by Ian Harvey
Successful stock option trading strategy includes several key points, which are of great relevance to anyone wishing to profit from trading stock options. Option trading has developed into a major area associated with the stock market, and it is important to understand and implement these keys to succeed in options trading. Option trading is an art. It requires sharp skills to make money. Most traders lose out while trying to make money, but with a bit of practice, clear and logical thinking, and the ability to adapt, options trading can be very rewarding.
With high rewards come high risk, and being able to customize your trading will help alleviate this situation.
However, getting started isn’t easy, and there is potential for costly mistakes. Understanding option traders’ lingo is a starting point in planning your stock option trading strategy.
Option trading is similar to stock trading; it requires right selection, timing and patience.
Trading options is not for your average risk taker. Although there are ways to limit your risk to manageable levels, for those with a significant knowledge base and high risk tolerance there is definitely money to be made.
So, bearing the above in mind, here are some key points to make the
journey to successful options trading easier…..
.....Set-up for efficiency – make your trading as easy as possible. There are many reputable on-line brokers available with all the tools necessary for your needs as an options trader. Using one or more of the multitude of online trading platforms available basically allows an investor to act as their own broker. This way of buying stocks without a broker is the most widespread, and offers the broadest range of possibilities to investors. Trades can be executed instantly, which, combined with the access to a huge spectrum of investment opportunities, up-to-the-minute information, and many companies offering economical commission rates, makes this an excellent choice for many investors wishing to buy and sell stocks without the direct involvement of a broker.
.....Practice before live trading – before you set up an account with an on-line broker, check that they have a platform which provides the opportunity to practice options trading – simulated or virtual trading - before going “live”. Utilizing a virtual trading tool allows you to test your trading knowledge, theories, and risk tolerance to see which strategies work for you and which don't, and can then allow for adjustment to your developing stock option trading strategy.
.....Knowledge is so important when trading options – getting the most out of your trading, whether you are bullish or bearish on the market, is extremely important if you wish to be profitable; particularly in the arena of options trading.
KNOWLEDGE IS POWER!
.....Research thoroughly before executing trades – this includes – fundamental – technical - and - sentiment perspectives. It is extremely important to examine a security thoroughly before initiating an option trade.
Which leads to…..
Circumstances that affect a company – there are many circumstances that will influence a company’s price, which in-turn will dictate the options trade movement. Harvey’s Options Volatility Indicator was developed in conjunction with the development of my site “Stock Options Made Easy”, to fill a void in the field of options trading, particularly in determining the direction that a stock will take and therefore the movement of an attached option - up, down or static.
your risk - coping with trading risk is absolutely
vital if a trader is to experience both success and wellbeing. Risk is an
inherent part of life, but the stock market magnifies this innate risk and
Risk is, in fact, what enables the stock market to function, and without this risk, the opportunities to make money from trading would simply not exist in the sense that they do.
requirements and amount to risk – don’t risk more
than you can afford to lose! There will always be a percentage of losing trades
when trading options. Therefore, don’t bet-the-house on a so-called “hot-tip” or
a “good-feeling” for a winning trade. Let rationality be your guide.
the “Math” for the trade – know the cost of
entering and exiting the trade (in other words commissions), set pre-determined
sell targets if applicable, as well as stop-loss points; and be prepared with a
profit/loss strategy to help know where you are in relation to capital invested,
and bear in mind margin requirements to best understand where your play stands
at any given time.
.....Understand the pricing of the trade – this will involve an understanding of historical volatility versus an option’s implied volatility – not as difficult as it sounds. By comparing a stock's historical volatility to an option's implied volatility, you can gauge whether the option is relatively cheap or expensive at the moment. Sometimes, when comfortable with your trading ability, inflated premiums, due to market volatility can be advantageous if employing strategies like the short put or short call. By having this knowledge at-hand, surviving volatility is much more rewarding. This can be much easier if you employ various volatility indicators in your trading strategies – one such that could be of enormous benefit is “Harvey’s Options Volatility Indicator”.
.....Look for Profitable Trades – contrarians love to find outperforming stocks that provide skepticism in regard to “why the stock price has moved dramatically up or down”. Their stock option trading strategy also includes playing under-performing stocks which are surrounded by optimism.
Obviously, the contrarian view is not for everyone, but it is important to be aware of analyst upgrades, as well as price increase or decreases, short-covering rallies, or sentiment outlook when making your own decisions.
.....Hedge your bets – if unsure of the future movement of a stock or a particular sector, and are determined to enter an options trade, it may be worth hedging your bet by simultaneously opening two related option positions, which will you allow a safety net to guard against an unanticipated move in a specific sector.
your trades – as far as possible it is best to know
where your trade stands at any particular time so that you can make decisions
quickly; in times when the trade is moving in the wrong direction, or is
providing substantial profit and you need to exit before a reversal, or need to
set a stop-loss level, or add to the trade in certain circumstances. The ability to make quick adjustments to your stock option trading strategy often makes the difference between winning and losing.
.....And More Importantly.....
ENJOY WHAT YOU DO!
Develop a stock option trading strategy that allows you to conquer the market!
Take advantage of what the market has to offer today.
Stock Options Made Easy memberships are here to help you overcome the obstacles and provide leverage in profiting from the market!