Financial Topics Archives

Nov

2025

How to Sell Options for Premium

By Laurel Tincher | Growing Wealth, invest, Investing | Comments Off

Editor's Note: Options are not suitable for all investors. Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Please see the Characteristics and Risks of Standardized Options.

Table of Contents

What Is An Option Premium?
What Is Selling Options Premium?
How Is an Options Premium Calculated?
Options Premiums and the Greeks
FAQ

Options traders may sell (or write) options with the hope of profiting from the premium they receive in return. Options premiums are the fee that options buyers (or holders) pay to purchase an options contract, giving them the option — though not the obligation — to buy or sell an asset at a specific price by a set date.

Unlike options holders, option writers are obligated to fulfill the terms of an options contract in exchange for the premium they receive, which could expose them to the risk of seeing substantial losses, well beyond losing the premium they receive.

While option writing has the potential to generate profits, it’s an advanced investment strategy typically used by traders experienced with risk management techniques.

Key Points

• Selling options generates income via writing call or put contracts, collecting upfront payments.

• Factors affecting option premiums include stock price, time value, and implied volatility.

• Potential losses if the option is exercised represent a significant risk.

• Retaining premiums and assets is a benefit if options are not exercised.

• Financial advice is crucial before trading options due to their complexity and risk.

What Is An Option Premium?

An option premium is the price an option buyer pays to purchase a contract based on its upfront market cost. A seller, conversely, receives the premium upfront as compensation. In other words, it is the current market price of an option contract, and the amount the seller receives when someone purchases the contract.

When investors buy options contracts, they are purchasing a derivative instrument that gives them the right to trade the underlying asset represented by the contract at a specific price within a predetermined period of time. The premium is paid to the option writer at the time of sale, regardless of whether the buyer exercises the option.

The premium amount depends on how much time there is left until the option contract expires, the price of the underlying asset, and how volatile or risky it is.

What Is Selling Options Premium?

Many investors may be familiar with the concept of purchasing an option contract, but on the other side of the market are the sellers who generate income through the premiums they receive from buyers.

Selling options is an options trading strategy in which an investor sells a buyer the right to purchase or sell an asset (typically a stock) at a predetermined price by the option’s expiration date. The premium is collected upfront as payment for the seller taking on the risk that the price of the underlying asset may move in the buyer’s favor during the contract’s term. The premium is not refundable.

If the option expires worthless, and the buyer isn’t able to exercise their right to buy or sell the underlying asset, the seller gets to keep the premium as profit, as well as retain ownership of the underlying asset (in the case of call options).

However, if the option ends up “in the money” for the buyer, the seller could incur a loss, since they’ll have to sell the stock for less than (or buy it for more than) its market price.

How Is an Options Premium Calculated?

The main factors that affect an option contract price are its intrinsic value, as determined by the stock price and strike price, implied volatility, and time value. Options sellers receive premiums upfront when a buyer purchases a call or a put option.

When an option buyer looks at options contract prices, they receive a per share quote, but each contract typically represents 100 shares of the underlying stock. Buyers will decide to either buy call or put options, depending on how they expect the stock’s price to perform in the future.

For example, a buyer could decide to purchase a call option. The seller offers it to them for a $4 premium. If the buyer purchases one contract, which represents 100 shares of that stock, they would pay $400 for it. If the buyer never executes the contract (because the price of the stock doesn’t move in their favor before the contract expires), the seller may keep the full $400 premium as compensation.

Stock Price

If an option buyer purchases a call option, they are hoping the underlying stock price increases, whereas if they buy a put option they hope it decreases. When the stock price goes up, the call option premium tends to increase and the put option premium tends to decrease. When the stock price falls, the call premium decreases and the put premium increases.

Recommended: What Makes Stock Prices Go Up or Down?

Intrinsic Value

The intrinsic value of an option is the difference between the current underlying stock price and the option’s strike price. This difference is referred to as the “moneyness” of the option, where the intrinsic value of the option is a measure of how far in the money the option is.

If the price of the underlying asset is higher than the option’s strike price, a call option is in the money, making it worth more and priced higher. If the stock price is lower than the option’s strike price, this makes a put option in the money and worth more. If an option is out of the money, it has no intrinsic value.

Time Value

Time value is the portion of the option’s premium that exceeds its intrinsic value due to time remaining before expiration. If the option has a longer timeframe left until its expiration date, it has more time to potentially move beyond the strike price and into the money. That makes it more valuable because it gives the investor more time to exercise their right to trade for a potential gain. The decrease in time value over time is called time decay.

The closer the option gets to expiring, the more rapidly time value erodes (and time decay increases). The value of the options contract declines over time due to time decay, which can be a risk for buyers. Options buyers want the stock to move enough, and soon enough to increase the option’s value before time decay reduces it. On the other hand, options sellers want the premium to decrease, which happens with every day that goes by.

Time value, sometimes referred to as extrinsic value, is calculated by subtracting intrinsic value from the option’s premium.

Implied Volatility

High premium options often reflect securities with higher volatility. If there is a high level of implied volatility, it suggests the underlying asset may experience larger price swings in the future, making the option more expensive.

A low level of implied volatility can make the option premium lower. It may benefit buyers to consider options with steady or increasing volatility, because this can increase the chance of the option reaching the desired strike price. Those who are selling options may prefer lower volatility because it may reduce the risk of large price swings, and could create an opportunity to buy back the option at a reduced price.

Other Factors

Other factors that influence option premium prices include:

• Current interest rates

• Overall market conditions

• The quality of the underlying asset

• Any dividend rate associated with the underlying asset

• The supply and demand for options associated with the underlying asset

Options Premiums and the Greeks

Certain Greek words are associated with types of risks involved in options trading. Traders can look at each type of risk to figure out which options they may consider trading, and how those trades might respond to factors like price changes, volatility, or time decay.

• Delta: The sensitivity of an option price to changes in the underlying asset

• Gamma: The expected rate of change in an option’s delta for each point of movement of the underlying asset

• Theta: The rate at which an option’s price decays over time

• Vega: A measure of the amount the option’s price may change for each 1% change in implied volatility

• Rho: The expected change in an option’s price for a one percentage point change in the risk-free interest rate

The Takeaway

Options are one type of derivatives that give the buyer the right, but not the obligation, to buy or sell an asset. To sell options for a premium, options writers must consider several factors that could influence the option’s premium value. Selling options for premium is potentially a strategy that may allow sellers to generate income. However, given that option writing has the potential to result in substantial losses, it should only be undertaken by experienced traders.

While investors are not able to sell options on SoFi’s options trading platform at this time, they can buy call and put options to try to benefit from stock movements or manage risk.

FAQ

How do you sell options to collect premium?

To sell options to collect premium, a trader writes call or put contracts and receives payment upfront from the buyer. This strategy involves agreeing to buy or sell a stock if the buyer exercises the option by expiration. Common strategies include covered calls and cash-secured puts.

What happens to the premium when you sell an option?

When an option is sold, the premium is paid upfront to the seller. If the seller holds the position to expiration and the contract is not exercised, they may keep the full amount. But if they close the position early by buying it back, the final result depends on the repurchase price.

What is the premium when you sell an option?

The premium when selling options is the amount a buyer pays for the contract. It compensates the seller for taking on the obligation to buy or sell the underlying asset if the option is exercised.

How is the premium of an option determined?

An option’s premium is based on intrinsic value, time value, implied volatility, and the price of the underlying stock. The final premium reflects current market expectations of risk and time until expiration.

Photo credit: iStock/sefa ozel

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SOIN-Q325-012

Nov

2025

Buy to Open vs Buy to Close

By Mike Zaccardi, CMT, CFA | Growing Wealth, invest, Investing | Comments Off

Table of Contents

What Is Buy to Open?
What Does Buy to Close Mean?
Differences Between Buy to Open vs Buy to Close
Understanding Buy to Open and Buy to Close
Using Buy to Open or Buy to Close
FAQ

Buy to open and buy to close are options orders used by traders in order, as the names suggest, to open new options positions or to close existing ones.

Investors use a “buy to open” order to initiate a long call or put option, anticipating that the option price may move in their favor. On the other hand, traders who want to exit an existing short options contract may use a “buy to close” order.

Key Points

• Buy to open establishes a long position and may increase open interest depending on the counterparty.

• High reward potential may accompany a buy to open, especially for calls, but the risk of expiration at zero value is significant.

• Buy to close is the closing transaction for short option positions, which may benefit from time decay, yet carry the risk of loss if prices move adversely.

• An example buy-to-open strategy involves buying a put to open, anticipating a stock decline, and later selling to close the put for more than the premium originally paid.

• Understanding buy to open and buy to close is essential for managing risk and leveraging market movements effectively.

What Is Buy to Open?

“Buy to open” is an order type used in options trading, similar to going long on a stock. In options trading, you can buy to open a call if you expect the price to rise, which is a bullish position, or you may buy to open a put, which is taking a bearish position. Either way, to buy to open is to enter a new options position.

Buying to open is one way to open an options position. (The other is selling to open.) When buying to open, the trader uses either calls or puts and speculates that the option itself will increase in value — that could be a bullish or bearish outlook depending on the option type used. Buying to open sometimes creates a new option contract in the market, so it may increase open interest if the trade is matched with a seller opening a new position.

A trader pays a premium when buying to open. The premium paid, also called a debit, is withdrawn from the trader’s account in a manner that’s similar to buying shares.

Example of Buy to Open

If a trader has a bullish outlook on XYZ stock, they might use a buy to open options strategy. To do that, they’d buy call options. The trader must log in to their brokerage account, and then go to the order screen. When trading options, the trader has the choice of buying to open or selling to open.

Buying to open can use either calls or puts, and it may create a new options contract in the market. As noted earlier, buying to open calls is a bullish position, while buying to open puts is a bearish position.

Let’s assume the trader is bullish and buys 10 call contracts on XYZ stock with an expiration date of January 2025 at a $100 strike price. The order type is “buy to open” and the trader also enters the option’s symbol along with the number of contracts to purchase. Here is what it might look like:

• Underlying stock: XYZ

• Action: Buy to Open

• Contract quantity: 10

• Expiration date: January 2025

• Strike: $100

• Call/Put: Call

• Order type: Market

A trader may use a buy to open options contract as a stand-alone trade or to hedge existing stock or options positions.

Profits can potentially be substantial with buying to open. Going long calls features unlimited upside potential while buying to open puts has a maximum profit when the underlying stock goes all the way to zero. Buying to open options carries the risk that the options will expire worthless, however.

Finally, user-friendly options trading is here.*

Trade options with SoFi Invest on an easy-to-use, intuitively designed online platform.

*Check out the
OCC Options Disclosure Document.

What Does Buy to Close Mean?

Buying to close options are used to exit an existing short options position and may reduce the number of contracts in the market. Buying to close is an offsetting trade that covers a short options position. A buy to close order occurs after a trader writes an option.

Writing options involves collecting the option premium — otherwise known as the net credit — while a buy to close order debits an account. The trader is attempting to profit by keeping as much premium as possible between writing the option and buying to close. The process is similar to shorting a stock and then covering.

Example of Buy to Close

Suppose a trader opened a position by writing puts on XYZ stock with a current share price of $100. The trader expected the underlying stock price would remain flat or rise, so they entered a neutral to bullish strategy by selling one options contract. A trader might also sell options when they expect implied volatility will drop.

The puts, with a strike of $100, expiring in one month, brought in a credit of $5 per share (an options contract typically covers 100 shares).

The day before expiration, XYZ stock trades relatively close to the unchanged mark relative to where it was a month ago; shares are $101. The put contract’s value has dropped sharply since the strike price is below the stock price and because there is so little time left until the expiration date. The trader may realize a profit by buying to close at $1 the day before expiration.

The trader sold to open at $5, then bought to close at $1, resulting in a $4 profit per contract ($400 at 100 shares per contract).

Differences Between Buy to Open vs Buy to Close

There are important differences between a buy to open vs. buy to close order. Having a firm grasp of the concepts and order type characteristics is important before you consider trading.

Buy to Open	Buy to Close
Creates a new options position	Closes an existing options contract
Establishes a long options position	Covers an existing short options position
May offer reward potential	Is typically used after selling an option to close a short position that may have benefitted from time decay
Can be used with calls or puts	Can be used with calls or puts

Understanding Buy to Open and Buy to Close

Let’s dive deeper into the techniques and trading strategies for options when executing buy to open vs. buy to close orders.

Buy to Open Call

Either calls or puts may be used when constructing a buy to open order. With calls, a trader usually has a bullish outlook on the direction of the underlying stock. Sometimes, however, the trader might speculate based on movements in other variables, such as volatility or time decay.

Buying to open later-dated calls while selling to open near-term calls, also known as a calendar spread, is a strategy that may be used to attempt to benefit from time decay and higher implied volatility. Buying to open can be a stand-alone trade or part of a bigger, more complex strategy.

Buy to Open Put

Buying to open a put options contract is a bearish strategy when done in isolation, since profit potential comes from a decline in the underlying stock’s price. A trader commonly uses a protective put strategy when they are long the underlying stock. In that case, buying to open a put is simply designed to protect gains or limit further losses in the underlying stock. This is also known as a hedge.

A speculative trade using puts is when a trader buys to open puts with no other existing position. The trader executes this trade when they anticipate that the stock price will decline. Increases in implied volatility may also benefit the holder of puts after a buy to open order is executed.

Buy to Close

A buy to close order completes a short options trade. It can reduce open interest in the options market whereas buying to open can increase open interest. The trader may profit when buying back the option at less than the price they sold it for.

Buying to close occurs after writing an option. When writing (or selling) an option, the trader seeks to take advantage of time decay. That can be a high-risk strategy when done in isolation — without some other hedging position, there could be major losses. Writing calls has unlimited risk since the stock could theoretically continue to rise, while writing puts has substantial risk as the underlying stock can fall all the way to zero. So, a writer may use a buy-to-close order to close a position and limit losses when the price of stock is moving against them.

Shorting Against the Box

Shorting against the box is a strategy in which a trader has both a long and a short position on the same asset. This strategy may allow a trader to maintain a position, such as being long a stock.

Tax reasons often drive the desire to layer on a bearish options position with an existing bullish equity position. Selling highly appreciated shares can trigger a large tax bill, so a tax-motivated approach does not involve shorting against the box; that strategy is no longer permitted for tax deferral under the Taxpayer Relief Act of 1997, which classifies such offsets as constructive sales. A more common modern alternative is using buy-to-open puts for downside protection. Not all brokerage firms allow this type of transaction. Also, when done incorrectly or if tax rules change, the IRS could determine that the strategy is effectively a sale of the stock that may require capital gains payments and, under current U.S. tax law, entering an offsetting short position is treated as an immediate constructive.

Using Buy to Open or Buy to Close

A trader must decide if they want to go long or short options using puts or calls. Buying to open may generally be used to seek profits from large changes in the underlying stock while selling to open often involves attempting to take advantage of time decay. Traders often place a buy to close order after a sell to open order executes, but they might also wait with the goal of the options potentially expiring worthless.

Another consideration is the risk of a margin call. After writing options contracts, it’s possible that the trader might have to buy to close at a steep loss or be required to liquidate positions by the broker. The broker could also demand more cash or other assets be deposited to satisfy a margin call.

Test your understanding of what you just read.

The Takeaway

Buy to open is a term that describes when an options trader establishes a long position. Buy to close is when a short options position is closed. Understanding the difference between buy to open vs. buy to close is crucial to options trading. These option orders allow traders to put on positions to fit a number of bullish or bearish viewpoints on a security.

SoFi’s options trading platform offers qualified investors the flexibility to pursue income generation, manage risk, and use advanced trading strategies. Investors may buy put and call options or sell covered calls and cash-secured puts to speculate on the price movements of stocks, all through a simple, intuitive interface.

With SoFi Invest® online options trading, there are no contract fees and no commissions. Plus, SoFi offers educational support — including in-app coaching resources, real-time pricing, and other tools to help you make informed decisions, based on your tolerance for risk.

Explore SoFi’s user-friendly options trading platform.

FAQ

What is the difference between buy to open and buy to close options?

Buy to open means a trader enters a new long options position by purchasing a call or put contract. Buy to close means exiting an existing short options position by purchasing it back.

What is the most successful option strategy?

There is no single “most successful” strategy. An options approach’s effectiveness may depend on the market environment, the trader’s outlook, and risk management practices.

Is it better to buy at open or close?

There is no universal rule on whether it’s better to buy options at the market’s open or close. Traders often consider liquidity, volatility, and bid–ask spreads.

Is it better to buy options that are ITM or OTM?

In-the-money (ITM) and out-of-the-money (OTM) options each have trade-offs. ITM contracts cost more but have intrinsic value, while OTM options are cheaper but riskier because they require larger price moves to be profitable.

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SOIN-Q325-020

Nov

2025

A Beginner’s Guide to Options Trading

By Inyoung Hwang | Growing Wealth, invest, Investing | Comments Off

Table of Contents

What Is Options Trading?
What Are Puts and Calls?
Options Trading Terminology
“The Greeks” in Options Trading
How to Trade Options
Basic Options Trading Strategies
Pros & Cons of Options Trading
FAQs

An option is a financial instrument whose value is tied to an underlying asset; this is known as a derivative. Instead of buying an asset, such as company stock, outright, an options contract allows the investor to try to benefit from price changes in the underlying asset without actually owning it.

Because options contracts typically cost much less than the option’s underlying asset, trading options can offer investors leverage that may result in potential gains or losses depending on how the market moves. But options are very risky, and also can result in steep losses. That’s why investors must meet certain criteria with their brokerage firm before being able to trade options.

Key Points

• Options trading involves buying or selling options contracts for the right — and for sellers the obligation — to trade assets at a fixed price by a set date.

• Options are derivatives, deriving value from underlying assets, allowing trades based on anticipated price movements.

• Call options offer buyers the right to buy underlying assets at a set price, while put options offer buyers the right to sell assets at a set price.

• Key terms like the put-call ratio and the Greeks are essential for evaluating market sentiment and options behavior.

• Options trading may offer high returns and additional income but also carry significant risks, including the possibility of experiencing rapid losses.

What Is Options Trading?

Knowing how options trading works requires understanding what an option is, as well as its potential advantages, disadvantages, and risks.

What Are Options?

Buying an option is simply purchasing a contract that represents the right, but not the obligation, to buy or sell a security at a fixed price by a specified date.

• The options buyer (or holder) has the right, though not the obligation, to buy or sell a certain asset, like shares of stock, at a certain price by a specific date (the expiration date of the contract). Buyers pay a premium for each options contract; this represents the market price of the option contract at the time of purchase.

• The options seller (or writer), who is on the opposite side of the trade, has the obligation to buy or sell the underlying asset at the agreed-upon price, aka the strike price, if the options holder chooses to exercise their contract.

Options buyers and sellers may use options to attempt to profit if they think an asset’s price will go up (or down), to offset risk elsewhere in their portfolio, or to potentially enhance returns on existing positions. There are many different options trading strategies.

Why Are Options Called Derivatives?

An option is considered a derivative instrument because it is based on the value of the underlying asset: an options holder doesn’t purchase the asset, just the options contract. That way, they can make trades based on anticipated price movements of the underlying asset, without directly owning the asset itself.

In stock options, one options contract typically represents 100 shares.

Other types of derivatives include futures, swaps, and forwards. Options on futures contracts, such as the S&P 500 index or oil futures, are also popular derivatives.

It’s also important to know the difference between trading using margin vs. options? Having a margin account does offer investors leverage for other trades (e.g., trading stocks). But while a brokerage may require you to have a margin account in order to trade options, you can’t purchase options contracts using margin. That said, an options seller (writer) might be able to use margin to sell options contracts.

Recommended: What Are Derivatives?

What Are Puts and Calls?

There are two main types of options: calls vs. puts.

Call Options 101

When purchased, call options give the options holder the right (though not, again, the obligation) to buy an asset at a certain price in the future, typically in anticipation of the asset’s price rising

Here’s how a call option might work. The options buyer purchases a call option tied to Stock A with a strike price of $40 and an expiration three months from now. Stock A is currently trading at $35 per share.

If Stock A appreciates to a value higher than $40 per share, the option holder may choose to exercise the contract to realize a profit, or sell their option for a premium that’s higher than what they initially paid. If the value of Stock A goes up, the value of the call option may, all else being equal, also go up.

The opposite may also occur. If shares of Stock A go down, the value of the call option may go down, and expire worthless.

Assuming the price goes up and the options holder wants to exercise their call option, they would, with an American-style option, have until the expiration date to do so. With European-style options, the option can only be exercised on the expiration date). When they exercise, they would typically buy 100 shares at the strike price.

Put Options 101

Meanwhile, put options give holders the right to sell an asset at a specified price by a certain date, typically with the anticipation that the asset price will fall.

Here’s how a put trade might work. A trader buys a put option tied to Stock B with a strike price of $45 and an expiration three months from now. Stock B is currently trading at $50 per share.

If the price of Stock B falls to $44, below the strike price, the options holder can exercise the put to profit from the price difference. Alternatively, the value of the option may also rise in this scenario, giving the option holder the choice of selling the option itself for a potential gain.

Should the price of the underlying asset rise instead of fall, however, the option may expire worthless.

What Is the Put-Call Ratio?

A stock’s put-call ratio is the number of put options traded in the market relative to calls. It is one measure that investors look at to help gauge sentiment toward the shares. A high put-call ratio may indicate bearish market sentiment, whereas a low one may reflect more bullish views.

Quick Tip: How do you decide if a certain online trading platform or app is right for you? Ideally, the online investment platform you choose offers the features that you need for your investment goals or strategy, e.g., an easy-to-use interface, data analysis, educational tools.

Options Trading Terminology

• The strike price is the price at which the option holder can exercise the contract. If the holder decides to exercise the option, the seller is obligated to fulfill the contract.

• With American-style options the expiration is the date by which the contract needs to be exercised (meaning it can be exercised up to and on the expiration date). The closer an option is to its expiration, the lower the time value.

• Premiums reflect the value of an option; it’s the current market price for that option contract.

• Call options are considered in the money when the shares of the underlying stock trade above the strike price. Put options are in the money when the underlying shares are trading below the strike price.

• Options are at the money when the strike price is equal to the price of the asset in the market. Contracts that are at the money tend to see more volume or trading activity, as holders may choose to trade or exercise the options.

• Options are out of the money when the underlying security’s price is below the strike price of a call option, or above the strike price of a put option. For example, if shares of Stock C are trading at $50 each and the call option’s strike price is $60, the contracts are out of the money. For an out-of-the-money put option, the shares of Stock C may be trading at $60, while the put’s strike price is $50, so it is not currently exercisable.

“The Greeks” in Options Trading

Traders use a range of Greek letters to gauge the value of options. Here are some of the Greeks to know:

• Delta measures how much the option’s value is expected to change when the underlying asset’s price changes by $1.

• Gamma measures how much Delta is expected to change when the underlying asset’s price changes by $1.

• Theta is the sensitivity of the option to time.

• Vega is the sensitivity of the option to implied volatility.

• Rho is the sensitivity of the option to interest rates.

Finally, user-friendly options trading is here.*

Trade options with SoFi Invest on an easy-to-use, intuitively designed online platform.

*Check out the
OCC Options Disclosure Document.

How to Trade Options

The market for stock options is typically open from 9:30am to 4pm ET, Monday through Friday, while futures options can usually be traded almost 24 hours.

This is how you may get started trading options:

1. Pick a Platform

Log into your investment account with your chosen brokerage.

2. Get Approved

Your brokerage may base your approval on your trading experience. Trading options is riskier than trading stocks because some strategies can expose traders to losses that exceed their initial investment (or result in rapid capital loss). Options trading is for experienced investors who have a higher tolerance for risk.

3. Place Your Trade

Decide on an underlying asset and options strategy, being sure you have a risk management plan and exit strategy in place, should the price of the underlying asset move adversely. Then place your trade.

4. Manage Your Position

Monitor your position to know whether your options are in, at, or out of the money.

Basic Options Trading Strategies

Options offer a way for holders to express their views on the direction or volatility of an asset’s price through a trade. But traders may also use options to hedge or offset risk from other assets that they own. Here are some important options trading strategies to know:

Long Put, Long Call

In simple terms, if the buyer purchases an option — be it a put or a call — they are ‘long’. A long put or long call position means the holder owns a put or call option.

• A holder with a long call strategy may be able to purchase the asset at a lower price than market value if the asset rises above the strike price before expiration.

• A holder with a long put strategy may be able to sell the asset at a higher price than market value if the market price drops below the strike price before expiration.

Covered and Uncovered Calls

If an options writer sells call options on a stock or other underlying security they also own outright, the options are referred to as covered calls. The selling of options may allow the writer to generate an additional stream of income while committing to sell the shares they own for the predetermined price if the option is exercised.

Uncovered calls, or naked calls, also exist, when options writers sell call options without owning the underlying asset. However, this is a much riskier trade since the exercising of the option would oblige the options seller to buy the underlying asset in the open market, in order to sell the stock to the option buyer.

Note that the seller wants the option to stay out of the money so that they can keep the premium (which is how the seller may generate income).

Spreads

Option spread trades involve buying and selling a defined number of options for the same underlying asset but at different strikes or expirations.

A bull spread is a strategy in which a trader anticipates a potential increase in the price of an underlying asset..

A bearish spread is a strategy in which a trader anticipates a potential decline in the price of the underlying asset.

Horizontal spreads involve buying and selling options with the same strike prices but different expiration dates.

Vertical spreads are created through the simultaneous buying and selling of options with the same expiration dates but different strike prices.

Straddles and Strangles

Strangles and straddles in options trading allow traders to potentially benefit from a move in the price of the underlying asset, rather than the direction of the move.

In a straddle, a trader buys both calls and puts with the same strike prices and expiration dates to benefit from volatility rather than direction. The options buyer may see a gain if the asset price posts a big move, regardless of whether it rises or falls.

In a strangle, the holder also buys both calls and puts but with different strike prices.

Pros & Cons of Options Trading

Like any other type of investment, or investment strategy, trading options comes with certain advantages and disadvantages that investors should consider before going down this road.

Pros of Options Trading

• Options trading is complex and involves risks, but for experienced investors who understand the fundamentals of the contracts and how to trade them, options can be a useful tool to gain exposure to asset price movements while putting up a smaller amount of money upfront.

• The practice of selling options can also be a way for writers to attempt to earn income by collecting premiums. This was a popular strategy particularly in the years leading up to 2020 as the stock market tended to be quiet and interest rates were low.

• Options can also be a useful way to protect a portfolio. Some investors offset risk with options. For instance, buying a put option while also owning the underlying stock allows the options holder to offset their losses if the security declines in value before that option expires.

Cons of Options Trading

• A key risk in trading options is that losses can be outsized relative to the cost of the contract in some cases — especially for sellers, who may face losses that exceed the initial premium received if the market moves sharply against them. When an option is exercised, the seller of the option is obligated to buy or sell the underlying asset, even if the market is moving against them.

• While premium costs are generally low, they can still add up. The cost of options premiums can eat away at an investor’s profits. For instance, while an investor may net a profit from a stock holding, if they used options to purchase the shares, they’d have to subtract the cost of the premiums when calculating the stock profit.

• Because options expire within a specific time window, there is only a short period of time for an investor’s thesis to play out. Securities like stocks don’t have expiration dates.

Advantages and Disadvantages of Options Trading
Pros	Cons
Additional income	Potential outsized losses
Hedging portfolio risk	Premiums can add up
Less money upfront than owning an asset outright	Limited time for trades to play out

Test your understanding of what you just read.

The Takeaway

Options are derivative contracts on an underlying asset (an options contract for a certain stock is typically worth 100 shares). Options are complex, high-risk instruments, and investors need to understand how they work in order to reduce the risk of seeing steep losses.

When an investor buys a call option, it gives them the right but not the obligation to buy the underlying asset by or on the expiration date. When an investor buys a put option, it gives them the right but not the obligation to sell the underlying asset by or on the expiration date.

The contracts work differently for options sellers/writers.

The seller or writer of a call option has the obligation to sell the underlying asset at the agreed strike price to the options holder, if the holder chooses to exercise the option on or before its expiration. The seller of a put option has the obligation to buy the shares of the underlying asset from the put option holder at the agreed strike price.

Explore SoFi’s user-friendly options trading platform

While investors are not able to sell options on SoFi’s options trading platform at this time, they can buy call and put options to try to benefit from stock movements or manage risk.

FAQs

What is options trading and how does it work?

Options trading involves buying and selling contracts that give the holder the right — but not the obligation — to buy or sell assets at a set price by a certain date. These contracts derive their value from the underlying asset, and are often used for speculation or risk management.

Can you make $1,000 a day trading options?

It may be possible to make $1,000 in a day by trading options, but this depends on market conditions, strategy, capital, and risk tolerance. Most traders do not see consistent high-dollar returns, and losses can exceed the initial investment, meaning this form of trading may require a high risk tolerance.

Can I trade options with $100?

Some brokerages may allow you to start trading options with $100, particularly if you’re buying low-cost contracts. Account approval and margin requirements may vary, however. Options trading also carries high risk, even with a small investment.

Is options trading better than stocks?

Options trading is not inherently better or worse than trading stocks. It offers different risk-reward dynamics and may suit experienced traders seeking leverage or hedging strategies. However, options are more complex and can lead to greater losses than stocks

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SOIN-Q325-014

Nov

2025

Up-close image of the hand of an older man in a blazer holding a briefcase and ready to go to work.

Pros & Cons of Working After Retirement

By Pam O’Brien | invest, Investing, Preparing for Retirement | Comments Off

Many retirees continue working or take on a new job, but working after retirement can have downsides.

Nov

2025

How to Open a Brokerage Account

By Austin Kilham | Growing Wealth, invest, Investing | Comments Off

When you open a brokerage account with a brokerage firm, you transfer money into the account that you can use to start investing. While some brokerage accounts may set an account minimum, there is typically no limit to how much you can deposit or when you can withdraw your money.

With a brokerage account, investors can invest in a variety of securities, including stocks, bonds, ETFs, and more. There are many brokerages, but the steps to open a brokerage account are similar among most of them.

Key Points

Select a brokerage provider that aligns with your investment goals, considering services and fees.
Complete the online account setup by submitting personal and financial information.
Fund the account by transferring money, similar to a bank deposit.
Start trading stocks, bonds, and ETFs once the account is funded.
SIPC insurance protects up to $500,000 in cash and securities if the brokerage fails.^[1] However, if the brokerage firm fails, the account fails, too.

How to Open a Brokerage Account

How to Open a Brokerage Account Step-by-Step

There are a few simple steps to opening your first brokerage account. We’ll dive deep into each one below.

Choose a brokerage provider.
Sign up for an account.
Transfer money.
Start trading.

Step 1: Choose a Brokerage Provider

There are several types of brokerage accounts^[2], and the type you choose will depend on what you’re trying to accomplish.

Full-service brokerage firms not only allow clients to trade securities, they may also offer financial consulting and other services — though the price may be steep, compared to the other options here.
Discount brokerage firms typically charge lower fees than full-service, but as a result clients don’t have access to additional financial consulting or planning services.
Online brokerage firms are typically online-only, allowing clients to sign up, transfer money, and make trades through their website. These firms typically offer the lowest fees.

The accounts above are known as cash accounts: You must buy securities with funds you put in your account ahead of time.

You may also encounter other more complicated types of brokerage accounts known as margin accounts, which allow you to borrow money from your brokerage to make investments, using your case account as collateral. These accounts tend to be for sophisticated investors willing to shoulder the risk that investments bought with borrowed funds will lose value.

Before working with an individual investment advisor or a firm and opening a cash or margin account, it can be a good idea to run a check on their background. The Financial Industry Regulatory Authority (FINRA) offers online broker checks where you can enter a broker’s name, or the name of a firm, to learn whether a broker is registered to sell securities, offer investment advice, or both.^[3]

And you can learn about a broker’s employment history, regulatory actions, and whether there are past or current arbitrations and complaints.

Step 2: Sign Up for a Brokerage Account

Most brokers of all kinds allow you to open and access your brokerage account online. When you open the account, you will likely be asked to provide your Social Security number or taxpayer identification number, your address, date of birth, driver’s license or passport information, employment status, annual income and net worth. You may also be asked about your investment goals and risk tolerance.

For the most part, they should not charge you a fee for opening an account. While some may require account minimums, others allow you to open an account with no minimum deposit. There is no limit on the number of brokerage accounts you can open, and you may be able to hold multiple accounts with multiple brokerage firms.

Step 3: Transfer Money

You will need to fund your new brokerage account before you can purchase any types of securities. You can deposit money in a brokerage account like you would in a traditional bank account.

Step 4: Start Trading

Many brokerage firms will offer a way for you to earn interest on uninvested funds so that your money continues to work for you even when not invested in the market.

How Do Brokerage Accounts Work?

The brokerage firm with which you hold your account maintains the account and acts as the custodian for the assets you hold. In other words, the custodian provides a space for investors to use their account in the way that it was intended.

However, you own the investments in the account and can buy and sell them as you wish. The brokerage firm acts as a middleman between you and the markets, matching you with buyers and sellers, and executing trades based on your instructions.

For example, if you place an order with your brokerage to buy a certain number of shares of stock, the brokerage will match you with a seller looking to sell those shares and make the trade for you.

What’s the Difference Between Brokerage Accounts and Retirement Accounts?

Brokerage accounts are also known as taxable accounts, because profits on sales of securities inside the account are potentially subject to capital gains taxes. Generally speaking, these accounts offer no tax advantages for investors.

Retirement accounts, on the other hand, offer a number of tax advantages that may make them preferable to taxable accounts if you’re planning to save for retirement. Retirement accounts place limits on how much money you can contribute and when you can withdraw funds.

If retirement planning is your main concern, you may consider saving as much as you can in both a 401(k) if your employer offers one, and a traditional or Roth IRA. If you have funds left over, you may choose to invest those in your taxable brokerage account.

Is My Money Safe in a Brokerage Account?

The money and securities held in a brokerage account are insured by the Securities Investor Protection Corporation (SIPC). The SIPC protects against the loss of cash and securities held at failing brokerage firms. If your brokerage firm goes bankrupt, the SIPC covers $500,000 worth of losses, including $250,000 in cash losses.

The SIPC only provides protection for the custody function of a brokerage firm. In other words, they work to restore the cash and securities that were in a customer’s account when the brokerage started its liquidation proceedings. The organization does not protect against declines in value of the securities you hold, nor does it protect against receiving and acting upon bad investment advice.

It is important that any investor realizes and accepts that investment comes with a certain amount of risk. While security prices may gain in value, it is also possible that you could lose some or all of your investment.

The Takeaway

Opening a brokerage account is a simple process that allows you to invest in securities. Effectively, you’re depositing money at a brokerage, which will allow you to buy investments such as stocks, bonds, or ETFs. There are numerous brokerages out there, and different types of brokerage accounts.

Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

¹Opening and funding an Active Invest account gives you the opportunity to get up to $3,000 in the stock of your choice.

FAQ

How do I open a brokerage account?

Broadly speaking, you can open a brokerage account by choosing a broker or brokerage account provider, signing up, transferring money into the account, and then starting to trade or invest.

What are the different types of brokers?

There are several different types of brokerages, and those include full-service brokerage firms, discount brokerage firms, and online brokerage firms. Each type may offer different products and services, or levels of service.

Is money in a brokerage account safe?

While nothing is ever truly safe, money and securities that are held in brokerage accounts are insured by the Securities Investor Protection Corporation, or SIPC, for up to $500,000 in losses.

Article Sources

SIPC. What SIPC Protects.
FINRA. Investment Accounts: Brokerage Accounts.
FINRA. BrokerCheck.

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SoFi Invest is a trade name used by SoFi Wealth LLC and SoFi Securities LLC offering investment products and services. Robo investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser. Brokerage and self-directed investing products offered through SoFi Securities LLC, Member FINRA/SIPC.

For disclosures on SoFi Invest platforms visit SoFi.com/legal. For a full listing of the fees associated with Sofi Invest please view our fee schedule.

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Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

¹Claw Promotion: Probability of Member receiving $1,000 is a probability of 0.026%; If you don’t make a selection in 45 days, you’ll no longer qualify for the promo. Customer must fund their account with a minimum of $50.00 to qualify. Probability percentage is subject to decrease. See full terms and conditions.

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