How to Buy Options on Thinkorswim Desktop

Trading options can be a powerful way to manage risk, speculate on future movements, or create additional income. Thinkorswim, a platform by TD Ameritrade, is one of the most comprehensive tools for professional and retail traders alike. In this article, we’ll take a step-by-step look at how to buy options on Thinkorswim desktop, with key insights, pro tips, and potential pitfalls to avoid.

Step 1: Launch Thinkorswim

First, you’ll need to open the Thinkorswim desktop platform. Once you’ve logged into your TD Ameritrade account and launched the program, you’ll find yourself on the default layout. Thinkorswim is known for its detailed charts and customizable interface, so don't get overwhelmed by the variety of options and tools available.

Key point: If this is your first time using Thinkorswim, take a moment to familiarize yourself with the navigation. This will save you time later on when you’re actively trading.

Step 2: Go to the Trade Tab

At the top of the screen, you’ll find a row of tabs. Click on the “Trade” tab. This is where you can access everything related to placing trades, including buying and selling options.

Here, you’ll be able to:

• Look up stock tickers
• View option chains
• Create different types of option orders

Suspense moment: At this point, you might be asking yourself—how do I choose the right option strategy? Should I go for a call or a put? That’s where things get interesting, as we’ll discuss next.

Step 3: Understanding the Option Chain

When you click on the "Option Chain", you’ll be able to see a range of expiration dates and strike prices for the security you’re interested in. Each strike price is listed with its corresponding bid and ask prices, along with implied volatility and other metrics. You’ll see two columns: Calls on the left and Puts on the right.

• Calls give you the right to buy a stock at a specific price.
• Puts give you the right to sell a stock at a specific price.

Key pro tip: If you’re bullish on a stock, you may want to consider buying calls. If you’re bearish, buying puts could be your go-to strategy.

Step 4: Select Your Strike Price and Expiration Date

Selecting the right strike price and expiration date is crucial in options trading. The strike price determines at what price you can buy or sell the underlying stock, while the expiration date limits the time you have for your trade to work out.

For example, if you believe that Apple (AAPL) will increase in value over the next month, you might buy a call option with a strike price near the current market value and an expiration date a month out. Conversely, if you expect a decline, you would buy a put.

Important: It’s tempting to select a strike price far out of the money (where options are much cheaper), but remember that the likelihood of these options becoming profitable decreases.

Step 5: Placing Your Trade

Once you've selected your option, click on the bid price for calls or ask price for puts to open the order entry window. In this window, you can adjust the quantity, price, and type of order.

• Quantity: This refers to how many contracts you’re buying. Each contract typically represents 100 shares of the underlying stock.
• Limit Price: Set the maximum price you’re willing to pay for the option.
• Order Type: You can choose between a market order (execute immediately at current prices) or a limit order (execute only if your desired price is reached).

Suspense moment: You might wonder—what if the market moves against me after placing the order? Should I have a backup plan? Don’t worry; there are strategies like stop-loss orders and hedging that we’ll discuss soon.

Step 6: Review and Submit Your Order

Before you submit your order, double-check all the details:

• Strike price
• Expiration date
• Number of contracts
• Limit price

Once everything looks good, click “Confirm and Send”. After submitting, the order will appear in the Monitor tab until it is filled.

Cautionary note: Watch out for bid-ask spreads, especially on illiquid options. Wide spreads can result in paying more than you expect or receiving less when selling.

Step 7: Managing Your Position

After your order is filled, your option will show up in the Monitor tab. This is where you can track performance, set alerts, and close or adjust your position as needed.

Key point: Always have a strategy in place for managing your position. Know when to take profits, cut losses, or roll your options into new positions.

Additional Tools and Strategies on Thinkorswim

Thinkorswim offers many advanced features for options traders, including:

• ThinkBack: This tool lets you backtest different strategies based on historical data.
• Analyze Tab: Here, you can analyze risk/reward scenarios for potential trades and explore the Greeks (Delta, Gamma, Theta, Vega).
• Strategy Roller: This automates rolling covered calls or other strategies based on your predefined criteria.

Advanced Tip: If you’re interested in more complex strategies like spreads, straddles, or iron condors, Thinkorswim has built-in templates that make these trades easier to manage.

Common Mistakes to Avoid

While Thinkorswim offers powerful tools, many beginners make common mistakes that can be easily avoided:

• Overleveraging: Don’t buy too many contracts just because options are cheap. A bad trade can still result in significant losses.
• Ignoring Volatility: Options prices are heavily influenced by implied volatility. Be aware of earnings reports, economic data, or events that could cause volatility to spike.

Pro tip: Use the Analyze Tab to simulate different market scenarios before placing a trade.

Final Thoughts

Buying options on Thinkorswim offers tremendous flexibility, whether you’re a beginner or an advanced trader. With the right strategies, proper risk management, and a strong understanding of the platform, you can use options to enhance your portfolio.

Key takeaway: Always do your homework, understand the risks, and don’t overcomplicate things. Start small, keep learning, and gradually refine your trading style.