How to Trade Options on Fidelity – Exploring the Basics and Steps

Introduction

Options trading is a form of investing that allows traders to take advantage of stock price movements without actually owning the underlying asset. It involves buying and selling contracts that give the buyer the right, but not the obligation, to buy (call option) or sell (put option) the underlying security at a predetermined price before the expiration date. Fidelity is a leading financial services provider that offers a wide range of products and services for individual investors and businesses.

Explaining the Basics of Trading Options on Fidelity

Options trading can be intimidating for beginners, so it’s important to understand the basics before getting started. Here’s a quick overview of what you need to know about options trading on Fidelity.

What are Options?

An option is a contract between two parties: the buyer and the seller. The buyer has the right, but not the obligation, to buy or sell the underlying asset at a predetermined price before the expiration date. The seller is obligated to fulfill the terms of the contract if the buyer decides to exercise the option.

How do Options Work?

Options trading is based on the idea of leverage. By buying an option, you don’t have to put up the full value of the underlying asset. Instead, you only need to pay a fraction of the cost. This leverage can help you make more money from a smaller initial investment. However, it also means that you could potentially lose more money than you invest.

What is the Difference Between a Call and a Put Option?

When trading options, you have two main choices: call options and put options. A call option gives the buyer the right to buy the underlying asset at the strike price before the expiration date. A put option gives the buyer the right to sell the underlying asset at the strike price before the expiration date.

Strategies for Trading Options on Fidelity

Options trading is more than just buying and selling individual contracts. There are a variety of strategies that can be used to maximize profits and minimize risk. Some of the most popular strategies for trading options on Fidelity include covered call, bull put spread, bear call spread, long straddle, long strangle, and iron condor.

Outlining Steps to Place an Options Trade on Fidelity

Once you understand the basics of options trading, you’re ready to place an options trade on Fidelity. Here’s how to get started.

Setting up an Account with Fidelity

The first step to trading options on Fidelity is setting up an account. You can open an account online in minutes by providing your basic information. Once your account is set up, you can fund it with cash or transfer funds from another brokerage account.

Researching Different Types of Options Trades

Before placing an options trade, it’s important to research the different types of trades available and decide which strategy is best for you. Fidelity offers a variety of educational resources to help you learn more about options trading.

Placing an Options Trade

Once you’ve researched the different types of options trades, you’re ready to place an order. Fidelity makes it easy to place an order online. Simply log in to your account, enter the details of the trade, and click “Submit.” Your order will be processed and you’ll receive confirmation once it’s completed.

Describing the Different Types of Options Trades Available on Fidelity

Fidelity offers a variety of options trading strategies. Here’s a brief overview of the most popular strategies.

Covered Call

In a covered call strategy, you buy the underlying asset and simultaneously sell a call option. This strategy allows you to generate income while still owning the asset. If the stock price rises above the strike price, the option will be exercised and you’ll benefit from the additional income.

Bull Put Spread

A bull put spread is a type of vertical spread that involves buying a lower strike put option and selling a higher strike put option. This strategy is designed to profit from a rise in the stock price. It limits potential losses and reduces the amount of capital needed to enter the trade.

Bear Call Spread

A bear call spread is similar to a bull put spread, but it involves buying a higher strike call option and selling a lower strike call option. This strategy is designed to profit from a fall in the stock price. Like a bull put spread, it limits potential losses and reduces the amount of capital needed to enter the trade.

Long Straddle

A long straddle is a strategy that involves buying both a call and a put option with the same strike price and expiration date. This strategy allows you to benefit from significant price movements in either direction. It’s typically used when there is high volatility in the market.

Long Strangle

A long strangle is similar to a long straddle, but it involves buying a call option with a higher strike price and a put option with a lower strike price. This strategy allows you to benefit from significant price movements in either direction. However, it requires more capital than a long straddle.

Iron Condor

An iron condor is a strategy that involves buying a lower strike call option, selling a higher strike call option, buying a lower strike put option, and selling a higher strike put option. This strategy is designed to benefit from a sideways movement in the stock price. It typically generates consistent returns and requires less capital than a long straddle or long strangle.

Analyzing the Advantages and Disadvantages of Trading Options on Fidelity

Options trading can be a profitable way to invest, but it’s important to understand the pros and cons before getting started. Here’s a look at the advantages and disadvantages of trading options on Fidelity.

Advantages

One of the biggest advantages of trading options on Fidelity is the low costs and commissions. Fidelity offers competitive pricing and discounts for active traders. In addition, Fidelity has a wide selection of educational resources to help traders learn more about options trading. Finally, Fidelity has customer service representatives available 24/7 to answer any questions you may have.

Disadvantages

One of the drawbacks of trading options on Fidelity is the lack of tools and features. While Fidelity does offer some tools, they are not as comprehensive as those offered by other brokers. Additionally, Fidelity doesn’t offer any automated trading tools or platforms. Finally, options trading can be risky, so it’s important to understand the risks before getting started.

Examining the Fees and Commissions for Trading Options on Fidelity

Fidelity offers competitive fees and commissions for options trading. Here’s a look at the fees and commissions you can expect when trading options on Fidelity.

Commissions

Fidelity charges a flat fee of $0.65 per options contract. This means that you’ll pay $0.65 for each side of the trade, regardless of the size of the order. You can also save money on commissions by taking advantage of Fidelity’s volume discounts.

Other Fees

In addition to commissions, Fidelity also charges other fees, such as exchange fees and clearing fees. These fees vary depending on the type of trade and the exchange where the trade is executed. You can view a full list of fees on the Fidelity website.

Conclusion

Options trading can be a great way to make money, but it’s important to understand the basics before getting started. Fidelity is a leading financial services provider that offers low costs and commissions, a wide selection of educational resources, and customer service representatives available 24/7. With the right knowledge and strategy, trading options on Fidelity can be a profitable way to invest.

Summary

Options trading is a form of investing that allows traders to take advantage of stock price movements without actually owning the underlying asset. Fidelity is a leading financial services provider that offers a wide range of products and services for individual investors and businesses. This article provided an overview of options trading with Fidelity, including the basics, different types of trades available, advantages and disadvantages, and fees.

Final Thoughts

Options trading can be a profitable way to invest, but it’s important to understand the basics and the risks before getting started. Fidelity offers a variety of tools and resources to help traders learn more about options trading and develop successful trading strategies. With the right knowledge and strategy, trading options on Fidelity can be a great way to make money.