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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

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.

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. Before an investor begins trading options they should familiarize themselves with the Characteristics and Risks of Standardized Options . Tax considerations with options transactions are unique, investors should consult with their tax advisor to understand the impact to their taxes.

Utilizing a margin loan is generally considered more appropriate for experienced investors as there are additional costs and risks associated. It is possible to lose more than your initial investment when using margin. Please see SoFi.com/wealth/assets/documents/brokerage-margin-disclosure-statement.pdf for detailed disclosure information.

Disclaimer: The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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.

This article is not intended to be legal advice. Please consult an attorney for advice.

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

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

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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.

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. Before an investor begins trading options they should familiarize themselves with the Characteristics and Risks of Standardized Options . Tax considerations with options transactions are unique, investors should consult with their tax advisor to understand the impact to their taxes.

Disclaimer: The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Utilizing a margin loan is generally considered more appropriate for experienced investors as there are additional costs and risks associated. It is possible to lose more than your initial investment when using margin. Please see SoFi.com/wealth/assets/documents/brokerage-margin-disclosure-statement.pdf for detailed disclosure information.

S&P 500 Index: The S&P 500 Index is a market-capitalization-weighted index of 500 leading publicly traded companies in the U.S. It is not an investment product, but a measure of U.S. equity performance. Historical performance of the S&P 500 Index does not guarantee similar results in the future. The historical return of the S&P 500 Index shown does not include the reinvestment of dividends or account for investment fees, expenses, or taxes, which would reduce actual returns.

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

A woman in a pink sweater sits on a bench while researching if private student loans can garnish wages

Can Private Student Loans Garnish Wages?

By Jennifer Calonia | student_loan | Comments Off

Whether you have private or federal student loans, defaulting on your debt can eventually lead to wage garnishment. For federal loans, the government can garnish your wages without a court order. For private loans, the lender must first sue you and obtain a court judgment before they can legally garnish your wages. Private lenders are also more limited in the types of income they can garnish compared to federal loans.

Below, we break down how private student loan wage garnishment works, what your rights are, and what you can do to avoid it.

Key Points

• Private lenders need a court judgment to garnish wages for student loans.

• Up to 25% of disposable income can be withheld for private student loan wage garnishment.

• Social Security and income from retirement funds are exempt from private loan wage garnishment.

• State laws may offer additional protection, capping or prohibiting garnishment.

• Avoid garnishment by communicating, negotiating, or refinancing with lenders.

What Is Wage Garnishment?

Wage garnishment is a debt collection method that legally requires your employer to hold back a set amount of your paycheck each payroll period. The withheld funds are then directed to the creditor to satisfy the past due debt.

With private student loans, the lender must take you to court and prove the debt is valid to get a judgment. Once a judgment is granted, the lender can request a court order for wage garnishment. This is a court-issued document that officially authorizes your employer to garnish your wages. The maximum that can be withheld for private student loan garnishment is 25% of your disposable (after tax) income.

Other Debt Collection Methods

Before wage garnishment comes into play, private student loan lenders typically try several other collection methods. Garnishment is usually their last resort, since it involves time, legal costs, and court proceedings.

Some common collection tactics include:

• Phone calls and letters: Private lenders will often contact you via calls and letters to arrange payment and seek to recover the past-due amount.

• Collection agencies: If your lender cannot collect, they may sell or assign the debt to a collection agency, which will likely then pursue repayment aggressively.

• Settlement offers: Sometimes, lenders or collection agencies will propose a reduced lump sum payment to close out the debt if you are willing to pay upfront.

• Legal action: As a last step, leaders may file a lawsuit to obtain a judgment that allows them to pursue collections actions such as wage garnishment or seizing assets.

Private Loan vs. Federal Loan Garnishment

Both private and federal student loans can lead to wage garnishment after default, but the processes for doing so are different.

With federal student loans, the government can garnish wages without going to court. Once you’re in default (typically after 270 days of missed payments), the Education Department can order your employer to withhold up to 15% of your disposable income to collect your defaulted debt. Federal agencies can also withhold tax refunds or Social Security benefits to collect what’s owed.

Private student loans work differently because they’re issued by banks or private lenders, not the government. These lenders must sue you and get permission from a court to garnish your wages. A private lender can garnish up to 25% of your weekly disposable income, depending on how much you earn and where you live. Unlike federal loans, private lenders can’t seize tax refunds or federal benefits.

How Wage Garnishment Works for Private Student Loans

Here’s a closer look at how student loan wage garnishment actually unfolds for private student loans, from the first missed payment to paycheck deductions.

Default Timelines

Depending on the lender, private student loans are considered to be in default after three to six months of missed payments. Once in default, a lender may:

• Report the default to the consumer credit bureaus.

• Send your account to a collection agency.

• File a lawsuit to recover the debt.

At this stage, communication with your lender is key. Some will offer settlement options or hardship forbearance, which can help you avoid a wage garnishment down the road.

Recommended: How to Get Student Loans Out of Default

Lawsuit and Judgment Process

If the lender decides to take legal action, you’ll be served with a complaint and a court summons. You typically have a set time period to respond to the lawsuit by filing an answer with the court. If you don’t file your answer on time, the lender can get a default judgment, which is an automatic ruling in their favor.

If you respond to the lawsuit and go to court, you will likely appear before a judge who will hear both sides. If you win, you won’t need to pay the debt in question. If the creditor wins, they will have established a legal right to collect the debt. They can then seek permission to do so, typically through a wage garnishment.

Employer Notification and Paycheck Deductions

If the lender gets a court order for wage garnishment, they can legally require your employer to withhold a portion of your paycheck and send those funds directly to them. The employer, also known as the garnishee, is notified of the wage garnishment order. They must legally comply with the order and in accordance with state law.

A portion of your earned wages may then be automatically deducted from your net paycheck each payroll period until the debt is fully repaid or otherwise resolved.

Percentage of Wages Garnished

The amount that can be garnished from your paycheck depends on federal and state laws. Under federal law, the maximum garnishment for most debts (including private student loans) is:

• 25% of your disposable income, or

• The amount by which your weekly disposable earnings exceed 30 times the federal minimum wage (currently $7.25 per hour), whichever is less.

Disposable income is an employee’s gross pay minus legally required deductions, such as federal, state, and local taxes, Social Security, and Medicare.

Some states, however, impose stricter limits.

State-by-State Differences

Each state has its own rules governing wage garnishment. Some states allow the full 25% limit, while others cap it lower — or even prohibit garnishment in certain situations.

In Massachusetts, for example, a creditor is only allowed to garnish the lesser of 15% of your gross weekly wages or 50 times the federal or state minimum wage. In Florida, a judgment creditor cannot garnish your pay if you are head of the family and your wages are $750 per week or less.

If your state has more protective laws, those take precedence over federal limits.

How to Avoid Private Student Loan Wage Garnishment

The most effective way to stop student loan wage garnishment is to prevent it before it starts. Once a garnishment order is in place, it’s difficult to reverse -– but there are several proactive steps you can take.

Negotiate Repayment

If you’re struggling to make payments, it’s a good idea to contact your lender. Explain your financial situation, and ask about your options. Many lenders are open to negotiating when they see you’re acting in good faith. The lender might offer temporary forbearance, which is a pause on payments to give you time to recover financially. Or they might be willing to extend the term of your student loan, which will reduce your monthly payment.

If your loan has already been sent to collections, you can negotiate directly with the collector. Just be sure to get all agreements in writing before sending any payment.

Refinance Student Loans

If the debt is eligible, refinancing can be another strategy to prevent wage garnishment down the line. This involves taking out a new loan (ideally with a lower interest rate) and using it to pay your original student loan (or loans) in full. You then repay the new loan according to that loan’s rate and terms. Using an online student loan refinance calculator can help you see how much a refinance could save you monthly and over the loan term.

Keep in mind, however, that you generally need good credit and stable income to qualify for student loan refinancing. If you’re already in default, refinancing might not be immediately available. However, building your credit profile and paying off some debt can make it possible later.

If you have federal as well as private student loans, keep in mind that refinancing federal loans with a private lender means giving up federal benefits and protections like income-based repayment and forgiveness programs.

Your Rights and Legal Protections

If you end up facing private student loan garnishment, you still have a number of rights under both federal and state law. Here are some to keep in mind:

• You must receive proper notice: Before any garnishment begins, you’re entitled to written notice that a wage garnishment order has been issued to your employer. In some states, this notice must include certain instructions, such as how to request a change to their garnishment order.

• You can contest the garnishment: You may be able to file an objection if you weren’t properly notified of the lawsuit before the judgment, the debt isn’t actually yours, or the amount being garnished exceeds legal limits. This typically triggers a hearing where you can present your case before a judge. If successful, the garnishment may be reduced or eliminated entirely.

• You’re protected from retaliation: Under federal law, employers cannot fire an employee for having their wages garnished for a single debt. That protection doesn’t extend to employees with multiple wage garnishments. However, some states provide stronger safeguards.

• Some income is exempted: Some kinds of earnings can’t be garnished by private lenders. This generally includes: Social Security payments, child support, alimony, disability benefits, as well as income from pensions, individual retirement accounts (IRAs), 401(k)s, and other retirement funds.

The Takeaway

For private student loans, wage garnishment is a serious consequence of default, but it’s not automatic. Unlike federal loans, private lenders must first successfully sue you and obtain a court order to legally garnish your wages, which is limited to a maximum of 25% of your disposable income under federal law.

The best way to protect your paycheck is to be proactive: Communicate with your lender, explore options like forbearance or refinancing before default occurs, and know your rights regarding notice, legal protections, and the types of income that are exempt from garnishment.

If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.

Cover up to 100% of school-certified costs including tuition, books, supplies, room and board, and transportation with a private student loan from SoFi.

FAQ

Can private lenders take money from my bank account?

Private lenders cannot directly take money from your bank account without your permission or a court order. However, if you signed an agreement allowing automatic payments, they may legally withdraw funds as outlined in the contract. If you default on a loan, the lender must sue you and obtain a judgment before garnishing your wages or seizing funds from your bank account through a legal process.

What’s the difference between wage garnishment and a lien?

Wage garnishment and liens are both methods creditors use to collect debts, but they work differently. Wage garnishment deducts money directly from your paycheck before you receive it, continuing until the debt is paid. A lien, on the other hand, is a legal claim on one of your assets (such as a house or car). It gives a lender or creditor the right to receive a portion of any money you would receive if the property is sold or refinanced.

Will garnishment affect my credit score?

While wage garnishment itself doesn’t appear on your credit report, the events that led to it (such as missed payments and loan default) will. These items can stay on your credit report for up to seven years and negatively impact your credit score.

Can I be fired because of wage garnishment?

Federal law protects employees from being fired over a single wage garnishment, meaning your employer cannot terminate you for one debt being garnished. However, if multiple garnishments are issued against you, these protections may not apply and your employer could take actions. State laws vary, with some offering stronger protections than others.

Is wage garnishment public record?

Yes, wage garnishment is part of the public record because it results from a court order. When a creditor sues and wins a judgment against you, that legal action becomes accessible through public court records.

Photo credit: iStock/Pekic

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