How to Trade Options on ETRADE: Step by Step

Trading options on ETRADE can be a powerful way to grow your portfolio, hedge risk, or speculate on market direction. Whether you’re a beginner or brushing up on the basics, this guide will walk you through what options are, how they work, and how to trade options on ETRADE and Power ETRADE platforms—with real-world examples to make it all clear.

What Are Options?

Before diving into trading on ETRADE, it’s important to understand what options are.

• Call Option: A call option gives the buyer the right—but not the obligation—to buy a stock at a specific price (called the strike price) by a certain date (the expiration date). Call options increase in value as the underlying stock price rises.
• Put Option: A put option gives the buyer the right—but not the obligation—to sell a stock at a specific strike price by the expiration date. A long put is essentially a bearish strategy, gaining value as the stock price falls.

Basic Option Example: Buying a Put on Apple

Let’s say you believe Apple stock (AAPL) will go down. Here’s how you could buy a put option:

1. Choose a Strategy: You pick a “put” since you’re expecting a decline.
2. Select Action: Choose “Buy to Open.”
3. Choose Quantity: One options contract equals 100 shares. If Apple drops $1, you make $100.
4. Set Expiration Date: You can choose from weekly or monthly expirations. For example, picking January 20, 2023 gives you more time for the trade to work.
5. Set Strike Price: Let’s choose a strike of $145. That means you have the right to sell Apple at $145 anytime until January 20, 2023.
6. Review Premium: The premium (price per share) is $10.30. So, 100 x $10.30 = $1,030. That’s your max potential loss.

If Apple falls to $120, your right to sell at $145 would be worth $25 per share, or $2,500—minus the premium you paid, which still nets you a strong profit.

Time Sensitivity and Profit Example

Fast-forward one day. Apple has dropped from $145 to $141.67—a 2.6% decline. Your put, which you bought for $10.30 per share, is now worth $11.90. That’s a gain of $160 in one day. This demonstrates how quickly options can react to underlying price moves.

Keep in mind: You’re not required to exercise the option. Most traders sell the option itself for a profit (or loss) before expiration.

Understanding Bid/Ask Spread and Order Types

When placing your trade, you’ll see two prices:

• Bid: The highest price someone is willing to pay.
• Ask: The lowest price someone is willing to sell for.

For example, if the bid is $11.85 and the ask is $12.00, you can try to buy at $11.95 and wait for your order to be filled. A few cents can add up over multiple trades, so it’s smart to set a limit order rather than using market price.

Use the following settings:

• Order Type: Limit (to control the price you pay)
• Duration: Choose day or good-till-canceled (GTC)

Placing an Options Trade on Power E*TRADE

The Power E*TRADE platform offers a more detailed view and better tools for active traders. Here’s how to use it:

1. Log into Power E*TRADE
2. Search Your Stock (e.g., AAPL)
3. Choose Expiration Date: Let’s go with January 23, 2023 (105 days away)
4. Select Your Strike: For a put option, pick a strike below the current price. If Apple is trading at $141, you might choose $140.
5. Review Premium: If the option is trading at $9.90 per share, the full contract costs $990.
6. Place Your Order: Use limit order type to buy at $9.90 or slightly less.
7. Monitor the Trade: You’ll see it appear in your “Positions” tab once filled.

If Apple falls below $140 before expiration, the value of your option increases. Again, the goal is usually to sell the option itself—not to buy/sell the actual stock.

Real Example with Tesla

Let’s now apply this to another stock—Tesla (TSLA), trading at $227.

1. Choose January 23 expiration
2. Pick a Strike Price: Let’s say $226.77
3. Check the Premium: If the put option costs $29.60, one contract costs $2,960.
4. Place the Order: You submit and the order fills.

Later, if Tesla drops and the premium rises, you can sell your put for a profit.

How to Close an Options Position

To lock in gains or cut losses:

1. Go to your Positions tab.
2. Find the contract you want to sell.
3. Click on it, then select Close.
4. Choose Sell to Close (or “Buy to Close” if you originally sold a put or call).
5. Decide between Market or Limit price.
6. Preview and Submit your order.

Example: You have two Tesla put contracts with a bid at $30.60 and ask at $30.75. If you’re satisfied with the current price, you can set a market order to exit immediately or use a limit order to try for a slightly higher sale.

When filled, the funds go back into your account.

How to Trade Options on ETRADE: Useful Tips

• Start Small: Begin with one contract to get a feel for how options move.
• Watch the Greeks: Delta, Gamma, Theta, and Vega help you understand how your option may react to time, price, and volatility changes.
• Avoid Illiquid Contracts: High bid/ask spreads can make it hard to enter or exit profitably.
• Use Limit Orders: Always try to control your entry and exit prices.
• Monitor Your Positions: Time decay (Theta) can eat into your option value, especially on short-term contracts.

Final Thoughts

Trading options on ETRADE and Power E*TRADE is accessible and intuitive once you get the hang of it. With tools for both beginners and active traders, the platform lets you explore strategies ranging from simple calls and puts to advanced spreads and multi-leg trades.

Whether you’re bearish or bullish, short-term or long-term, ETRADE offers the resources and technology to help you trade options with precision. As always, make sure to do your research and understand the risks before placing any trade.