How to Place Your First Options Trade

You understand what options are, you know the key terms, and you are ready to actually place a trade. This guide walks through the entire process step by step, from choosing what to trade to entering the order correctly, along with the checks you should make at each stage to avoid the most common beginner mistakes.

Before you start: what you need

An approved options trading account: your broker must approve you for options trading, which usually involves answering questions about your experience and financial situation. Most beginners start at Level 1 or Level 2 approval, which covers buying calls and puts, covered calls, and cash-secured puts.

A basic strategy in mind: for your first trade, keep it simple. Buying a single call or put, or selling a covered call against stock you own, are the most straightforward starting points.

Capital you can afford to lose: options can expire worthless. Never place your first trade with money you cannot afford to lose entirely.

Step 1: Choose a liquid underlying

For your first trade, stick to highly liquid, well-known stocks or ETFs. Good starting choices include SPY, QQQ, AAPL, MSFT, and NVDA. These have tight bid-ask spreads, deep options chains, and plenty of open interest, which means you can enter and exit easily at fair prices.

Avoid small-cap stocks, low-volume names, and anything with wide bid-ask spreads for your first trades. Illiquid options are difficult to exit and expensive to trade.

Step 2: Decide direction and pick call or put

• If you are bullish (expect the stock to rise): buy a call.
• If you are bearish (expect the stock to fall): buy a put.

For a first trade, a simple long call or long put is the most intuitive. Your maximum loss is the premium paid, and your risk is strictly limited to what you invest.

Step 3: Choose your expiration

For a first directional trade, choose an expiration at least 30 to 45 days out. This gives your trade time to develop without theta decay eroding the position too quickly.

Avoid very short-dated options (under 2 weeks) for your first trade. They decay rapidly and require the stock to move quickly, which is a hard way to start.

Step 4: Choose your strike

For a first trade, an at-the-money or slightly out-of-the-money strike is a reasonable choice. Look for a delta around 0.40 to 0.50.

A strike near the money moves more predictably with the stock and gives you a reasonable probability of the trade working if you are right on direction. Far out-of-the-money strikes are cheaper but require a large move and have a low probability of profiting.

Step 5: Check the liquidity of the specific contract

Before committing, check three things on the specific option you have chosen:

• Bid-ask spread: should be tight, ideally under $0.10 or under 10% of the option price
• Open interest: ideally above 500 contracts at that strike
• Volume: some trading activity today, ideally in the hundreds

If the spread is wide or open interest is very low, choose a different strike or expiration with better liquidity.

Step 6: Check IV rank

Before buying, check the stock's IV rank. If IV rank is high (above 60), options are expensive right now, and you are paying inflated premium. If it is low (below 30), options are cheaper and represent better value for buyers.

For a first trade, buying when IV rank is low to moderate is preferable. Buying options when IV rank is very high, especially right before earnings, exposes you to IV crush, which can cause losses even when you are right on direction.

Step 7: Enter the order using a limit order

This is critical: always use a limit order, never a market order.

Set your limit price at or near the midpoint between the bid and ask. For example, if the bid is $2.80 and the ask is $2.90, set your limit at $2.85.

A market order fills at whatever price is available, which on options often means paying the full ask (or receiving the full bid when selling), giving up the entire spread. A limit order gives you control over the price you pay.

If your limit order does not fill immediately, you can adjust it slightly toward the ask until it fills, but starting at the midpoint often gets you a better price.

Step 8: Define your exit before you are in

Before you place the order, decide two things:

Profit target: at what point will you close for a gain? A common approach for buyers is closing when the option gains 50 to 100% in value.

Stop loss: at what point will you close to limit a loss? A common approach is closing when the option loses 50% of its value, preserving capital rather than holding to zero.

Write these levels down. The single most common beginner mistake is having no exit plan and holding a losing position until it expires worthless.

Step 9: Place the trade and monitor it

Once your limit order fills, you have an open position. Monitor it against your predefined profit target and stop loss. Do not check it obsessively, but review it daily, especially as expiration approaches.

A complete first-trade example

You are mildly bullish on AAPL, currently at $185.

• Underlying: AAPL (liquid, tight spreads)
• Direction: bullish, so a call
• Expiration: 40 days out
• Strike: $185 (at the money, delta near 0.50)
• Liquidity check: spread is $0.08, open interest 25,000, good volume
• IV rank: 35 (moderate, acceptable for buying)
• Premium: $5.00, so $500 for the contract
• Limit order: placed at $5.00 (the midpoint), fills
• Profit target: close at $7.50 to $10.00 (50 to 100% gain)
• Stop loss: close at $2.50 (50% loss)

You now hold a defined-risk bullish position with a clear plan for both outcomes.

The most important first-trade principles

• Start small: trade one contract. Learn the mechanics before scaling up.
• Use liquid underlyings: SPY, QQQ, and major large caps for your first trades.
• Always use limit orders: never market orders on options.
• Define your exit before entering: know your profit target and stop loss.
• Check IV rank: avoid buying expensive options in high-IV environments.
• Never risk more than you can afford to lose: options can expire worthless.

Related terms: Call option, put option, strike price, premium, delta, IV rank, bid-ask spread, limit order

Try it on Stryke: Find liquid options, check IV rank, and identify the right strike for your first trade in the Options Screener.