You have probably heard about Robin Hood, the famous trading platform which has made trading available to the general masses.
Its straightforward design and commission-free model made Robin Hood the most preferred app, especially for new traders. In other words, you can buy and sell stocks for free and get a hold of a more extensive range of assets than you can afford.
The most popular feature of this trading platform is free options trading, which has been available on the app since 2017.
However, although Robin Hood options trading is desirable, it has its downsides. To be precise, stock options are a more complicated investment method, which may cause inexperienced traders to lose their investments.
With all this in mind, we decided to do more significant research and bring you everything you need to know about Robin Hood options trading.
Even if you are unfamiliar with options trading, this article can help you learn something and find out if options trading on Robin Hood is worth it.
What Is Robin Hood?
Robin Hood was founded in 2013 and is the first online investment platform offering a free trading system. To be precise, you can trade freely on Robinhood on stocks, ETFs, cryptocurrencies, and options.
In fact, there are more than 5,000 stocks and ETFs and seven different cryptocurrency types on the platform.
Robinhood is a pretty popular app, with more than 13 million users, new traders who can build their portfolios for free, and more involved ones who know the market and how it functions.
New traders are standing out on Robinhood because the platform's features are made for their convenience.
Yet, this also means that more seasoned investors might find Robinhood insufficient and lacking asset types and tools for quality and severe trade executions.
What Are Options?
Because this article focuses on Robin Hood Options Trading, we feel obliged to explain what options are and go through the basics.
As a result, if you decide to use Robin Hood, you will have some investing knowledge before trying out Robin Hood options trading.
Options trading is very prominent because it allows you to invest less and earn more, in contrast to buying and selling stocks.
In detail, an option is a contract that enables the holder to buy or sell a security without closing the deal. Put differently, options allow you to take advantage of the stock market without obligation.
When a holder buys an option contract from a contract writer, they also buy the right to buy or sell the assets in the contract. The holder loses only the initial investment when the contract isn’t carried out and expires.
Still, these are only the essentials, and you must remember that options trading is far more complicated than it sounds. That’s the reason why it’s most often picked only by skillful investors.
Call options
If you aren’t familiar up until now, options contracts are separated into two main categories: call and put options.
Call options allow you to buy a given amount of shares (often more than 100) at a specific price over a particular period.
By way of explanation, the call options are literally calling you to buy them and are usually purchased when the investor thinks that the stock will only grow in price by a specific date.
Put options
Put options, on the other hand, are the opposite of call options. Specifically, when you buy put options, you are buying the right to sell a distinct amount of shares at a special price over a set-up time.
Again, like the call options, which call you to buy them, put options are to be put on the market for sale.
Consequently, put options are often used when the investor believes the stock will drop in price by a specific date.
Robin Hood Options Trading Features
Now that we have gone through the basics of options trading and tried to explain both call and put options as simply as possible, it's time to discover the Robin Hood options trading features.
As we noted earlier, the central features of Robin Hood are no basic fees, zero exercise, and no per-contract fees. Strictly speaking, Robin Hood options trading has no additional costs.
The only expense for Robin Hood options trading is the price of the contract premiums and the standard regulatory fees.
Trading options is high-risk, and you should be excellently acquainted with the stock market. Even though options trading can have numerous upsides, the downsides can be much more consequential if you aren't proficient and cautious.
Furthermore, numerous superior traders like to skip Robin Hood because the platform lacks all the steadfast tools for options trading. You will notice that you may lack critical data, which is paramount for you to make valuable trades.
That's why we advise you to do excellent external research and make a strategy before using Robin Hood options trading. Once you do that, you can access the app and execute the trades.
How to Trade Options Using Robin Hood
If you are determined to try Robin Hood options trading, you must first make a Robin Hood account. You will have to spare time and sign-up on the platform. Once you sign-up, you can go to Account Settings and select Options Trading.
Notably, you must have a thorough background to start trading options via the app. What do we mean by this?
Based on your previous options trading experience, you can be approved for Level 1, 2, or 3 options trading. These levels limit the strategies you can use while trading options.
If you are at Level 1, you won’t be allowed to trade options. You can only trade stocks, ETFs, and cryptos through your account at the beginning.
In contrast, at Level 2, you can gain access to options trading schemes such as the basic long calls and puts, covered calls, and cash-covered puts.
Lastly, at Level 3, you can use credit and debit spreads, iron condors, and many other big-league options trading strategies.
It’s good that Robin Hood doesn’t allow Level 1 and 2 traders to use the more advanced options trading strategies because it protects them from falling head over heels from the beginning and losing money.
Buying options contracts on Robin Hood
As we mentioned, you can finally start buying options contracts when you advance to the more experienced Levels 2 and 3. However, be very careful because you don’t want to end up with less money than you invested initially.
So, if you feel insecure about taking this step, check out FoolproofOptions, a reliable service that might help you get into trading easily.
If you are determined to buy an options contract, you must tap on the “Magnifying Glass” on your Home Screen using the mobile app. Then, it would help if you looked for the stock in mind and selected it.
Once you do that, you can tap on “Trade,” which is in the lower-left corner of the Details Page. This will allow you to start viewing options by clicking on “Trade Options.”
When you view the options available on Robin Hood, you may notice that the platform puts the spotlight on Buy Option; however, this doesn't mean that you can't sell options too.
Conclusion
As we can conclude from this article, Robin Hood options trading is a good choice because it gives everyone a chance for fee-free trading.
Yes, the platform may be limited; nevertheless, the numerous features still make it a top pick and an excellent place to start trading options.
The fact that Robin Hood doesn't allow you to trade options immediately if you are a beginner is a great pro, making it excellent for newbies.
All in all, using Robin Hood to trade is simple and easy, the platform is very user-friendly, and it has low-cost and easy access both from your phone and the web.
However, we must be honest and say that if you are a proficient trader, Robin Hood may restrict you, and you might notice that the app isn't developed enough to meet your needs.