How to Trade European Options
- 1). Learn as much as you can about European-style options and, because they are derivatives of the underlying assets, study the markets for those assets as well. The most popular assets on which options are issued include currencies, stocks and commodities like crude oil.
Read specialized books, preferably those written by outstanding traders and investors. For more up-to-date information, access business news agencies such as Bloomberg or Reuters, and read publications like The New York Times. - 2). Open an account with a brokerage firm that offers European options among the instruments you can trade. Wire the funds that you are willing and able to invest in trading European options to your trading account.
- 3). Set up a trading strategy. There are two types of European-style options: put options and call options. Put options allow you to sell an underlying asset, whereas call options give you the right to buy it. If you believe that the price of the asset will go up, buy the call option. Your call option will enable you to buy the asset at a cheaper price when the price has increased, and sell it at the higher (market) price, making an instant profit.
If you think that the price of the underlying asset will fall, buy put options. - 4). Trade European-style options as close to your trading strategy as possible. Try to abstain from pursuing trading opportunities beyond your strategy, and don't be seized by fear and abstain from executing your strategy. In short, be disciplined.