How to Trade Options on Robinhood for Beginners

Love them or hate them, Robinhood is by far one of the easiest stock trading apps for buying and selling options. I’ve used many different brokers over the years and think Robinhood has the best looking UX and easiest, straightforward design for options beginners.

Many newbies are wondering how to trade options on Robinhood if you are just starting out. I’ve blown up a few Robinhood accounts but learned a lot of valuable lessons along the way.

In this article, I will show you how to trade options on Robinhood step by step even if you are a complete beginner. If you have any questions, just leave them in the comments below.

Getting Started

First, you will need a Robinhood account to start trading options. Sign up for Robinhood using the link below and get a free stock when you sign up.

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You need to confirm a bunch of information and make your first deposit to start trading. The good thing about Robinhood is they offer instant deposits, which means you can start trading with funds immediately instead of waiting several business days for the funds to clear.

Head over to the main dashboard and you can search for stocks or ETFs to trade. If you don’t know where to start then check out Robinhood’s list of most popular stocks held is a good place to find potential trades.

Robinhood also lists “Daily Movers”, a list of 20 stocks/ETFs that are experiencing huge price swings. Daily Movers is a great target for options traders because we can profit from the extreme volatility.

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Basic Strategies – Calls & Puts

Buying calls or puts is the most basic way to start trading options on Robinhood. You want to buy calls if you think the stock price will go up or buy puts if you think the stock price will go down.

Buying Calls

For example, let’s say Netflix (NASDAQ: NFLX) shares are trading around $220 and you believe NFLX stock will go up after a positive earnings announcement. You could buy a call option near ITM or OTM and profit if the stock moves up after the earnings event.

Be sure to pay attention to implied volatility because it can crush your gains if it’s over 100%.

Strategies to Grow Your Account

The ultimate goal on Robinhood is to grow your account over time and avoid blowing it up. I’ve unfortunately blown up several Robinhood accounts but also learned a few solid strategies for growing your Robinhood balance without too much risk.

The truth is that trading options is risky and you can lose all of your money if the options trade goes against you. So here are a few lessons that will help you avoid losing all your cash.

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Rule #1 – Take Profits Quickly

Options move quickly and you could be sitting on a 100% gain only to watch the value of your option contract go down as much as 50% in just a few minutes. This is the most common mistake I see beginners make time and time again.

You must take profits and avoid losing all your gains. I usually aim for around 100% profit on any given trade. Once I double my money then I sell the option to lock in my gains.

Rule #2 – Cut Losses Early

Trading options is like playing sports and you will lose a few times along the way. It’s crucial to accept defeat and cut your losses early to limit your financial risk. Too many beginners lose money with a trade and hold onto the options hoping it will recover.

In my experience, a losing trade rarely recovers because the underlying stock or ETF made a big move in the opposite direction. Now, if you are holding longer term options then perhaps it is wise to hold a bit longer.

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However, holding short term options will destroy the value of your contract due to theta decay. If your options contract expires within the week then it’s best to cut losses before the contract loses all of its value.

Risks

Trading options on Robinhood is like gambling at a casino so be careful when you first get started. Subreddits such as Wall Street Bets are filled with loss porn threads of Robinhood traders blowing up their accounts due to risky options bets.

I generally never risk more money than I can afford to lose on any single trade and try to cut losses as soon as possible.

Conclusion

Robinhood is a great platform for options trading beginners but it does have a learning curve. Hopefully, this article gives you plenty of food for though when you start your options trading journey.

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