# Options Trading > How options trading works in practice: account approval, reading an option chain, choosing strikes and expiries, placing orders and controlling risk. Source: https://learn.tradelabsai.com/markets/options-trading/ Track: Markets and Instruments · Level: Beginner · Updated: 2026-10-03 Publisher: TradeLabs AI (https://tradelabsai.com). Education, not financial advice. Cite as: TradeLabs Learn, "Options Trading", https://learn.tradelabsai.com/markets/options-trading/ Options trading means buying and selling option contracts to profit from, or protect against, price moves in stocks, ETFs and indexes. Options let you express views that shares cannot: limited risk bets, income from time passing, protection against falls, or trades on volatility itself. They also have more moving parts, so a careful, structured start matters more than with any other instrument. ## Getting approved In the US, brokers assign **options approval levels** based on your experience, finances and objectives. Lower levels allow buying calls and puts and selling covered calls; higher levels allow spreads; the highest allow selling uncovered options. Approval is a safeguard. Start at the level you understand. ## Reading an option chain An option chain lists every available call and put for a stock, by expiration date and strike. | Column | Meaning | |---|---| | Strike | The price at which the option can be exercised | | Bid and ask | What buyers pay and sellers accept, per share | | Last | The last traded price | | Volume | Contracts traded today | | Open interest | Contracts currently open | | Implied volatility | The market's expected move, built into the price | | Delta | Roughly how much the option moves for a $1 move in the stock | Remember the multiplier: an ask of $2.40 means $240 for one contract of 100 shares. ## Choosing expiry and strike **Expiry:** short dated options are cheap but decay quickly; longer dated options cost more but give the trade time to work. Many beginners buy options with at least 30 to 60 days left to reduce the impact of time decay. See [Theta](https://learn.tradelabsai.com/options/theta/). **Strike:** in the money options cost more but behave more like the stock; out of the money options are cheap but need a bigger move to pay off. See [Moneyness: ITM, ATM and OTM](https://learn.tradelabsai.com/options/moneyness-itm-atm-and-otm/). **Example: Choosing between two calls** A stock trades at $100 and you expect it to reach $110 within two months. **$95 call** (in the money), 60 days, costs $8.20 ($820). Delta about 0.70. Break even at expiry: $103.20. **$110 call** (out of the money), 60 days, costs $1.60 ($160). Delta about 0.25. Break even at expiry: $111.60. If the stock reaches exactly $110 at expiry, the $95 call is worth $15 (a profit of $680), while the $110 call expires worthless (a loss of $160). The cheaper option needed more than your forecast. ## Beginner friendly strategies | Strategy | View | Maximum loss | |---|---|---| | [Long Call](https://learn.tradelabsai.com/options/long-call/) | Bullish | Premium paid | | [Long Put](https://learn.tradelabsai.com/options/long-put/) | Bearish | Premium paid | | [Covered Call](https://learn.tradelabsai.com/options/covered-call/) | Neutral to mildly bullish on shares you own | Share price falls (offset slightly by premium) | | [Cash-Secured Put](https://learn.tradelabsai.com/options/cash-secured-put/) | Willing to buy shares lower | Strike price minus premium, if shares go to zero | | [Bull Call Spread](https://learn.tradelabsai.com/options/bull-call-spread/) | Moderately bullish | Net premium paid | | [Bear Put Spread](https://learn.tradelabsai.com/options/bear-put-spread/) | Moderately bearish | Net premium paid | Spreads cost less than single options and define risk on both sides. See [Vertical Spreads](https://learn.tradelabsai.com/options/vertical-spreads/). ## Placing options orders - **Always use limit orders.** Options spreads can be wide; start at the midpoint between bid and ask and adjust if needed. - **Check liquidity:** volume, open interest and a narrow spread at your strike. - **Know exercise and assignment rules,** especially near expiration and before dividends. See [Exercise and Assignment](https://learn.tradelabsai.com/options/exercise-and-assignment/). ## Managing risk - Size by the premium at risk: if a trade can lose the whole premium, that premium should fit your risk per trade. - Watch implied volatility: buying options when volatility is very high, such as just before earnings, often leads to losses even when the direction is right. See [Implied Volatility (IV)](https://learn.tradelabsai.com/volatility/implied-volatility/) and [Volatility Crush and Expansion](https://learn.tradelabsai.com/volatility/volatility-crush-and-expansion/). - Decide in advance when to take profits or cut losses, for example at 50% of the premium. - Avoid selling uncovered options until you fully understand the tail risk. ## Frequently asked questions ### Can you lose more than you invest with options? When buying options, your maximum loss is the premium. When selling uncovered options, losses can far exceed the premium received. ### How much money do I need to trade options? Buying a single option can cost under $100, but small accounts should still size trades so each premium is a small part of the account. ### Why did my option lose value when the stock went up? Possibly because of time decay, a drop in implied volatility, or because the stock did not rise enough to offset them. The Greeks explain these effects. See [The Option Greeks Explained](https://learn.tradelabsai.com/options/the-option-greeks-explained/). ## Sources - U.S. Securities and Exchange Commission, [Options](https://www.investor.gov/introduction-investing/investing-basics/glossary/options) - FINRA, [Options](https://www.finra.org/investors/investing/investment-products/options) ## Continue learning - Next lesson: [Crypto Trading](https://learn.tradelabsai.com/markets/crypto-trading/) - Previous lesson: [Futures Trading](https://learn.tradelabsai.com/markets/futures-trading/) - Related: [Futures Trading](https://learn.tradelabsai.com/markets/futures-trading/): How futures trading works day to day: choosing contracts, margin, tick values, trading hours, rolling, costs and risk, with a worked Micro E-mini trade. - Related: [What Is an Option?](https://learn.tradelabsai.com/markets/what-is-an-option/): An option is the right, not the obligation, to buy or sell at a set price before a set date. Learn calls, puts, premiums, strikes and how options gain or lose value. - Related: [How Options Work](https://learn.tradelabsai.com/options/how-options-work/): Options give the right, but not the obligation, to buy or sell an asset at a set price by a set date. Learn how options work, why traders use them and the key terms. - Related: [Options Learning Path](https://learn.tradelabsai.com/start-here/options-learning-path/): An ordered route through options: calls and puts, pricing, basic positions, the Greeks, spreads and volatility, with practice tasks at every stage. - Related: [Implied Volatility (IV)](https://learn.tradelabsai.com/volatility/implied-volatility/): Implied volatility is the market's forecast of future movement, backed out from option prices. Learn how to read it, convert it to expected moves and use it. - Related: [Vertical Spreads](https://learn.tradelabsai.com/options/vertical-spreads/): A vertical spread buys and sells options of the same type and expiry at different strikes. Learn debit vs credit spreads, the four types and how to choose widths. - Related: [Covered Call](https://learn.tradelabsai.com/options/covered-call/): A covered call sells a call against shares you own to collect premium. Learn the payoff, how to pick strikes, the trade offs and when the strategy works best.