My Ameritrade Account Is Now Options Approved

I asked for and got options trading approval with my Ameritrade account.

I’m definitely still new to the world of options and I’m still trying to formulate a strategy on how to approach them. I’m considering an approach where I look at the options possibilities for stocks which show up on my screener. If there looks to be a good opportunity then I may buy some option call contracts as well as shares of the stock itself.

Or possibly in some situations I would not buy shares but buy option calls instead.

OCNF is an example of a stock on my screener today. It’s up 11% to $1.60 as I write this. So I’ll use it as an example. Right now there is a June option call of OCNF with a strike price of $2.50 availabe for 40 cents (40 cents was the last price.)

So what does that mean? If I were to buy 10 option contracts (100 shares each for 1000 shares total) then that would cost me $400 (40 cents for each share) plus commissions (which with Ameritrade I think would be $17.45) — So my investment would be $417.

What would I get for that investment? The option to buy those 1000 shares of OCNF for $2.50 per share at any time up to June 20. If the stock price never reaches above $2.50 then my investment is worthless. Yes, you read that correctly: Worthless! That’s what scares people about options.

On the other hand what would happen if OCNF really takes off (as many of the stocks that show up on my screener do) … What if it reaches $5 by June 20? Then I could buy that 1000 shares for $2,500 and quickly sell it for $5,000 or a $2,500 gain, subtracting the cost of the options I would have an overall gain of about $2,100 on an initial investment of $400.

That’s the exciting thing about options. You can make pretty big returns with not very much investment. Options are both high risk (because you can easily lose your entire investment) and very high return (because it’s possible to make back many times your initial investment.)

I’m planning on keeping the amount of money I put into options pretty low because I don’t really know what I’m doing with them and I want to keep most of my money free for my regular trading.