【2025 US Options Tutorial】Understand Options in One Read! From Opening a Firstrade Account to 4 Major Trading Strategies

Do you want to amplify profits, increase cash flow, or hedge your holdings in the US stock market? US options, also known as US stock options, are excellent tools that help countless investors achieve their financial goals. However, their complex terminology and diverse strategies often intimidate beginners. This US options tutorial will guide you from zero, illustrating the Firstrade options account opening process, explaining four core trading strategies, and comparing the strengths and weaknesses of major US options brokers so you can fully understand how to begin your options investing journey safely. 

What Are US Options? Core Concepts Every Beginner Must Understand

Before diving into advanced trading strategies, you must first build a solid foundation. Imagine that instead of buying or selling the stock itself, you are buying or selling a “contract that lets you buy or sell the stock at a specific price in the future”. That is the essence of options.

Options vs. Stocks: You Are Buying a “Right”, Not an “Asset”

When you buy a share of TSMC (TSM), you own part of the company. That is an “asset”. But when you buy an options contract on TSMC, what you own is the “right” to “buy or sell” TSMC stock at an agreed price at a future time, without any obligation.

• Stock: An asset representing ownership in part of a company.
• Option: A contract that grants the holder the right to buy or sell the underlying asset at a specified price within a specified time.

This characteristic of having a “right and not an obligation” gives options tremendous flexibility and creates leverage. With a relatively small amount of capital (the premium), you can control a stock position worth far more.

Understand the Four Key Elements of an Options Quote: Underlying Asset, Strike Price, Expiration Date, Premium

Reading an options quote is like learning a new language. You must understand the following four key components:

1. Underlying Asset: The stock or ETF on which the option is based, such as Apple (AAPL), Nvidia (NVDA), or the S&P 500 ETF (SPY).
2. Strike Price: The agreed price at which you “have the right” to execute the buy or sell. For example, you may buy an AAPL option with a strike price of $200.
3. Expiration Date: The validity period of the options contract. After this date, the contract expires and your right disappears. US options typically expire on Fridays.
4. Premium: The price paid to purchase the options contract. This is the fee the buyer pays the seller and represents the maximum potential loss for the buyer.

What Exactly Are Calls and Puts? A Plain Language Explanation

Options are mainly divided into two types, and understanding their directional nature is crucial:

• 📞 Call Option: Grants you the right to “buy” the underlying asset. Investors buy calls when they expect the stock price to rise. For example, you buy an NVDA Call that expires next month with a strike price of $900. If NVDA rises to $950 at expiration, you have the right to buy a $950 stock for $900 and profit from the difference.
• 🛡️ Put Option: Grants you the right to “sell” the underlying asset. Investors buy puts when they expect the stock price to fall or when they want to hedge existing holdings. For instance, if you hold many META shares but worry about a post earnings drop, you can buy a META Put as insurance. If the stock does fall sharply, the value of your Put increases, offsetting the loss in your stock position.

Beginner Must-Learn! 4 Basic US Options Trading Strategies

Once you have mastered the foundational concepts, you can begin learning how to apply these tools. Below are four US options trading strategies that are most suitable for beginners, covering different market outlooks and objectives. 

Strategy 1: Buy Call – When You Are Strongly Bullish 📈

This is the most straightforward bullish strategy. When you expect a stock to experience a significant short-term rise, you can buy a Call to amplify your profit potential.

• When to Use: When you are strongly optimistic about a stock’s short-term movement, such as expecting an earnings beat or a major product launch.
• How to Execute: Pay the premium and buy a Call contract with a specific strike price and expiration date.
• Risk and Return:

• Maximum Loss: The premium you paid (loss is limited).
• Maximum Profit: Theoretically unlimited (the more the stock rises, the more you earn).

Strategy 2: Buy Put – When You Are Strongly Bearish 📉

This is the opposite of buying a Call and is the most straightforward bearish strategy. When you expect a stock to decline or want to insure your investment portfolio, this is an excellent tool.

• When to Use: Strongly bearish on a stock or worried that the market is about to pull back and want to protect existing holdings.
• How to Execute: Pay the premium and buy a Put contract with a specific strike price and expiration date.
• Risk and Return:

• Maximum Loss: The premium you paid (loss is limited).
• Maximum Profit: Maximized if the stock price falls to zero (very large but limited).

Strategy 3: Sell Put – A Cash Flow Strategy for Stable Income 💰

This strategy is also called a “Cash Secured Put” and is favored by many value investors. The core idea is: You are willing to buy a stock you like at a price lower than the current market price while collecting a premium upfront.

• When to Use: You are bullish on a stock in the long term but uncertain about short-term movement, or you believe the stock is in consolidation or a slow upward phase.
• How to Execute: Sell an Out-of-the-Money Put option and immediately collect the premium. At the same time, your account must have enough cash to prepare for assignment (that is, buying 100 shares at the strike price).
• Risk and Return:

• Maximum Profit: The premium you received (profit is limited).
• Maximum Loss: If the stock drops significantly, you must buy the stock at the strike price, which is higher than the market price, resulting in unrealized losses.

Strategy 4: Covered Call – Let Your Holdings Earn Premium for You 🛡️

If you already hold at least 100 shares of a stock and believe it will not surge in the short term, a Covered Call is an excellent strategy that can generate additional cash flow for you.

• When to Use: You hold a stock you are bullish on long term but expect the price to consolidate or rise slightly in the short term.
• How to Execute: While holding at least 100 shares of the stock, sell an Out-of-the-Money Call option and collect the premium.
• Risk and Return:
  • Maximum Profit: The premium received + (strike price − stock purchase price) (profit is limited).
  • Maximum Loss: If the stock drops significantly, the loss on your shares is partially offset by the premium received.

How to Choose the Best US Options Broker (Including Firstrade Analysis)

Choosing the right US options broker is the first step toward successful trading. For beginners, a user-friendly interface, low fees, and reliable customer support are essential. 

Three Key Factors When Selecting a Broker: Trading Fees, Platform Stability, Chinese Customer Support

1. Trading Fees: Most US brokers now offer zero commission for stock trades, but options trades typically still charge a “per-contract fee”. Although small (usually $0.5–$0.65 per contract), this fee can accumulate over time for active traders.
2. Platform Stability: During periods of high market volatility (such as earnings releases or Federal Reserve announcements), platform stability and execution speed are critical. Delays or outages may result in significant losses.
3. Chinese Customer Support: For Mandarin-speaking investors, having access to fluent Chinese customer service can greatly reduce misunderstandings and communication issues when problems arise.

Firstrade Options Pros and Cons: Why Is It Suitable for Beginners?

Firstrade is the first choice for many overseas Chinese investing in US stocks, and it is especially beginner friendly when it comes to options trading.

Pros:

• ✅ Zero commission and zero contract fee: Firstrade is one of the few brokers offering $0 commission and $0 contract fees, greatly reducing trading costs for beginners.
• ✅ Full Chinese interface and customer service: From account opening to order placement, the platform provides a complete Traditional Chinese interface, along with 24-hour Chinese phone support and online assistance.
• ✅ Simple account opening process: The entire application can be completed online without mailing physical documents, making it very convenient for overseas investors.

Cons:

• ❌ Basic trading tools: Compared with professional trading platforms, Firstrade’s charting and analysis tools are more basic and may not meet the needs of advanced traders.
• ❌ Execution speed: In extreme market conditions, order execution speed is sometimes slower than brokers designed for institutional-level trading.

Comparison of Other Popular Brokers: Interactive Brokers and Charles Schwab

Aside from Firstrade, there are other excellent choices in the market:

• Interactive Brokers (IB): The top choice for professional traders. It offers the industry’s lowest margin rates and very low contract fees, with powerful trading tools. However, the platform interface is relatively complex and less beginner friendly.
• Charles Schwab: A long-established US brokerage that became even more robust after acquiring TD Ameritrade. It offers extensive research reports and educational resources, and the platform is stable and reliable, but its options contract fees are relatively higher.

Step-by-Step Firstrade Options Order Placement Tutorial

Ready to get started? The following guide will walk you through your first options trade on Firstrade.

Step 1: How to Enable Options Trading Permissions on Firstrade

After logging into your Firstrade account, you must separately apply to enable options trading permissions. The process is as follows:

1. Go to “My Account” > “Account Settings”.
2. Find “Options Application” and click to enter.
3. Fill out the online form, which mainly asks about your investment experience and financial status. Just answer honestly.
4. After submitting the application, it typically takes 1–3 business days for review. Once approved, you will receive an email notification.

Note: Brokers approve different options trading levels (Option Levels) based on your profile. The higher the level, the more strategies you can use (such as selling uncovered Calls). Beginners usually start at Level 1 or Level 2.

Step 2: Understanding the Option Chain and Quotes

The option chain is the core interface for options trading. It displays, in table format, all available options contracts for a given underlying asset. After entering a stock symbol on Firstrade’s “Trade” page and selecting “Option Chain”, you will see the following key information:

• Calls / Puts: The interface is divided into two sides, Calls on one side and Puts on the other.
• Strike: Located in the middle column, showing all available strike prices.
• Expiration: You can select different expiration dates at the top of the page.
• Bid / Ask: The Bid is the highest price a buyer is willing to pay, and the Ask is the lowest price a seller is willing to accept. These are the main prices you reference when placing an order.
• Volume: The number of contracts traded that day. Higher volume indicates better liquidity.
• Open Interest: The total number of outstanding contracts not yet closed, reflecting the market’s level of interest in that contract.

Step 3: Execute Your First US Options Order

Suppose you are bullish on Apple (AAPL) and want to use the “Buy Call” strategy:

1. In the option chain, select a future expiration date.
2. On the left side under “Calls”, find a strike price you believe the stock can reach and click the “Ask” price for that row.
3. A trade window will appear. Confirm the following information:
   • Trade Type: Buy to Open
   • Quantity: Enter the number of contracts you want to buy (1 contract represents 100 shares)
   • Price: The default is a Limit Order. You may set the maximum premium you are willing to pay.
4. Preview the order and confirm the total cost before submitting it.

Congratulations! You have completed your first US options trade.

Frequently Asked Questions (FAQ)

Q: Do I need a lot of money to trade US options?

A: Not necessarily. If you are the “buyer” (Buy Call or Buy Put), the only funds required are the premium, which may be as low as a few dozen or a few hundred dollars, allowing you to participate in the movement of high-priced stocks. This is one of the key advantages of options, using small capital for large exposure. However, if you are the “seller” (Sell Put or Sell Call), you must prepare sufficient margin or stock to secure the obligation of assignment, which requires relatively more capital.

Q: Are US options high risk? How do I control risk?

A: The risk of US options depends on the strategy you use. As a buyer, your maximum risk is “limited”, meaning you can lose at most the entire premium. However, as a seller (especially an uncovered seller), potential risk can be “unlimited”. The keys to controlling risk are: 1. Never commit funds you cannot afford to lose. 2. Start by learning buyer-side strategies with limited risk. 3. Manage position sizing carefully so that a single trade does not take up too large a portion of your total capital. 4. Understand the risk structure of every strategy you trade.

Q: What happens if I forget to close my options position?

A: If you forget to close a position on expiration day, one of the following will occur:

1. In the Money: The option has exercise value. The broker will usually exercise it automatically. For example, if you hold a Call with a $100 strike and the stock is $105 at expiration, the broker will automatically buy 100 shares for you at $100 per share.
2. Out of the Money: The option has no exercise value. The contract expires worthless, and you lose the premium you originally paid.
3. At the Money: The stock price is very close to the strike price. The handling method varies by broker, but it is best to close the position before expiration to avoid uncertainty.

Q: Is Firstrade’s options fee really zero?

A: Yes. Firstrade charges $0 commission and $0 contract fees for options trades. However, every trade still incurs very small regulatory fees, such as the Options Regulatory Fee (ORF) and SEC fees. These are charged by regulators, are extremely small, and usually amount to less than $0.1 per contract, having virtually no impact on typical trades.

Conclusion

In summary, US options are highly flexible financial instruments. Whether you want to use small capital for large exposure, generate stable cash flow, or hedge existing holdings, there are corresponding strategies you can apply. This article covered the core concepts, four basic strategies, and broker selection with a practical Firstrade example to help you build a solid foundation. Remember that options trading requires continuous learning and practice. It is recommended to start with small position sizes and gradually accumulate experience. Choose a US options broker that suits you and take the first step in your trading journey today!