Many beginning option traders never actually trade options. Instead, they start by "playing on paper." But this can be quite different than actually trading options. Having real money on the table changes the entire game.

The best way to gain experience is to start trading on a very small scale until you gain some skills and confidence. If you buy low-priced options you don't have to put a lot of money at risk to begin trading. The low-priced options we recommend in Maximum Options are excellent places to start.

In Search of a Broker

In order to trade you must open an options account with a broker. Make sure to use a discount broker. But with some discounters as well as online trading you will have to do a lot or even all of the order entering without broker assistance. If you need some assistance executing your trades you need a broker that provides some.

You won't survive the options game if you don't get a discount on commissions. If you use a full service broker ask for a big discount on commissions. Most will give you a break. But don't let your broker talk you into a "managed" options account. When it comes to options trading it is wise to heed the old poker adage of "when you have money in the pot play your own cards."

Don't Plunge

As you start trading remember that the biggest error novice players make is that they overdose and put too much money into the market at one time. Far too many traders lose patience and jump on what they think is a "slam dunk" with all their money, only to watch their options waste away and money disappear. Don't be one of them.

Draw up a game plan with which you spread your purchases over several months or more. Diversify over several positions and try to buy both puts and calls. Puts profit when the market goes down. No one really knows what the market is going to do tomorrow and having money on both sides is a great way to hedge against sudden reversals.

Most important, be patient and only play with money you can afford to lose. The options market is open every business day of the year. If you can't place a good trade today, there's always tomorrow. You will receive new recommendations every week in Maximum Options. That should be enough action for even the most aggressive speculator.

Options Are Just Part of the Equation

The options market doesn't exist in a vacuum. It is closely related to the stock market. That is how you should also treat your options trading. The primary, and best, use of options is to compliment your stock and mutual fund portfolios.

For example, if you already own a lot of technology stocks or a technology mutual fund, it would not be wise move to also load up on a lot of technology-based call options. If technology stocks rally, you already have sufficient exposure. In fact, you would probably be better served by buying some technology-based put options. These put options will profit if tech stocks take a sudden dive, and these profits will offset some of the losses you have in your stock and mutual fund holdings.

By picking your spots and using options to compliment your other holdings, you should be able to boost your overall investment returns while also lowering your risk.

Our Basic Profit Strategy

When most people think of options, they think of speculation, risk and the chance for quick profits. If you trade in and out of short-term options, that is an accurate assessment.

But that is not the best way to approach options trading. Options are not purely ways to speculate and make a quick buck. Options are also used by professionals to hedge risk and enhance profits from positions in the underlying stocks.

A good way to think of options trading is to equate it to a trip to Las Vegas. To start with, you will have your best results if you only use money that you can afford to lose. Options trading can require making decisions during the "heat of battle," and you will make those decisions with a much clearer head if your mortgage money is not also riding on the outcome.

As with going to a casino, with options you can bet your money on a variety of games. These games run from somewhat favorable to the bettor to other games where your odds of winning consistently are not as good.

The least risky way to trade options is to use them as vehicles to generate income. Option novices may be surprised by that statement, but it is true. Options can be used to generate regular income, and the strategy you use to generate this income is the least risky of all option strategies.

The easiest of all option trades is to sell (write) covered calls. Anyone who owns at least 100 shares of a stock can do this.

But the options game most people want to play first is to buy short-term calls and puts. However, before you start doing this you should realize that it is the toughest game to win over the long run. In addition to battling the stock market and pros in the options market you will also incur commissions and other trading costs on a regular basis.

Buying short-term options is similar to playing the slot machines or the roulette table -- you will have fun doing it and you always have a chance of hitting it big. But you must also recognize the odds of success are the steepest in the game. Even the pros lose their bets buying short-term options more often then they win.

Fortunately, there are games in a casino where with some skill and a little luck you can win over the longer term. Blackjack (twenty one) is an example. In the options game, buying long-term (LEAP) options is similar. A LEAP gives you several months and even years to wait for a payoff.

This tilts the odds of winning much more in your favor, and also reduces your trading costs. You cannot help but pay less commissions when you spread your purchases and sales over several months rather than weeks

We regularly recommend LEAP options based on InvestorPlace portfolio stocks in Maximum Options.

After you have a solid portfolio of LEAP positions, then venture into the waters of buying short-term options to play short-term market swings. You can use these options to augment your LEAP returns in a bull market, and also to shelter your LEAPs in a bear market.

In fact, we believe that the best use of short-term options is to profit when stocks and the market decline. In other words, try to concentrate your short-term options in the put arena.

In short, that is our profit strategy. Start by buying long-term LEAP options as substitutes for stock positions. Then use short-term options to increase or protect your LEAP profits.

Experience and time have shown us that this is the best route for new traders to follow. It keeps your trading costs and commissions low and gives you the best chance for long-term success.