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Beginner's Guide to Options Trading: Using Popular Stocks RDW, ONDS as Examples – Open Your First Options Trade for Under $100

Hello fellow investor! I've noticed that many investors face bottlenecks when investing in stocks and feel lost when considering a move to options. Therefore, to help option beginners cultivate the right mindset, enhance their understanding, and seize opportunities through hands-on practice, I have created the 'Option Newbie Gold Rush Companion' column. I hope to accompany you on a path of continuous improvement. If you're interested, you're welcome to join.Click hereUpon joining the learning platform, you will receive notifications when subsequent columns are updated.

*The following content is for investment education purposes only and does not constitute any investment advice. Data is as of before the U.S. stock market open on January 28th.

Starting from January 26th, the U.S. options market underwent a significant upgrade: Tesla (TSLA.US) 、 $英偉達 (NVDA.US)$ 、 $Apple (AAPL.US)$ 、 $Amazon (AMZN.US)$ 、 $Meta Platforms (META.US)$ 、 $Broadcom (AVGO.US)$ 、 $Google-C (GOOG.US)$ 、 $Microsoft (MSFT.US)$ 、 $iShares Bitcoin Trust (IBIT.US)$ These nine major symbols now offer options contracts with expirations on Mondays and Wednesdays, in addition to the original Friday expirations.

What does this mean? Previously, if you wanted to use options for these underlyings to leverage with a small amount of capital, you'd at least have to hold until the market closed on Friday. But now, you can also trade up to Monday or Wednesday. Capital turnover is faster, and because the duration is shorter and the price lower, it allows participation in market moves with even less capital, lowering trial-and-error costs.

Although it's not necessary to invest in options on these specific underlyings, this change serves as a reminder: leveraging small amounts for big gains and doing so quickly is something worth studying carefully.

For options beginners, using an extremely low trial-and-error cost (for example, less than $100) to get familiar with the rules, feel the adrenaline, and develop market intuition might be an essential step on your investment journey.If you make the right move, you might earn several times your investment; if you make a mistake, it’s still valuable experience gained.

1. Before you start, the two most important terms you need to know

You may have heard that options come with many technical terms, but before you start investing, the two most important terms you need to understand are: Call (Call Option) and Put (Put Option).

Call (Call Option): This is a 'bet on rising' contract. You pay for the right to buy the underlying stock at a predetermined fixed price (the strike price) anytime before expiration. Typically, the price of a Call rises as the stock price increases. So buying a Call means betting that the price will go up — the more it rises, the more we profit; if it doesn’t rise, we simply abandon the option, losing at most the premium paid for the contract.

Put (Put Option): This is a 'bet on falling' contract. You pay for the right to sell the underlying stock at a predetermined fixed price (the strike price) anytime before expiration. Usually, the price of a Put rises as the stock price falls. For instance, if you believe a company’s earnings report will disappoint and its stock price will drop, you could buy a Put contract on that stock. The more the price falls, the more you profit; if it doesn’t fall, again, you lose at most the premium paid.

Here’s a relatable analogy:

You really want to attend a popular concert, but the tickets are sold out, and prices are expected to soar. You're still unsure whether to buy from a scalper. At this point, the scalper tells you that by paying a deposit of HK$100, he guarantees to sell you the ticket for HK$2,000 after a week.

One week later, if the ticket price rises to HKD 3,000, you profit. At this time, the deposit representing this right may also rise to HKD 500. If you decide not to buy the ticket, you can consider selling this right. If the price falls to HKD 1,000, you give up buying the ticket and only lose the HKD 100 deposit. This is the basic logic of a Call option.

2. The key point: How should you choose your first contract?

Many beginners get overwhelmed when they first encounter options, unsure which underlying asset or contract to choose, fearing they'll lose everything if they make the wrong choice. In fact, it's very simple. We just need tofocus on two core factors: Hot underlying assets (those prone to large fluctuations—volatility creates opportunities—and with relatively sufficient liquidity) + low-cost contracts (less than $100, so losses won’t be painful).

So, what kind of underlying assets fit these criteria? Let me give you two examples to help clarify.

For example, a recent upward trending stock, $Redwire (RDW.US)$ which has risen approximately 158% over the past two months, including a single-day surge of 29.56% on January 27th, with numerous instances of daily fluctuations >5%, showing significant volatility.

This is a core stock in the US space technology sector, focusing on space exploration, satellite manufacturing, and space infrastructure. It recently received clear catalysts: the company secured a major defense contract from the US Missile Defense Agency (MDA), acquired Edge Autonomy (a drone manufacturer), and at the industry level, the demand for commercialization of the space economy and infrastructure is accelerating.

Currently, RDW’s stock price is near recent highs, with trading volume continuing to increase (96,119,600 shares traded on January 27th), reflecting high investor attention and good liquidity. In the short term, there may still be momentum for further upside, though a pullback risk also exists.

So, assuming you want to leverage options on this underlying asset, you can do so throughthe path 'RDW Stock Quote Page > Options > Option Chain'to see the specific option contracts available for selection. Next, you need to choose the expiration date and strike price for the Call option.

For the expiration date, consider contracts that expire in 1-2 months.The shorter the duration, the cheaper the option price (i.e., premium) usually is, but the rate at which this price decays over time (i.e., time value decay) becomes faster as well, leaving less time for the underlying asset to fluctuate.

You may choose a strike price slightly higher than the current market price for the Call (out-of-the-money options).Compared to options with strike prices below or equal to the market price (at-the-money or in-the-money options), these options generally have lower premiums. Compared to options with strike prices far above the market price (deep out-of-the-money options), these options offer a higher likelihood of profit.

Taking the example of a Call option expiring on February 27th with a strike price of $18, after selecting the contract, you can scroll up to see the profit and loss situation at expiration. You’ll notice that if the stock price is below $18.76 at expiration, you incur a loss, with the maximum loss being the cost of purchasing the option, i.e., $76. If the stock price is above $18.76 at expiration, you make a profit, and the higher the stock price goes, the greater your profit, with no upper limit.

Of course,You don't necessarily have to wait until expiration. If there's a sharp rise in the stock price before expiration, the price of the Call option typically rises as well. At that point, you could consider selling the Call option to close your position and lock in profits.

On the other hand, if you're expecting a pullback, you'd buy Put options rather than Call options.

Let me give another example. For instance, $Ondas (ONDS.US)$ is a small-cap stock in the defense drone sector. It has seen a pullback recently after a significant rise in defense orders over the past month, and it remains one of the more closely watched stocks in the market. Since November last year, trading volume has noticeably increased, with both volatility and liquidity being strong.

The company’s drone systems have extremely high compliance thresholds, giving it a first-mover advantage in key scenarios such as border patrols. The company is also integrating ground robots and anti-drone systems, paired with its own private wireless communication network, aiming to build an “air + ground integrated” security solution platform. The business and financial outlook is promising. However, risks include heavy reliance on large government contracts, as well as potential valuation corrections, market competition, order fluctuations, and acquisition integration challenges.

Similarly, if you are optimistic about the near-term outlook, you can buy Calls for less than $100. If you are bearish, you can buy Puts.

3. A closer look: Many contracts may seem similar, but which one suits you best?

Assuming you’ve decided to buy a Call for a specific stock, but there are numerous contracts with similar expiration dates and strike prices. Which one is the most suitable for you?

The following uses $Ondas (ONDS.US)$ Take several contracts with a strike price near $15 expiring on February 27 as an example, and use a table to help you make an intuitive comparison (based on the closing data from January 27).

How to choose? It depends on your market outlook and preferred investment style.

If you think the market movement is imminent and you prefer stability, contracts with nearer expiration dates and lower strike prices may be more suitable. If you believe this trend will rise but are unsure when it will start, options with longer expiration dates would be more appropriate.

If you are a balanced investor seeking both opportunity and controlled costs, then consider options that offer a good balance of value. If you’re an aggressive risk-taker who prefers leveraging small amounts for potentially large gains, lower-cost options might appeal more to you.

However, I must remind you not to focus solely on the cheapest options. If an option costs only $10 but has a strike price that is far out-of-the-money, it will most likely expire worthless. If your budget is $100, try to select contracts that are less out-of-the-money and have a longer time to expiration. This way, you can maintain leverage while avoiding rapid time decay wiping out your position just before it might become profitable.

4. Conclusion: Taking the first step is better than endless观望 (spectating)

Investing is like swimming; rather than reading a hundred swimming guides while standing on the shore, it’s better to jump in and get your hands wet. When you actually hold an options contract, your perception of volatility and understanding of time value will take a quantum leap.

As a beginner, you can start by experimenting with slightly out-of-the-money options using a small amount of capital.Using minimal capital to test your logic and build your practical market intuition is far more valuable than any theory.

Of course, it's important to remind everyone: Options are a double-edged sword. They can amplify your gains, but they can also cause the premium in your hand to expire worthless. So, approach with the mindset that this money is tuition (or like buying a lottery ticket). If you lose it all, consider it as paying for tuition to build experience—without affecting your daily life. If you make a profit, that's the realization of your understanding. And remember, never go all-in recklessly—that's gambling, not investing. Always manage your position size carefully.

On the investment journey, every practice of verifying insights with controllable costs is a solid step toward realizing future value. 'Option Newbie Gold Rush Companion' is here to guide you along the way.

Alright, that's it for today. Welcome.Click hereJoin the learning journey, and you’ll receive notifications when new updates are posted in subsequent columns. If you have specific content suggestions, your input is highly welcomed!

Finally, here’s a small perk for fellow investors—welcome to claim it!Options Beginner's Package（*This promotion is available exclusively to HK invited users; click to learn more.Event Details Rules >>）

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