How to Buy Options on Robinhood: A Guide Inspired by Reddit Insights

What if I told you that buying options on Robinhood could unlock the potential to multiply your investment gains without holding a stock for years? Sounds too good to be true, right? Well, thousands of investors on Reddit have been talking about this very strategy, and they’ve turned Robinhood into their playground for options trading. But here's the kicker: Options are not just some simple buy-and-hold stock strategy. They require knowledge, timing, and an appetite for risk.

Now, let's dive into the art of buying options on Robinhood. This guide will take you through the exact steps, strategies, and Reddit-backed insights on how to start trading options, how to manage risk, and some of the most talked-about success and failure stories on the platform.

The Basics: What Are Options?

Options are financial contracts that give you the right, but not the obligation, to buy (call option) or sell (put option) a stock at a certain price before a specified date. Unlike stocks, where you own a piece of a company, options allow you to leverage your investment, offering the chance to multiply your gains (or losses) with relatively little capital.

On Robinhood, options trading is beginner-friendly. It simplifies the process with its easy-to-use interface, which has earned it a considerable following on Reddit's financial and trading forums.

Step-by-Step: How to Buy Options on Robinhood

Here’s a quick walkthrough on how to start trading options on Robinhood:

Step 1: Enable Options Trading

Before you can trade options, you need to enable options trading on your account. Here’s how:

1. Open the Robinhood app and tap the account icon in the bottom right.
2. Go to the Investing tab.
3. Scroll down and enable Options Trading.

Step 2: Choose Your Stock or ETF

Once options trading is enabled, the next step is to find the stock or ETF you want to trade options on.

• Look for popular tickers like $AAPL (Apple) or $TSLA (Tesla), which tend to be highly volatile and are commonly discussed on Reddit.

Step 3: Select Your Strategy (Call or Put?)

Now, you need to decide whether to go with a call option or a put option:

• Call Option: If you think the stock will go up, this is your play.
• Put Option: Expecting the stock to drop? A put option is what you’re looking for.

On Robinhood, each of these trades is represented in a user-friendly way that breaks down the potential risk and rewards.

Step 4: Choose an Expiry Date

Options contracts have a time limit. You need to pick an expiry date, which will determine how long you can hold the contract.

• Reddit Tip: Many users on r/WallStreetBets suggest picking expiry dates that align with upcoming company earnings reports or major market events for higher volatility.

Step 5: Set Your Strike Price

The strike price is the price at which you can buy or sell the stock if your option gets exercised. On Robinhood, this is where you can start visualizing your profit potential.

• Call Options: Choose a strike price above the current market price if you think the stock will rise.
• Put Options: Choose a strike price below the current price if you think the stock will fall.

Step 6: Confirm and Execute

After selecting your strike price and expiry date, you simply hit "buy." At this point, you’ll see the cost of the options contract (also known as the premium) and any associated fees. Confirm your trade, and you’re officially in the game!

Understanding Risk: What Redditors Know That You Don’t

The allure of options trading is undeniable, but Reddit communities like r/options and r/WallStreetBets are filled with cautionary tales. Here’s the harsh truth: Options can go to zero, and fast. One of the reasons why Robinhood became infamous in Reddit circles was its easy access to highly volatile options trading, which sometimes led to massive losses for uninformed traders.

Key Reddit Insights:

• Small Positions, Big Gains: Many users suggest starting with small positions to test the waters. For instance, instead of betting on a high-priced stock like Tesla, try trading options on cheaper, less volatile stocks.
• Set Stop-Losses: Unlike regular stock trades, options can lose value rapidly. Reddit users recommend setting stop-loss orders to minimize your potential losses if the trade goes against you.
• Don't Chase the Trade: The excitement of the market can lead you to overtrade. Follow the Reddit golden rule: “No FOMO” (Fear of Missing Out). Stick to your strategy and avoid jumping into trades just because others are hyping it.

The Reddit Success Stories (and Failures)

Some of the most famous success stories on Reddit revolve around options trades that went against the odds. For instance:

• The $TSLA Calls That Made Millions: One Redditor turned $10,000 into over $1 million by buying Tesla call options before the company's massive stock surge.

However, for every success story, there are countless failures:

• The Infamous $ROKU Puts Disaster: Another Reddit user lost their entire savings betting on Roku’s stock to drop, only to see it soar. They were holding out-of-the-money put options, which expired worthless.

These stories highlight both the upside and downside of options trading. It’s essential to manage your expectations and understand the risks before diving in.

Advanced Strategies: Reddit’s Favorite Options Plays

Once you’ve mastered the basics, there are more advanced options strategies to explore, many of which are regularly discussed on Reddit.

Covered Calls

A covered call involves holding a stock and selling a call option on it. It’s a safer strategy that allows you to generate income from a stock you already own.

Iron Condor

An iron condor is a combination of buying and selling both calls and puts, which limits both the upside and downside of your trade. It’s a neutral strategy, often favored by traders expecting low volatility in the market.

Straddles and Strangles

These strategies involve buying both a call and a put on the same stock, but with different strike prices or expiry dates. They are popular among traders betting on massive swings in stock prices—especially during earnings season.

The Future of Options on Robinhood

With the rise of zero-commission trading platforms like Robinhood, options trading has become more accessible than ever. Reddit users are continuously refining their strategies and sharing their insights, and Robinhood has responded by adding more educational tools, as well as detailed charts to make options trading more intuitive.

That being said, the risks are still high, and as many Redditors have learned, it's not a game for the faint of heart.

Ready to get started? Equip yourself with the right knowledge, learn from the best (and worst) examples on Reddit, and never stop improving your strategies. The options market may offer you some of the greatest financial returns possible—but only if you play your cards right.