Hello, traders.
I'm Michael Obucina, Senior Content Producer
here at TD Ameritrade.
Now in this video, I'm going to show you
how to practice trading options using thinkorswim
paperMoney, a virtual trading simulation that
lets you practice without risking real money.
It's also a great way to learn how to use thinkorswim.
So to get started, I'm going to show you
how to register for paperMoney and download thinkorswim
to your computer.
Once we're logged in, I'm going to show you
some key functionality that every options traders should
be familiar with.
We'll start out with the Option Chain,
and then I'll show you how to buy a single option as well
as a spread trade.
And finally, I'll show you how to analyze a positions risk
and reward using the Risk Profile on the Analyze tab.
So let's jump in and get started.
To get started, navigate to tdameritrade.com and click
Tools and Platforms.
On the left hand side under Trading Tools and Platforms,
click the link for thinkorswim.
If you've already opened an account with TD Ameritrade,
you're already registered for paperMoney.
In that case, scroll down and on the right hand side,
click the link for download thinkorswim.
If you haven't opened an account with TD Ameritrade,
click this link, Take a Test Drive.
First, you'll need to create a user ID and password.
And then below, fill out the requested information.
Once you've completed the form, click Submit.
From here you can click the link at
the top, Install thinkDesktop and begin the Program
Installer.
To log into thinkorswim, double click the icon on your desktop.
Enter your username and password and select Paper Money,
then click Login.
Starting at the top of the platform,
we have a connected status, so our platform
is connected to the internet.
We have Delayed Data.
If we click that, you'll see all of our products
have delayed 20 minute quotes.
Now in order to get live quotes on your paperMoney platform,
you must have a live funded account with TD Ameritrade.
Otherwise, you will have delayed 20-minute quotes.
Now we have our date and time.
And then we have our Account Selector.
If you click that, you'll notice that you
have two accounts within your paperMoney account,
one a Practice Margin Account and the second a Practice IRA
Account.
To select which account you want to work in,
just select the account and your account info
will adjust accordingly.
With each paperMoney account, you get $100,000 of paper money
to work with.
Now how can we adjust our cash balances?
Simple, from our Monitor tab, Activity and Positions sub-tab,
there's a button over here that says
Adjust Account, click that.
In the Set Account Cash To field,
we're going to click the dropdown.
You can select from a predetermined amount.
Now, if we want to put in a specific cash amount,
we're going to put our mouse in this field
and we're going to delete that.
And let's say we wanted to start with $10,000,
I'm going to hit Enter on my keyboard and hit Apply.
And now you can see we have a $10,000 starting balance.
OK, let's start showing you some of the options functionality
within thinkorswim.
To start, I'm going to go to the Trade tab
at the top and the All Products sub-tab.
First, you're going to need to type in a symbol.
For this example, I'll use Apple.
Let's close our sidebar here.
Now starting at the top in the underlying section
is all the information for Apple stock for the current trading
day.
Below that, you'll see the Option Chain.
Now you'll see immediately two different color of options,
you have yellow and white.
The white denotes that this is an expiration series that
is a standard monthly expiration, meaning
the last trading day for these options
would be the third Friday of the month.
Whereas the yellow denotes a non-standard expiration.
Now moving left to right, we have the last trading day
of the expiration series.
In this case, May 8, 2020 would be the last trading
day for this series of weekly options.
If we go down, same thing, June 19, 2020
would be the exit the last trading day of these options.
Go even further and we see options going out
to 2021, 2022.
To the right, we have a number in parentheses.
This is how many days are left until the last trading
day for the expiration series.
And then to the right of that, we
have the Shares Per Contract Multiplier.
Over on the right, we have the Implied Volatility Numbers.
And what this is showing is the implied volatility percentage
for the individual options expiration series.
So for example, if we go out to the June monthlies
here, 46 days from now, the options
are implying a 39% volatility rate,
meaning the stock could move up or down $32.73
cents between now and that expiration.
And these numbers will constantly
adjust as the options pricing changes with it.
Now let's jump into one of these options
and take a look at what an Option Chain looks like.
I'm going to open up the June monthlies.
And you can see here, by default,
you will see four strike prices listed.
We can change this by clicking this at the top, this dropdown,
we can go from four to a predetermined amount
or we can type in a specific number.
Let's type in 20, and now we're displaying
20 strikes for the June monthly expiration series.
Now from left to right, we have the Calls on the left
and Puts on our right.
And right down the middle, we have the strikes
listed in ascending order along with the expiration series.
The purple highlights denotes that these are in-the-money
options and the black background denotes that these are
out-of-the-money options.
So in-the-money Calls, in-the-money Puts,
out-of-the-money Calls, out-of-the-money money Puts.
All right, to queue in order to buy an option or sell an option
is very simple.
Anywhere you see the Ask Price, this
is where you can queue up an order to buy the option.
And if you see the Bid Price, that's
where you can click to queue up a sell order.
So for example, let's buy the 300 Call in Apple,
right now it's trading at 970.
I'm going to click that with my mouse,
and now we have an order at the bottom of our screen.
Now by default, in thinkorswim the order
defaults to 10 options contracts.
If you want to change that lower, it's very simple.
Let's click Delete.
Up at the top in the right hand corner, there's a Setup button,
select Application Settings.
And then under Order Defaults, choose Options and then
Default Quantity of Orders, I'm going
to change this from 10 to 1.
Hit Apply Settings.
Now when we click this option, you
can see the order has been queued up
for 1 options contract.
So let's review this order going from left to right.
We're doing a single option, which we're buying.
We're doing one contract.
We can change that number by clicking the Plus or Minus
or we could type in our mouse a specific number and hit
Enter on the keyboard, either way you can
adjust the quantity that way.
We have the symbol, which is Apple; the expiration
series, which is June 19, 2020 expiration; the 300 call.
Now over on the right, we have a Price field, an Order type,
and the Time and Force column.
Now with limit orders, you need to select your price.
To do that, we can once again use the Plus or Minus buttons
as we did in the order quantity or we
can type a specific price, hit Enter on our keyboard
and that will determine the price that you're putting
the limited order in at.
Over on the right, we have the Time in Force column.
And the difference here is Day Order stands
for an order that will work for today's trading day.
If you want to work your order longer than today,
meaning if we didn't get filled at $9 today
but we wanted this order to work for more than one trading
session, we're going to change that from Day
to Good Till Canceled.
And then once you're ready, hit Confirm and Send.
And here's the Order Confirmation dialog.
This is the last chance to review the order, the order
description, all the pertinent details of the position
that you're putting on.
Last thing, check to make sure that you're
in the correct account that you're placing your trade.
And then when you're ready, hit Send.
To review this order, we can go to the Monitor tab
here at the top.
Under Activity and Positions, you'll
see Today's Trade Activity.
This is where you'll see your working, filled, and canceled
orders for the current trading day.
Now we have that working order here,
you can see one order under Working Orders.
There's our buy order to buy that 300 call at $9.
It's currently working, it hasn't filled yet.
So if we wanted to cancel this order,
you could right click the order with your mouse
and hit Cancel Order.
That would delete the order.
Or we could make adjustments to the order
by simultaneously canceling and then
replacing it with a new order.
So let's show you how to do that.
I'm going to click Cancel/Replace Order.
And down at the bottom, we have that order we just put in.
Let's imagine we wanted to get into this option right now
based on the current market.
I'm going to uncheck that padlock,
and this is going to reset the price to the current asking
price for the option.
When that padlock is open, this price
will float with the current asking price.
So if we look at that 300 call, this number
is going to constantly tick up and down with the market
so just keep that in mind as you leave that padlock open.
I'm going to hit Confirm and Send, send that off.
And now we've got the message that our order's been canceled
and we were filled on that new order.
Let's go back to the Monitor tab.
And there you see our Working Orders field is empty,
but Filled Orders now has one order and one fill.
And we got filled at $9.05 on that option for that 300 call.
And then below, you see Canceled orders.
There's our original order to buy at $9.
Now where can we monitor this position?
Simple, we can go down to our Position statement.
And you can see, there's our Apple option
where we bought the 300 call at $9.05
and currently, we're up about $50 on the option and $50
for the day.
All right, next I'm going to show you
how to do an advance order type, like a vertical spread.
So once again, I'm going to close the sidebar.
Let's go to the Trade tab, and this time let's use Microsoft.
I'm going to type MSFT.
And now we're on the Microsoft Option Chain.
And you can see, once again, we have all our listed expiration
series.
This time, let's go to the July expiration.
I'm going to show you how to queue up a vertical spread.
For example, let's imagine we wanted
to buy the 180, 190 call spread in Microsoft.
That means we'd be buying the 180 call and selling the 190.
To do that, I'm going to start by right clicking
on my mouse on the Ask price and that will queue up a menu.
Hover your mouse over Buy and you'll
see a list of all the available options strategies
that you can create through thinkorswim.
We're going to select Vertical.
Now you can see at the bottom in our Order Entry,
we have an order to buy a vertical spread, which
we're buying the 180 call, selling the 185.
But remember, we want to do the 190 call.
So what happened?
Well when you right click on the option you want to buy,
the order ticket will default to the next available option
strike, which means we have to edit the second option.
And to do that, I'm just a click the dropdown under Strike
and changes from 185 Call to the 190 Call.
So now we have that 10-point wide strike
queued up where we're buying the 180 call, selling the 190 call.
The price automatically is created
by the combination of the markets for each
of these options.
So currently to buy this spread, it's trading at $4.25.
I'm going to lock that padlock.
We're doing a limit order for the day.
I'm going to hit Confirm and Send.
And there you go, we've been filled on our vertical spread
on Microsoft.
Once again, let's go back to the Monitor tab, open up Microsoft,
and there's our vertical spread, our long 180 call,
short the 190 call.
OK, so how do we create a closing order
for an options position?
Well, let's use that same Microsoft vertical spread
and we bought this spread--
if we go back to our Filled Orders,
we bought this at $4.25.
So let's imagine we want to put in an order to sell
this spread if it got up to $7.
So what I'm going to do is I'm going to take my mouse,
I'm going to click and hold my mouse button on the 180 call
and I'm simply going to drag it down to the 190 call,
and now you can see both of these options are highlighted.
I'm going to right click either one of those lines
and hover over Create Closing Order.
And you can see we have three choices on the right,
we can Sell the Entire Vertical Spread
or we can Buy Back the Short Call or Sell the Long Call.
The software will know based on their position
and what you highlight all the different variables
and combinations to close an existing options position.
So for this example, remember, we're
going to sell the vertical spread.
And we're going to do this at a $7 limit.
So I'm going to click in the Price field, type 7,
hit Enter on my keyboard, and I'm
going to set this Good Till Canceled because I
want this to work for more than one trading day.
Hit Confirm and Send, send that off.
And now we've got a working order
to close our vertical spread if the spread trades up
to $7, which means we would get out at just under a $3 profit.
All right, next, I want to show you
a great feature that every option trader should
be familiar with in thinkorswim, and that's
the Risk Profile, which can be found under the Analyze tab.
So now I'm going to navigate my mouse
to the Analyze tab at the top, and under Risk Profile, type
in a symbol.
In this case, I'm going to analyze our vertical spread
that we bought on Microsoft, that 180, 190 call spread.
And we're going to do that by typing
in the symbol for Microsoft.
And you can see below, the software
has cued up our position in this Analyze section.
And what you see here is a risk graph for our vertical spread.
Now there's two lines, the purple line
represents the profit and loss for today.
And you can see that noted here in the Date field
in the bottom left, today's May 4th.
Now under the teal color, that is the expiration series
that we traded, remember that, July 17, 2020.
So that expiration day is actually
the day after that last trading day, the 18th.
So you'll see the difference in Profit and Loss
as the stock moves up or down, which is our x-axis.
So you can see all the stock prices here at the bottom.
So this is a bullish vertical spread,
as it goes up our profitability will go up.
And you see as my mouse moves, those numbers
also change up or down.
If it went down, you would see our max profit and loss.
Now for this particular vertical spread,
remember we purchased it.
So the most we can lose on the spread is what we paid for it,
and we paid $4.25, times 100 would be $425.
And that's where that teal line starts to flatline.
You see down here it doesn't go any lower than what
we paid for the option spread.
Now on the flip side, if it went up,
if it went through our short strike of that 190,
we would max out our profit because on a vertical spread
your max profit is the width of the strikes minus
what you paid.
So $10 minus $4.25 would be $5.75.
You see that number in the corner there is now $5.75.
Next I want to show you really cool feature called
Today's Option Statistics.
So from our Trade tab, All Products sub-tab,
below the Option Chain--
I'm just going to close up the Option Chain for a second--
there's this field called Today's Option Statistics.
So when you open that up, this is a great data asset for you
as an options trader.
And what thinkorswim is doing is it is aggregating all the trade
data for Apple for today and it's
calculating all the implied and historical volatility
numbers for you.
And then it's doing a trade analysis on the Calls, Puts,
as well as the Total Options Traded.
And it's going to show you where the options are trading,
whether they're trading between the bid or the ask
or above the bid and the ask, which is going to give you
some idea of whether or not people are buying on the ask
or selling on the bid or if they're
trading between the market.
And then also too, you're going to get some key numbers,
like Put/Call Ratio.
That's going to let you know if more puts are trading
versus calls, which could potentially
let you know if option traders today are bearish or bullish.
But really a great aggregation of data for you as an options
trader to keep an eye on what the options
of the underlying you're looking at
are doing for that particular trading day.
And finally, I'm going to show you
a couple of ways as a paperMoney trader
that you can adjust the position,
but also just reset the account and start over.
So I'm going to open up our Apple call that we
bought earlier in the video.
And let's say we just wanted to adjust this position,
delete it.
Just maybe you made a mistake, you
didn't mean to simulate that trade
and you want to get it out of your account
without messing up the total account balance.
Well you can right click on the Position and in the menu,
you'll see Adjust Position.
I'm just going to move this down a little bit lower.
And you can see, we bought this option at $9.05
and we're long one contract.
Now if we want to wipe this out, we can take that quantity
and change it to minus one and put in the price
exactly as we traded it at $9.05, hit OK.
And now you can see our long call has been wiped off,
meaning our cash has been returned to the account,
the P&L has not been affected.
So this is a way to adjust the position if you're simulating
something, made a mistake, don't want to delete everything
going on in the account.
All right, now what if you wanted
to just wipe the slate clean, start over, reset the account?
Simple, if you go under the your Monitor tab, Adjust Account
button, you can see this little checkmark Reset All Balances
and Positions, I'm going to click that.
When you hit Apply, you're going to get a message that asks you,
are you sure you want to do?
This is going to reset everything.
So when you hit Yes, you'll see any working orders just
got canceled.
All of our positions have been zeroed out,
so we no longer have positions in the account.
Now all of this data, the Working Order History,
the Cancelled Order History, this
will reset on tomorrow's trading day.
So while everything will still display the day you reset it,
all of this will be wiped clean and you'll
have this starting balance of $100,000 tomorrow
when you open the platform.
Now remember paperMoney is just a simulation,
and it will vary in many respects
to trading in your live account.
Specifically for options traders, remember, as the bid
and ask spread widens on options,
your paperMoney platform will probably
give you a fill somewhere in the middle of the market.
So if you're back testing or trying
to test the potential profitability of an options
strategy, remember you're probably getting favorable
fills in paperMoney and the numbers are probably
not to be relied upon as future success of a strategy
in your live account.
So always keep that in mind.
Now remember, to get started, head over to tdameritrade.com,
register for paperMoney, try it out free for 60 days.
If you're looking for more great investor education,
head over to the Education Center on tdameritrade.com.
Don't forget, check out all the great content
on our YouTube channel.
And if you're looking for more in-depth tutorials
on the thinkorswim platform, head over
to the thinkorswim Learning Center at tlc.thinkorswim.com.