Reading about options and actually trading them are two different experiences. The concepts make sense in theory, but when you are staring at an order ticket for the first time, there are a dozen fields to fill in and the terminology on the screen does not always match the textbook. This guide covers the actual process, step by step.
Step 1: make sure your account is approved
You cannot trade options with a standard stock brokerage account. You need to apply for options trading approval, and most brokers assign you a "level" that determines what strategies you are allowed to use.
Level 1 typically allows covered calls and cash-secured puts. Level 2 adds buying calls and puts. Level 3 adds spreads. Level 4 adds naked options selling. The naming varies by broker, but the concept is the same: you need to demonstrate some knowledge and accept the risk disclosure before the broker unlocks more complex strategies.
The application usually involves answering questions about your trading experience, income, net worth, and investment objectives. Be honest, but know that the answers do affect what you can trade. If you say you have zero experience and a conservative risk tolerance, you may only get Level 1.
For your first trade, Level 2 is what you need. That lets you buy calls and puts outright, which is the simplest starting point.
Step 2: pick an underlying stock
Do not start with a random small-cap stock nobody has heard of. Pick something you are already familiar with, that has liquid options. Liquid means tight bid-ask spreads and high open interest.
Good first candidates: Apple (AAPL), Microsoft (MSFT), Amazon (AMZN), SPY (S&P 500 ETF), QQQ (Nasdaq 100 ETF). These have extremely active options markets. Spreads are tight. You will not struggle to get filled.
Bad first candidates: that biotech stock with a $3 share price that your friend mentioned, or any stock where the options chain shows single-digit open interest at most strikes. You are learning. Do not add execution difficulty on top of learning difficulty.
Before picking the stock, have a thesis. "I think Apple will go up over the next month because of earnings" is a thesis. "I heard options can make money" is not. You need a directional opinion (or a volatility opinion) because options are directional instruments. Buying without a thesis is gambling with bad odds.
Step 3: choose call or put
If you think the stock is going up, buy a call. If you think it is going down, buy a put. For your first trade, keep it this simple.
Selling options (writing calls or puts) involves different risk profiles and margin requirements. Do not start there. Buy a call or buy a put. That is it.
Step 4: select an expiration date
This is where a lot of first-timers make a mistake. They pick the nearest expiration because it is cheapest. That is the worst reason to pick it.
Near-term options (expiring in less than two weeks) have aggressive time decay. If the stock does not move fast enough, theta eats your premium alive. You can be right about direction and still lose money because you did not give yourself enough time.
For a first trade, I would suggest picking an expiration 30 to 60 days out. This gives you enough time for your thesis to play out without the brutal last-week theta decay. You pay more premium for the extra time, but you are also buying yourself room to be imprecise on timing.
Monthly expirations (the third Friday of each month) tend to have better liquidity than weeklies for most stocks. Start there.
Step 5: pick a strike price
This is the second most common mistake. New traders buy far out-of-the-money options because they are cheap. A $0.50 call feels like a low-risk bet. Technically your maximum loss is $50 per contract, which is true. But the probability of that call ending up profitable is very low.
For a first trade, consider buying at the money or slightly in the money.
An ATM call (strike near the current stock price) has a delta around 0.50, meaning it moves roughly $0.50 for every $1 the stock moves. It costs more than an OTM call, but it has a much higher probability of being worth something at expiration.
A slightly ITM call (strike a few dollars below the stock price) costs even more but has intrinsic value built in. It is a more conservative position. The stock does not need to move as far for you to profit.
If you want cheaper exposure, go slightly OTM (one or two strikes above the stock price for calls). But do not go five or ten strikes out of the money "because it is cheap." Cheap options are cheap for a reason.
Step 6: check the numbers before ordering
Before you place the order, check these things:
The bid-ask spread. If the spread is more than 10-15% of the option's price, you are paying a lot just to enter. Consider a different strike or expiration with better liquidity.
Open interest and volume. You want at least a few hundred OI at this strike. Today's volume should be nonzero. These are signs that other people are actively trading this contract.
The premium in dollar terms. Remember, a $3.00 premium means $300 per contract. Make sure you are comfortable with the total dollar amount at risk. If you are buying 5 contracts at $3.00 each, that is $1,500.
Your breakeven point. For a call, breakeven at expiration is the strike price plus the premium paid. If you buy a $150 call for $4.00, you need the stock above $154 at expiration to profit. Ask yourself: is that move realistic?
Step 7: place the order
On your broker's options order ticket, you will see several fields:
Action: Buy to Open. This means you are buying to establish a new position. (As opposed to "Sell to Close," which exits an existing position.)
Quantity: Start with 1 contract. Seriously. One. You are learning. There is no reason to size up on your first trade.
Order type: Use a limit order. Set your limit price at or near the mid-price (the midpoint between bid and ask). Do not use a market order on options. Market orders can fill at unfavorable prices, especially on less liquid contracts.
Time in force: Day order is fine. If it does not fill today, you can reassess tomorrow.
After you fill in these fields, review the order confirmation. It will show you the total cost, the contract details, and any fees. Double-check everything. Then submit.
Step 8: after the fill
Your order fills. You now own one options contract. Here is what to expect.
Your position will immediately show a small loss. That is the bid-ask spread at work. You bought at the ask, but the position is marked at the mid or bid. This is normal and expected.
Watch the stock, not just the option price. The option price will bounce around based on the stock movement, time decay, and volatility changes. If the stock is moving in your direction but the option price is not keeping pace, time decay or IV compression might be offsetting the gains. This is normal.
Set a mental exit plan. Before the trade, decide: at what price do I take profits? At what price do I cut losses? Having these numbers in advance prevents emotional decision-making when the position is live.
A reasonable starting framework: consider taking profits if the option doubles in value (100% gain), and consider cutting losses if it drops to 50% of what you paid. These are not magic numbers, but they give you a framework. Holding until expiration hoping for a miracle is how beginners turn small losses into total losses.
Step 9: exiting the trade
To close your position, you sell to close. Same order ticket, but the action is "Sell to Close" instead of "Buy to Open."
Again, use a limit order. Try to sell near the mid-price. If the option has gained value, you pocket the difference between your purchase price and your sale price. If it has lost value, you eat the loss. Either way, the trade is done when you sell to close.
Do not hold options to expiration unless you specifically want to. Most options traders exit their positions before expiration. Holding to expiration introduces complications: potential assignment (if ITM), the risk of the stock moving against you in the final hours, and the loss of any remaining time value.
A common workflow: enter the trade with 30-60 days to expiration, manage it over the next 2-4 weeks, and close it with at least 7-10 days remaining. This avoids the worst of the end-of-life time decay.
Common first-trade mistakes
Buying too many contracts. One contract is 100 shares of exposure. Start with one. If it works, you can scale up later with experience.
Picking a far OTM strike because it is cheap. Low probability of profit. The stock needs a huge move for you to make money.
Picking a weekly expiration because it is cheap. Extreme time decay. You need to be right about direction and timing within days.
Not having an exit plan. "I will figure it out when I see what happens" is not a plan. Set your profit target and stop-loss level before entering.
Ignoring the bid-ask spread. If the spread is $0.50 on a $2.00 option, you are starting with a 25% handicap. Pick a more liquid contract.
Checking the price every five minutes. Options positions fluctuate. If you sized the position correctly (risking an amount you can afford to lose), you do not need to monitor it constantly. Check it once or twice a day.
What to read next
If the concepts in the order ticket were unfamiliar, review how to read an options chain for the full layout of the data you are working with.
Understanding premium helps you evaluate whether the price you are paying is reasonable, and bid-ask spread helps you minimize execution costs.
CallPutHub walks through the entire process of evaluating and entering options trades with real market data, so you can see what each step looks like before you do it with real money.