How to Trade Options: 7 Steps, Approval Levels and SPY Data

Michael Whitman · Trading since 2017, full-time since 2020 · YouTube creator, 137K subscribers · Published 2026-09-08 · Updated 2026-10-27 · Reviewed 2026-10-27

To trade options, get the broker approval level you need, choose whether you are buying or selling, and write the view with both a size and a date before picking a contract. The price of a call already states the move it needs: on SPY’s 26 October 2026 chain, the cheaper the call, the rarer that move had been.

An option is a contract giving a right, until a date, at a price. That deadline is the whole difference from trading shares, and the second difference — that selling one is a completely different risk from buying one — is why brokers gate access in levels.

Before you start

Approval from your broker, which comes in levels and gates what you can do. Buying is the lowest level; selling uncovered contracts is the highest, and the levels exist for good reasons.

An understanding that every position has a deadline. There is no holding on until it works.

A decision about whether you are buying or selling, because the risk profiles are opposite. One risks a known premium; the other accepts an obligation.

The steps

1. Get the approval level you actually need

Buying calls and puts is the first level and enough for most people starting out. Applying for the highest level before you have used the first is asking for permission you cannot yet use well.

2. Learn one position type properly

A long call, or a cash-secured put. One structure, traded until its behavior is familiar, is worth more than a tour of every spread in the manual.

3. Write the view with a size and a date

“It moves 8% within six weeks.” Direction alone is not enough to choose a contract, because the contract needs a strike and an expiry and each comes from one half of that sentence.

4. Work out the break-even before you buy

For a call it is the strike plus the price paid; for a put, the strike minus it. Turn that into the percent move the underlying needs by expiry, and compare it with the move written in step 3.

5. Check the contract can be traded

Open interest and a reasonable bid-ask spread. Check both, because an option’s spread is often a far bigger share of its price than a stock’s, and you pay it going in and coming out.

6. Size for the whole premium and decide both exits

If you are buying, the maximum loss is everything paid. Write the price where you take the gain and the date where you accept the view did not happen, before entering rather than while holding.

7. Close rather than holding to expiry

Selling the contract keeps whatever time value remains. Letting it expire gives that up and introduces assignment mechanics you did not need.

How to tell it worked

The approval level matches what you actually trade, with nothing unused.

1 position type has been traded at least 10 times before a second was added.

Every contract traded had a break-even you wrote down as a percent move and a date.

And both exits were written before entry, in every case.

Three things move the price at once

The underlying moving, time passing, and expected volatility changing. Only the first is the reason most people buy a contract, and the other two act whether or not it cooperates.

Which is why a contract can lose value on a day the underlying rose. Nothing has malfunctioned; two of the three inputs moved against the position while the one you were watching moved for it.

Buying against selling

Buying costs money up front and risks that amount. It needs a move of a certain size within a certain window. The further the strike, the smaller the price and the larger the move.

Selling collects money up front and accepts an obligation. The gain is capped at the premium and the exposure beyond it is substantial, so the arithmetic is a long run of small gains and an occasional large loss.

Neither is safer in general. The buyer knows their maximum loss on day one and pays for that certainty; the seller of a far strike is paid for the move that rarely comes and carries the tail when it does. Which suits you is a question about what you can hold through.

What the approval levels actually gate

The first level is buying calls and puts, and covered positions against shares you own. Every loss is bounded by something you already have.

The middle levels add spreads, where one contract’s risk is offset by another’s. The maximum loss is still defined, and it is defined by the structure rather than by the premium alone.

The highest level is selling uncovered contracts. Nothing offsets the obligation, and the loss on a sold call has no natural ceiling in the same way a short share position does not.

The levels are a safeguard rather than an obstacle. They stop an account taking on an open-ended obligation before it has shown it understands a bounded one.

The original data

The chain. Cboe’s delayed quotes for every listed SPY option, as they stood after the 26 October 2026 close, read the next morning. SPY closed at $765.37 that day. The test uses the 91 calls expiring 20 November 2026 with a strike at or above that close and an asking price above zero. A buyer pays the ask, so the break-even at expiry is the strike plus the ask.

The history. There are 19 sessions from the 26 October close to the 20 November close. For every start date in Yahoo Finance’s SPY daily bars since 29 January 1993, the close 19 sessions later was set against the start: 8,474 overlapping spans, prices as traded.

The finding. The $770 call at $10.23 needed a 1.94% rise to break even, and SPY rose that far in 40.58% of the past spans. The $780 call at $5.51 needed 2.63% (31.98%). The $790 call at $2.59 needed 3.56% (21.21%). The $800 call at $1.09 needed 4.67% (12.56%). The $820 call at $0.20 needed 7.16% (3.85%). The $850 call at $0.05 needed 11.06%, and only 81 of the 8,474 spans (0.96%) rose that far; the largest groups started in 2009 (18) and 2020 (16), both rebounds after a crash.

The base rate. 63.33% of all 19-session spans closed higher at all, with a median move of +1.23%. A call needs more than “higher”: it needs higher by its break-even, inside its window.

The check. Nasdaq’s composite chain for the same expiry shows the same ask on 89 of the 91 calls (the $816 and $865 strikes differ by one cent). On Nasdaq’s own SPY history from October 2016, with its stale 20 April 2026 row left out, the shares were 46.21% for the $770 call and 1.12% for the $850 call, against 46.23% and 1.12% on Yahoo’s bars over the same years. The last decade ran higher than the full sample, which is the point: these shares describe one fund’s past, not a probability for the next 19 sessions. Every strike is in the SPY call break-even file.

Demand for the subject. Of the 24,971 unique videos in this site’s search study, 337 mention options trading in the title, at a median of 18,124 views across 220 channels, and 56% of those titles are instruction-shaped. Calls appear in 13 at 77,171, puts in 23 at 56,794 and the chain itself in 6 at 26,420. Videos found by more than one search count once.

When it fails

The failure is the first year spent sampling structures, and it produces no learning at all. A long call one week, a spread the next, a condor after that. Each is entered before the previous one’s behavior was understood, so nothing accumulates. Twelve months later there are fifty trades, no pattern in them, and no answer to the question of which structure suits the person trading it — because the sample size for every individual one is three.

The second failure is buying the far strike because it is cheap. On the 26 October chain the $850 call cost $0.05 and needed an 11.06% rise in 19 sessions. Buying twenty of them changes the size of the bet, not the move each one needs.

A third is sizing as though defined means small. It is the whole premium.

A fourth is direction without a deadline. The contract needs both.

A fifth is an illiquid contract. You can enter and not leave.

And a sixth is seeking the highest approval level first. The levels exist for a reason.

Questions people ask

How do I start trading options?

Get the first approval level, learn one structure such as a long call, write the view with a size and a date, work out the break-even, and decide both exits before entering. Close the position rather than holding it to expiry.

What is the break-even on a call option?

The strike plus the price paid. On 26 October 2026 the 20 November $800 SPY call cost $1.09 at the ask, so SPY needed to finish above $801.09, a 4.67% rise from $765.37, before the call returned more than it cost.

Are cheap options a good deal?

Cheap reflects distance. The $850 call cost $0.05 because it needed an 11.06% rise in 19 sessions, and SPY rose that much in 81 of 8,474 such spans since 1993 (0.96%), many of them in 2009 and 2020.

Is buying or selling options riskier?

They carry different risks. A buyer can lose the whole premium but no more. A seller of an uncovered call keeps only the premium and has no ceiling on the loss, which is why it needs the highest approval level.

Related

Options covers what the contracts actually are. Options expiry is the deadline that makes them different. And strike price is the other half of every contract’s definition.

This page is educational, not financial advice. Test every idea on your own charts before risking money.