Selling Contracts on Robinhood

Selling Contracts on Robinhood: A Beginner`s Guide

If you`re interested in trading options contracts, Robinhood can be a great platform to start with. With its commission-free trading, low barriers to entry, and intuitive interface, Robinhood has made trading options more accessible to the masses.

However, before you jump into selling contracts on Robinhood, there are a few things you need to know. Here`s a beginner`s guide to selling contracts on Robinhood:

What exactly are options contracts?

Options contracts are financial instruments that give the buyer the right to buy or sell an underlying asset at a predetermined price and time. When you sell an options contract, you`re essentially selling the right to buy or sell that asset to someone else. There are two types of options contracts: calls and puts. A call option gives the buyer the right to buy the underlying asset, while a put option gives the buyer the right to sell the underlying asset.

Why sell options contracts?

Selling options contracts can be a way to generate income in a relatively low-risk way. When you sell an options contract, you receive a premium, which is the price the buyer pays for the right to buy or sell the underlying asset. If the contract expires without the buyer exercising their right, you get to keep the premium as profit.

Of course, there is some risk involved in selling options contracts. If the price of the underlying asset moves against you, you could end up having to buy or sell the asset at a loss. However, there are strategies you can use to mitigate this risk, such as selling contracts that are out of the money or using stop-loss orders.

How to sell options contracts on Robinhood

Selling options contracts on Robinhood is fairly straightforward. Here`s how to do it:

1. Open the Robinhood app and navigate to the options trading screen.

2. Choose the options contract you want to sell. You can search for contracts by typing in the underlying asset symbol or by filtering by expiration date, strike price, and type of contract.

3. Click on the “sell” button for the contract you want to sell.

4. Choose the number of contracts you want to sell and set the price you want to sell them for. You can either choose a specific price or let Robinhood set the price based on the market.

5. Review and confirm your order.

When you sell an options contract on Robinhood, you`ll need to have enough buying power in your account to cover the potential loss if the contract is exercised. Robinhood will automatically calculate and set aside this amount when you sell the contract.

Final thoughts

Selling options contracts on Robinhood can be a way to generate income in a relatively low-risk way. However, it`s important to understand the risks involved and to have a solid strategy in place. As with any type of trading, it`s also important to do your research and stay up-to-date on market trends and news. With the right approach, selling options contracts on Robinhood can be a valuable addition to your investment portfolio.

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