Good for Day (GFD): The order expires at the end of the current trading day if not filled.
- Good ‘Til Canceled (GTC): The order remains active for 90 days or until you cancel it.
- Review and Submit: Carefully review all the details of your order, including the underlying asset, expiration date, strike price, type (call/put), action (buy/sell), quantity, price, and time in force. Once you’re sure everything is correct, tap Review Order and then Submit Order.
Important Considerations:
- Options Trading Levels: Robinhood has different options trading levels that grant access to various strategies based on your experience and financial situation. You may need to apply for a higher level to execute more complex trades like spreads or selling options.
- Understanding Risk: Options trading involves significant risk and is not suitable for all investors. You could potentially lose your entire investment in a short period. Make sure you understand the risks involved before placing any trades.
- Premium: When buying an option, you pay the premium. When selling an option, you receive the premium. The premium is the price of the options contract.
- Expiration Date: Options have a limited lifespan. If the option is not profitable by the expiration date, it may expire worthless.
- Strike Price: The strike price is the price at which you have the right to buy (for calls) or sell (for puts) the underlying asset if you exercise the option.
- Bid-Ask Spread: Pay attention to the bid (the highest price a buyer is willing to pay) and ask (the lowest price a seller is willing to accept) prices. The difference between these prices is the spread. Aim for fills near the midpoint of the spread if possible.
- Implied Volatility: This is a measure of the expected price fluctuations of the underlying asset and significantly impacts option prices.
- Day Trading: Buying and selling (or selling and buying) the same options contract on the same day constitutes a day trade. Robinhood has rules regarding the number of day trades you can make in a certain period, especially if you have a margin account with less than $25,000.
It’s highly recommended to educate yourself thoroughly about options trading and the specific strategies you plan to use before placing any trades. Robinhood and other resources offer educational materials to help you understand the intricacies of options.