How to Buy Calls and Puts on Robinhood
If youre interested in trading options, its important to make sure you understand how to buy calls and puts on Robinhood. Options contracts give investors the right (but not the obligation) to buy or sell a stock at a certain price, on or before a certain date. Knowing how to buy calls and puts on Robinhood is essential for any investor looking to benefit from the volatility of stocks.
What Are Calls and Puts?
First, its important to understand the difference between calls and puts. A call option gives the investor the right to purchase a certain number of shares of a specific stock at a certain price, on or before a certain date. For example, you buy a call option for 100 shares of company XYZ at $50 per share, with an expiration date of February 15. If the stock price of XYZ rises above $50 before February 15, you can exercise your call option and purchase the shares at $50 each.
A put option gives the investor the right to sell a certain number of shares of a specific stock at a certain price, on or before a certain date. For example, you buy a put option for 100 shares of company XYZ at $50 per share, with an expiration date of February 15. If the stock price of XYZ falls below $50 before February 15, you can exercise your put option and sell the shares at $50 each.
How to Buy Calls and Puts on Robinhood
Now that you understand what calls and puts are, you can learn how to buy them on Robinhood.
1. Log in to your account
2. Tap the search bar and enter the stock you want to buy options for
3. Tap the stock symbol to open the stock details page
4. Scroll down to the Options section
5. Tap either Buy Calls or Buy Puts
6. Select the expiration date, number of contracts and strike price
7. Review the order details and tap Buy
Its important to note that buying calls and puts on Robinhood involves the same fees as buying stocks. That means youll pay $5 per trade, plus a $0.01 per share fee for orders over 1,000 shares.
Things to Consider When Buying Calls and Puts
When buying calls and puts, its important to consider the following:
Volatility: If the stock is volatile, it can be harder to predict what will happen. On the other hand, if the stock is less volatile, its easier to predict whether the stock price will go up or down.
Strike Price: The strike price is the price at which you can buy or sell the stock. If you buy a call option with a strike price of $50, you can only purchase the stock at $50.
Expiration Date: The expiration date is the date at which the option will expire. Make sure to consider how much time you have to make a profit from the option.
Risk: Options trading comes with a high degree of risk. Make sure to understand the risks before investing.
Conclusion
Learning how to buy calls and puts on Robinhood is essential for any investor looking to benefit from the volatility of stocks. Consider the volatility of the stock, the strike price, the expiration date and the risks before investing. By following these steps, you can increase your chances of making a profit from options trading