5-step guide to options research

Here are a few tips and resources to help you trade options.

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Key takeaways

  • Find a comprehensive source of options information.
  • Explore the options chain, utilize tools, and learn different strategies.
  • Practice before trying the real thing.

Buying and selling options is more complex than buying and selling stocks. So, you'll want to have access to top research and tools to create, test, and ultimately implement your strategies. Fortunately, there are easily accessible tools and resources on Fidelity.com to help you hone your options research skills.

For knowledgeable investors who are willing to accept the risks of trading options, here is a 5-step guide to researching options.

1. Find a comprehensive source of options information

Just as a carpenter needs tools, options investors need information, ideally all in one place. Enter Fidelity.com's options hub, where you can find powerful options research and a platform to place trades. Among the features you'll find there are:

2. Get to know the options chain

The options chain is where the rubber meets the road. This is where all options contracts for a particular stock or index are listed. Vital information, such as the type of options available (calls and puts), strike price, expiration date, greeks (defined later in this article), and more, is found in the options chain.

It's worth spending a little time getting used to what an options chain looks like so that you can better navigate it when the time comes to make a real trade (see the graphic below).

The options chain differentiates between calls (left side in the graphic above) and puts (right side), and identifies the cost of the various options (bid-ask spreads highlighted in yellow), as well as the expiration date (e.g., July 15, 2016), and the strike price (middle column highlighted in rose).

You can find an options chain on Fidelity.com by going to the options research page, selecting "Quotes and Tools", then Option Chain and enter a ticker symbol for a stock or index.

3. Utilize options statistics and tools

Much as fundamental business metrics—such as earnings, revenues, and costs—can help when analyzing stocks, there are several important statistics that are commonly used to analyze options. They include:

Additionally, there are powerful tools that can help you analyze and select among the different options contracts, such as:

  • Greeks: These are mathematical calculations designed to help traders assess risk by measuring the impact of changes in price, time, volatility, and other factors on options prices.
  • Probability calculator: Determining the right strike prices and expiration dates is critical to success in the options market. With a probability calculator, you can analyze the likelihood of the underlying stock trading at or between your price targets by a specified date, based on historical volatility.
  • Profit/loss calculator: This tool can help you model how changes to the underlying price, dividends, interest, and volatility can affect the profitability of your strategy.

4. Learn about different strategies

Once you've become accustomed to the type of information you can discover about options, the intricacies of the options chain, and the various tools available to analyze options, you might benefit from learning about combinations of options that can be constructed in order to potentially take advantage of your market outlook.

In addition to simply buying and selling options, there are a number of different options strategies that you can employ, depending on your expectation for the market or for a particular stock or index. For example, in volatile markets you might consider a straddle or strangle strategy. Or, if you wanted to generate income on a stock you own and have a neutral outlook on, there's the covered call strategy.

You can find these strategies, and many more, on Fidelity.com in our options strategy guide.

5. Practice your trades

Given that trading options is relatively more complex than buying and selling stocks, it may be prudent to try a few practices trades before doing the real thing. Best of all, you can test your own strategies, develop your own methods to research options, and possibly find yourself more prepared to make a real options trade.

Next steps to consider

Get new options ideas and up-to-the-minute data on options.

Watch a video to learn how you can approach risk management when trading options.

Discover covered calls, protective puts, spreads, straddles, condors, and more.

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Options trading entails significant risk and is not appropriate for all investors. Certain complex options strategies carry additional risk. Prior to trading options, please read Characteristics and Risks of Standardized Options, and call 800-343-3548 to be approved for options trading. Supporting documentation for any claims, if applicable, will be furnished upon request.
ETFs are subject to market fluctuation and the risks of their underlying investments. ETFs are subject to management fees and other expenses. Unlike mutual funds, ETF shares are bought and sold at market price, which may be higher or lower than their NAV, and are not individually redeemed from the fund.
Fidelity’s Active Trader Pro PlatformsSM is available to customers trading 36 times or more in a rolling 12‐month period; customers who trade 120 times or more have access to Recognia anticipated events and Elliott Wave analysis.
There may be additional transaction costs in option strategies that call for multiple purchases and sales of options, such as spreads, straddles, and collars.
Greeks are mathematical calculations used to determine the effect of various factors on options.
Wealth-Lab Pro® is available to investors in households that place 36 or more stock, bond, or options trades in a rolling twelve-month period and maintain $25K in assets across their eligible Fidelity brokerage accounts.
The strategy testing and backtesting features available on Fidelity.com or in Wealth-Lab Pro, and any resulting trade signals generated by the strategies, are provided for educational purposes and as examples only. They should not be used or relied upon to make decisions about your individual situation. You may modify the backtesting parameters as you see fit. Fidelity is not adopting, making a recommendation for, or endorsing any trading or investment strategy or particular security. The backtesting feature provides a hypothetical calculation of how a security or portfolio of securities would have performed over a historical time period according to the criteria in the example trading strategy. Only securities that were in existence during the historical time period and that have historical pricing data are available for use in the backtesting feature. The feature has only a limited ability to calculate hypothetical trading commissions, and it does not account for any other fees or for tax consequences that could result from a trading strategy. You should not assume that backtesting of a trading strategy will provide any indication of how your portfolio of securities, or a new portfolio of securities, might perform over time. You should choose your own trading strategies based on your particular objectives and risk tolerance. Be sure to review your decisions periodically to make sure they are still consistent with your goals.
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