Spread Trading: An Introduction to Trading Options in Nine Simple Steps

CHAPTER 31

Fun, Fun, Fun!

“Now you begin practicing.”

“Right,” added Nate. “See, there’s a way for you to trade options—to use all these instruments we’ve talked about—without using any real money. You just go to the web site OptionsAnimal, click on ‘virtual trading,’ and follow the instructions. You can create a portfolio of $10,000 . . . or $1 million. Whatever suits your fancy. Just have fun.”

“Because you’re not using real money,” explained Aaron, “this is called paper trading or virtual trading. You get all the value of trading experience without risking any actual money along the way.”

TRACKING THE PERFORMANCE OF CALLS

“However,” said Nate, “before you actually begin paper trading—before you begin buying and selling on this web site—we suggest you do a little preparation first. Here’s what you do: using this web site, pick one stock you want to work with, and then track the performance of calls with that stock over the course of a month.”

“A whole month?” asked Shorty. “A whole month of tracking before we begin trading?”

“Yes, and even that may be too short. But at least a month for our purposes here.”

“Now the best way to do this,” said Nate, “is to choose two different strike prices to follow—one near the money and one three strikes out of the money, but both with the same expiration date. That will give us a chance to see how calls play out for different strikes in the same time period.”

“Right,” said Aaron. “And then we pick a single strike price to follow, but in ...