Key to Options Trading Success

February 26, 2010 · Posted in options trading · Comment 

Lately, I have been asked about what I think is the single key that determines if you would make it as a rich man in options trading.

This is an extremely interesting question as I am not someone inclined to believe that any single reason constitutes to the success in anything at all. However, that got me thinking hard and reflecting on my own success in options trading. Then I decided to frame the question a little bit more academically. All things equal, what is the single key to options trading success? All things equal meaning everyone has perfect control over their emotions and will execute flawlessly all orders that they are required to without human errors and that market conditions as well as options trading knowledge is equal amongst all.

Imagine a group of options traders who knows all the options strategies available in options trading and exposed to the same market conditions. What will determine which one or ones of them makes a profit?

I came to a conclusion about what I think is the key to trading success and that is the exact same key to stock trading success; the ability to pick stocks that will perform exactly as you would like it to.

Yes, sad but true, it’s the same thing in stock trading. You make money only when you buy stocks that goes up or short stocks that goes down.

In options trading, you only make money when you apply bullish options strategies on stocks that go up, bearish options strategies on stocks that go down, neutral options strategies on stocks that remain stagnant or volatile options strategies on stocks that stage quick and explosive breakouts.

You only lose money in trading when you apply bullish options strategies on stocks that goes down, bearish options strategies on stocks that go up, neutral options strategies on stocks that breaks out and volatile options strategies on stocks that remain stagnant.

This single condition for losing money in trading is, all else equal, the only key to trading success; the ability to pick the right stocks or the ability to predict the future direction of a stock or index correctly.

Yes, being able to predict future market or stock direction accurately and consistently is an important skill in investing and is a far more fundamental skill set than knowing all the options strategies there is.

If that is the case, why options trading?

Well, even though the key to success in options trading is largely the same as the key to success in stock trading or any other forms of investment or trading, trading does have a few tricks up its sleeves to help put the odds in your favor.

First of all is leverage and protection. The ability to risk lesser capital for the same profit or a lot more profit with the same capital already puts the benefit of risk in your favor. Even credit strategies can be low risk if proper stops are used.

Secondly, is the ability to make a profit in more than one direction! Yes, since the key to success in options trading is the ability to “guess” the correct direction the underlying stock or index is going to take, won’t your chances of success be dramatically increased if you could profit in more than one direction? Yes, you only get that in options trading.

For instance, a Bull Put Spread is a bullish options strategy that makes a profit when the stock goes upwards, remains stagnant OR drops a little! Yes, all 3 directions! Won’t your chances of success be dramatically increased with strategies like that?

Yes, the key to stock options trading success is the ability to pick the right stocks which translates into the ability to accurately and consistently predict the future direction of the underlying stock. Nobody can do that consistently and that is why options trading puts the odds of success in your favor through options strategies that profits from more than one direction.

Author: Jason Ng
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Premium Selling For Low Maintenance Options Trading

February 23, 2010 · Posted in options trading · Comment 

I admit it. I love options strategies that involve being a net seller of premium. This approach allows me to spend less time managing the trade, more room to be wrong on the direction of the underlying, and best of all, I don’t need a large account to trade. In this article, I want to talk about a few of my favorite premium selling strategies and give some brief pointers on how to trade them with a minimum amount of time investment.

Overview of option spreads

Before jumping into a discussion of the strategies, let me give a brief overview of option spreads. The basic idea of a spread is to buy one option and sell another against it. This usually has the advantage of creating a defined risk position but gives up the unlimited profit potential of simply buying an option outright. Variations on spreads include vertical spreads where I buy one option strike in a given month for a specific underlying and sell another option in the same month and same underlying. Calendar spreads involve buying an option strike in one month for a given underlying and selling an option of the same strike price and same underlying but in a different month.

Premium selling strategies

My favorite strategy is the short vertical spread, where I sell an option close to the current trading price of the underlying and buy a strike price farther away from the current price than the strike I sold. This trade is put on for a credit and the risk is limited to the dollar difference between my long and short strike prices minus the credit I received. The maximum profit in this trade is the credit I receive from selling the spread. I will get to keep this credit on expiration if the short strike expires out of the money by $.01 or more.

Why is this my favorite strategy? Let me use an example to illustrate. Let’s say that SPY, currently trading at $108, has been in a bullish trend of late and my near term (20-40 day) forecast is for SPY to go up more or move sideways. A vertical spread trade I might put on is to sell a put option on SPY at $104 for a month with 20-40 days left until expiration and buy a put option at $102. This is a $2 wide spread and can be put on for $.50, which means my risk in the trade is $1.50. For one contract, it will cost me $200 in margin and my max risk is $150.

Once the trade is on, what are the possibilities? SPY can move up strongly and within a week I could close the trade for $.10 debit locking in $.40 gain and an ROI of 26%. However, SPY could also go sideways for the next month or even pull back a few dollars. In all of those cases my trade still makes money. Why is that? Because I have sold an out of the money option that is 100% time premium with no intrinsic value. In a case like that, time is my friend. While it’s true I also own a long put option that is also wasting away, it’s value was initially less so if both expire worthless, I end up with a net credit.

Creating a trading plan

It’s not enough to simply know about the strategy. To be successful in the long term, I need to have some consistent rules I follow that dictate when to get into a trade, when to get out and how much risk to assume on each trade. These rules together are a key part of an option trading plan. I have one for this strategy, which I’ll briefly outline.

I trade both bullish and bearish short verticals. For this discussion, I’ll talk just about the bullish trade and leave the bearish as an exercise for the reader.

Outlook: Trade this strategy on an underlying (usually an ETF) with an established bullish trend (higher highs & higher lows)

Entry: Look to enter a trade on options with 20-40 days remaining until expiration and I try to sell a few strikes out of the money on the short strike. I also prefer $2 wide spreads as the margin requirement and risk are easily managed

Exit: I have at least one ideal profit target and one ‘worst case’ scenario defined as exits. An easy one for me is what I call the 20%/100% rule. I will exit when there is only 20% of the initial credit left in the trade. I will also exit if the cost to close has grown by 100%. For example, if I put on the trade for $.50, then my ideal exit would be to close for $.10 (20% rule), while my ‘worst case’ exit would be $1.00 (100% rule).

This is obviously a very simple trading plan that needs some more definition but offers a very low maintenance approach to option trading. With many options trading platforms, I can enter my exit rules as a ‘one-cancels-other’ order where both orders are entered and when one triggers to fill, the other is cancelled. That’s it – no muss, no fuss.

More strategies

Another strategy I like when I’m more neutral is what is known as an iron condor. That’s when I sell both a short call vertical and a short put vertical on the same underlying for the same month. Usually with a $2 wide spread, I’ll have at least $4 between the short put and the short call. So on the SPY position I mentioned, that might be a $114/112 call spread and a $104/102 put spread.

The advantage of this strategy is that it can receive twice the premium with the same amount of risk. Think about it. On expiration, is it possible for SPY to both be above $110 AND below $104? No. So, most brokerages will only hold margin on one side for this kind of trade.

Another strategy I like is a calendar spread. I might buy a $104 put several months out on the SPY and then sell a $104 put out 20-40 days until expiration. This is actually a debit spread but is still considered a premium selling strategy. It’s a little longer term strategy but can pay quite well.

These are my bread and butter trades. I can trade them no matter what the market is doing and they continue to do well for me.

Author: Mark Secrist
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Option Trading Signal Services

February 20, 2010 · Posted in options trading · Comment 

An option trading signal service is also known as an options newsletter or options “advisory” as a source of information for potentially profitable options trades. The question is how do you know what is a good option trading signal service?

There are various factors involved that create a successful options trading signal service. Most of which comes from the experience of the people running that option trades service. It is important that the person running the service has a lot of trading experience. More so is important that the option signals are based off a stock trading system upon which options are traded which can provide more consistent returns versus just someone guessing based on their “intuition”.

There many styles of option trading signal services available. Question is what style of trader are you?

Are you looking for quick gains in option trades? Are you looking to swing trade options?

Are you looking to ride bigger trends of options?

Are you looking to capture premium decay?

Are you looking to take out price ranges that cover market conditions from training to down trending to range bound?

These are some of the considerations for you to ponder upon before you even search for an options trading service. That said some options trading signal services are not available or at least good ones are not available for the style that you may desire. Also new option trading services continually present themselves.

What is the ultimate goal for you and option service?

How reliable is the track record that option service? Sometimes you are never going to know until you try the service. And that said, most often after you join a notch and service effort. Good runs that option service will usually have smaller profit or losses. Why is that? Simply because market cycle from movements of trending to movements of consolidation. So if you think an option service seems good to really test that option service out for a period of at least three months.

So how many services are you going to have to try? Are there really any good ones out there?

I say there are. And I found several but I’m not going to tell you what they are. You’ll have to find for yourself. The services really helped me come with good trading ideas and help me avoid getting mediocre ones. And some of these trading services run a system that is consistent so I’ll just plug in the trades with a small position and let it run.

So is it worth it? You tell me. If you find a service that will help you turn $5000 in $200,000 I say it’s worth it. The best part about the process of finding and testing new option trading signal services is that I learn more and more how to trade more professionally. I get more of a feel of what works and what doesn’t through these options trading signal services and possibly one day I will crack my own code to successfully trading options in a big way.

And I think that should be your approach as well. At the very least do it for the learning. You could get lucky but most of all you will gain valuable knowledge. And one day that knowledge may come together for you, if you persist, creating your own jackpot lottery from stock options market.

Author: Clark Kenada
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Can Options Trading Turn You Into a Millionaire?

February 17, 2010 · Posted in options trading · Comment 

Can options trading turn you into a millionaire?

This is one of those questions I hear from people new to options trading all the time and not an easy question to answer in my opinion. Sure, options trading can create millionaires and many, including myself, have made more an a million trading options. However, can options trading turn YOU into a millionaire?

In a way, asking this question is as good as asking questions like:

Can trading stocks turn you into a millionaire?

Can trading futures turn you into a millionaire?

Can trading Forex turn you into a millionaire?

Can selling burgers turn you into a millionaire?

Can collecting coins turn you into a millionaire?

The answer to all of these questions is a resounding, YES.

The problem is, can YOU become a millionaire doing these things that have made OTHER people millionaires?

First of all, let’s ascertain the theoretical possibility of making a million through options trading. Let’s assume you have $5000 to start trading options with and you make an average of 50% per trade and compound your earnings. Here’s your account status after a number of trades:

After first trade – $7500

Second – $11,250

Third – $16,875

Forth – $25,312.5

Fifth – $37,968.75

Eighth – $128,144.5

Fourteenth – $1,459,646

As you can see, it takes only 14 trades at 50% profit per trade, which is not a lot in options trading, to grow $5000 into a million. If you do only one of those trades per month, it takes you only slightly more than a year to become a millionaire. As such, becoming a millionaire from options trading is clearly not outside the realm of possibility and clearly very fast if you do it right.

That leads us to the next question, are you able to produce a string of 14 straight wins at 50% per win? There is clearly no easy answer to this as well. I have heard of extremely lucky people who has done that before but that clearly isn’t something that applies to everyone.

Yes, in my 15 years of options trading, I must say that I have never seen anyone make a string of 14 wins within one year or two without losing no matter what options strategy they use. The good news is, you don’t need to make 50% on every win nor do you need a string of 14 wins to make a million in options trading as long as you follow a sensible trading methodology and have lots of patience.

Making a million in options trading isn’t about not losing. It’s really about making more wins than losses. As long as you have a means of consistently making more wins than losses, you can make a million in anything as long as you have the patience to stick to the game. Yes, this is the same logic in any form of trading.

If it is the same in any form of trading, why then options trading?

The beauty of options trading is that it actually helps you achieve more wins than losses through 2 unique means; Convexity and Versatility.

Convexity means being able to potentially make more money than you can potentially lose. In futures trading or stock trading, you can potentially lose as much money as you can win. When the stock goes up by $10, you make $10 worth of profit and if the stock goes down by $10, you sustain $10 worth of loss. There is no convexity. When you buy options, they will go up in value as long as the stock keep going in the correct direction (up for call options and down for put options) but if the stock goes the other direction, you will only lose as much as you used in buying the options, nothing more! For instance, if you bought one contract of call options for a stock for $150 and the stock went up by $10, you call options would be worth $1000 but if the stock went down by $10, you would only lose that $150 that you used. That’s convexity. As long as you use only money you can afford to lose or the maximum amount you are willing to lose on any single trade towards buying options, you will always have the advantage of convexity on your side.

Versatility is found in the vast array of options strategies that can be put together. Many options strategies allow you to profit not only when the underlying stock moves in one direction but in multiple directions! Yes, in futures or stock trading, you only profit when the stock goes up or down (when you are short the stock or futures). However, in options trading, there are options strategies that allow you to profit when the stock goes up OR down in both directions and options strategies that even allow you to profit from all 3 directions! Yes, being able to profit in more than one direction greatly increases your possibility of winning and greatly enhances the possibility of consistently making more wins than losses!

So, can you become a millionaire trading options? Yes you can. In fact, from the properties of convexity and versatility mentioned above, options trading could actually make it easier for you to become a millionaire versus stock or futures trading. As such, the possibility is there and the odds are in your favor. The final question to answer is, do YOU have what it takes to become a millionaire through options trading?

Author: Jason Ng
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Options Trading – Losing Before Winning

February 14, 2010 · Posted in options trading · Comment 

Most options traders were disappointed when they put on options positions expecting to see profits quickly. In fact, almost 90% of the time, your options position would make a significant loss before eventually profiting… if it profits at all. Does that sound like something you have experienced?

Yes, that is a fact of options trading and a phenomena that veteran options traders like myself have learned to accept. In fact, many of my options positions, especially single directional bias ones like the long call , go into as deep as 60% loss before finally rebounding into a resounding 100% profit. Yes, most beginners would have taken that loss early and missed out on the profit.

What is the cause of this phenomenon? There are 3 main reasons why MOST options strategies go into a significant loss before profiting.

First and foremost is the bid/ask spread of all the options involved in a position. Bid ask spread is the difference between the ask price and the bid price of an options contract. Retail options traders buy on the ask price and sell on the bid price. An options contract with an ask price of $0.90 and a bid price of $0.60 has a bid ask spread of $0.30. This means that if you sell the option the very moment you bought it, you incur that $0.30 loss straight away. Options bid ask spread is significantly wide for most stocks with spreads of $0.30 as fairly tight spreads and up to $0.50 in some cases. Only in highly liquid stocks like the QQQQ do you get spreads within $0.10. Buying out of the money options costing about $0.70 with a $0.20 bid ask spread could land you in as much as 30% loss the very moment you put on the position! This is where most beginner options traders freak out especially when they commit the greatest sin of options trading… putting all their money into one trade.

Secondly, none of us are stock market wizards, not even George Soros or Warren Buffett. None of us could consistently put on a trade and have the stock move exactly as predicted the very moment it is put on (day trading excluded since time frames in day trading are extremely short). Like Jim Kramer said, because we are not geniuses, so we should always establish a position gradually over a number of days. Yes, most of the time, sadly, the stock seem to go the other way the very moment you put on a trade. This seems to be because most options traders enter trades emotionally when the buying get hot, which is also the point where the stock pulls back a little due to overbuying or overselling in the case of buying put options or shorting call options. Now, leverage in options trading works both ways. If it makes money quickly in one direction, it would also loss money quickly in the other even if the stock merely moves against your favor slightly.

Third, COMMISSIONS! Yes, most options brokers would charge in the region of $10 minimum per trade for a certain number of contracts. For beginner options traders taking extremely small positions, that $20 ($10 for buying and $10 for selling) can add a significant loss to the position especially when out of the money options are bought. Commissions also introduce significantly losses to complex options strategies with many legs such as the Condor Spread.

Now, combine the bid ask spread loss with a pull back in the stock because we are not geniuses and the merciless commission and you could end up with a 60% loss or more right the very day you put on a stock options position. Sad but true, such a deep and quick loss would spoil most stop loss policies. Which is why many beginner options traders take losses too early only to see the stock eventually recovering in the correct direction. Yes, most losses are taken way before those options expire! From a recent study, as much as 60% of all open options positions were closed before expiration!

So, how do professionals like I trade options? We only trade with money we can afford to lose! When utilizing options strategies with limited risk, we will limit that risk to an amount we fully expect to loss and we can afford to loss when the trade goes bad. When utilizing directional options trading, we put on a series of small “bets” over a period of time, each time making sure the amount is small enough that they result only in insignificant losses should the trade go bad. When trading this way, you would have holding power and holding power is what you need to defeat your emotions when faced with almost immediate 60% loss in directional options trading. Holding power also allows non-geniuses like us to wait for the stock to behave as we hope it will because most stocks will not move the way we want it to right away (Neutral options strategies are a little different as you would expect the stock not to move but most stocks go somewhere more readily than they would go nowhere…so…).

So, accepting the phenomenon that your next options trade is probably going to loss money significantly before they can profit means that you should use only money you expect to loss right from the start so that you have holding power which greatly increases your chance of winning.

Author: Jason Ng
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Automatic Options Trading Leverages Your Time While the Options Leverage Your Money

February 11, 2010 · Posted in options trading · Comment 

Automatic options trading is the only time efficient way to make money in this sideways market

Options trading has grown in popularity, especially with the individual investors over the course of the past ten or twenty years. Unlike other forms of trading that can require large amounts of venture capital, options trading can be accomplished with often a very small initial outlay. This small initial outlay of course allows control of a much greater chunk of a company’s stock than would otherwise be possible. Small movements in the market are then amplified because of the increased leverage that options provide.

Recent market activity has shown wild swings in both directions over the last several months. In this sort of market it is virtually impossible to make money owning stocks directly. The only way to successfully and consistently make money in a market trading sideways is to have the flexibility to trade both the up-swings and the down-swings. That means the best trading opportunities will be found by trading in options.

Whether you’re buying or writing puts or calls each position you take in the market must be monitored carefully in order to maximize profits. Unfortunately monitoring each position you take requires both the time commitment to track the prices of the underlying stock, the option itself, and the market as a whole. Throw in your news feeds and competitor research and you may as well lock yourself in a closet and never see the light of day again!

If you want to continually trade options then in addition to your ability to leverage your buying power you also need to think about the ability to leverage your time. One way to do that is to rely on an automatic options trading program.

Automatic options trading has been helping investors automate the process of trading options by linking a third part research /advisor account with brokerage accounts. A subscription service (the third party) brings the daily monitoring and trade execution to the brokerage account. The investor selects what service to buy (Momentum, QQQQ, Global ETF, or some other program), then allocates a dollar figure or percentage of his portfolio to the service (or #shares, etc), selects a trade size and that’s it. The automatic options trading program handles the rest with your broker. Trade alerts are sent daily to either the investor or, at his discretion, directly to his broker. Many major brokers are setup to take such trade orders directly from third parties once the proper paperwork is in place.

Smart investors have been making money using automatic options trading with third party advisors for several years now. Option picks have been auto-traded with major brokerages since at least 2003. Good programs allow investors to monitor ongoing trading activity in real time and take full control back at any moment.

Automatic options trading helps wealthy investors free up considerable amounts of time and calms their nerves while still giving the improved returns provided by options. Good automatic options trading programs are constantly looking for better entry and exit prices for subscribers’ trades. Someone trading options today has learned to leverage their money. If they think about learning to leverage their time they find automatic options trading can be both a safe and effective way to manage that part of their portfolio they wish to expose to options trading.

Automatic options trading should only be done by experienced, sophisticated investors, and only with that portion of an investor’s portfolio that is to be exposed to risk. Previous returns are no guarantee of future results.

Author: Martin Sage
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The Secret Behind Finally Achieving Online Options Trading Success

February 8, 2010 · Posted in options trading · Comment 

It’s now time to step it up and enter the world of options trading success. And to do so you have to make up a bonafide trading goal! More than that… you need to make up a specific monetary goal.

Are you just investigating some basic knowledge about options trading? Are you new to getting started in options trading? If so understand that there is an entire new world of opportunity out there for you. You can literally make millions of dollars starting with a few hundred or a few thousand dollars! And don’t ever let anyone tell you otherwise.

Remember successful entrepreneurs focus on what they want. They make goals and focus on the goals. Failures focus on the risks and a focus on their fears and problems or potential future problems.

If you got involved in online options trading what is your intended purpose? Yes this is a very important point. You need to have a specific purpose for getting involved in online options trading. Why? Because in online options trading you can quickly get distracted and off course, confused and lose focus of any original concept that she had which inspired you to join online options trading.

From my experience I’ve found that having a trading goal, a monetary trading goal is very important. It is important in online options trading because having a monetary goal will help you pull everything together and obtain the knowledge and the tools you need to succeed in order to get you towards that goal. So in other words if you are setting sail upon the sea without a specific destination, unless you have unlimited fuel… you’d be in trouble. The same goes with online options trading. And in online options trading you could either not make much money or actually lose money if you don’t have an overall trading goal.

Did you know that online options trading today offers many new advancements that will facilitate your online options trading goals and allow you to trade options much easier?

Yesterday’s online brokers offer many new technologies that can help you enter options trades perfectly without having to watch them all day. In the old days I sat infront of my computer all day just to enter simple swing trade with options. Nowadays I can set a contingent order followed by one triggers another order for my stop loss and then I’m done!

Once you set your trading goals in online options trading, it seems as if all of the knowledge, tools, resources, ideas and answers start to automatically draw to you, automatically ‘popping out of the blue’, to help you achieve your trading goals.

So get to work. And write down on a piece of paper your exact trading goal such as: “I want to make $200,000 trading options. How do I do it?” Keep that goal in front of you and view it frequently. Now you’ve programmed your subconscious. And now watch as your subconscious takes over and makes that goal happen!

Author: Anthony Lorentelli
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Option Trading Software – 12 Valid Reasons To Go In For Option Trading Software

February 5, 2010 · Posted in options trading · Comment 

Even in earlier days, most people looked upon the trading business as a lucrative one. The scene is no different today. As a matter of fact, the business is attracting more and more people all the time! Along with “people” growth, there has also been “technological” growth. The result is sophisticated softwares that provide help to the trader/investor in realizing his/her dream of generating huge revenues. The latest one to join the bandwagon is option trading software!

Below is a detailed commentary on the trading world, and how it has ultimately led to the development of option trading software–

(1) Looking at the history of the trading business, it has brought about so many changes. The business has expanded globally, giving rise to international trading markets and exchanges. For example, the New York Stock Exchange and the London Stock Exchange. The capital turnover is quite massive. And people are rushing to invest in stocks and bonds, hoping to get a share of the profits!

(2) All courses on economics focus on trade now-a-days; it has become so much a part of our lives! Actually, regional and international trade have become sources of wealth for developed countries like the United States. Looking at their progress, other developing countries (especially those from Asia) are also jumping into the fray.

(3) What Asian countries do is, export the products that they manufacture to other countries. The payment is made in dollars. These dollars are in turn used to import foreign products. Thus, the performance of the export trade decides the economies of the respective countries.

(4) More lucrative is the foreign currency exchange market, otherwise known as Forex! The capital in circulation daily is around $1.5 trillion, making it the cynosure of all eyes! Of course, there is commodities trading too, and some people are very interested in venturing into that arena also.

(5) What does one have to do in “trading”? Be like a sales agent. The investor/trader purchases what he/she wants, and then tries to sell it at a greater price. With more and more successful trades, the profits keep growing! Sometimes, the revenue generated in a single day itself is quite large!

(6) There is a certain term that the investor/trader needs to be familiar with, when venturing into the trading world–that is, options trading. There are particular “options” that are selected and that work better than others in the market. It is to this end that the option trading software was developed later on.

(7) What exactly are “options”?

They are actually contracts that afford “buyer rights”. The investor/trader is free to buy or sell any amount that he wants to, of a particular security, which could be stocks/commodities. The price for buying, and the price for selling are already determined beforehand (depending on market trends). The purchase/sale has to take place within specified time limits only. The investor/trader is not bound by any obligations.

(8) Contrast option trading with futures trading. The buyer who goes in for futures trading is under an obligation to pay the ordered security at the price asked for. Also, the pre-determined date has to be adhered to. In the same way, the seller is under an obligation to deliver the ordered security on the particular date specified and stick to the price asked for.

(9) In option trading, as mentioned before, the buyer is not obliged to do something that he/she does not want to do. If he/she feels that the security is not going to yield any profits, he/she can allow the option to lapse. What is lost in the process? Only the initial payment made.

(10) The person who chooses to take up options trading would be well advised to also go for option trading software so that risks are minimized. The software can be a guide to some amount of profit, if not 100% profits.

(11) The price may seem too high–$400. In fact, many may feel it is an unwanted luxury, well worth staying away from. But for a neophyte in the trading world, option trading software promises to be an extremely useful tool. It helps in making the right decisions.

(12) Finally, how is option trading software valuable to the trader/investor?

To illustrate with an example, there may be a “call” (for selling) option or a “put” (for buying) option that the investor/trader is dealing with. Despite knowing the market movements, if the buyer pays too much for a particular commodity, he/she stands to lose. The reverse is the case with an under priced commodity. The risks are therefore lessened by the option trading software.

Author: Abhishek Agarwal
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Some Option Trading Tips

February 2, 2010 · Posted in options trading · Comment 

As you know, when it concerns investing money in the stock market, or any other sort of exchange, there’s always going to be a reasonable measure of risk involved. You could make an immense amount of money and retire, or you could turn a loss and lose your shirt with a poor decision.

In the long run, you better determine precisely how and what you would like to trade and when you want to do it, as it’s your income that’s laying on the line. Although I can’t tell you how to trade in such a short article, and wouldn’t even set about to do so, I can share with you a couple of tips that I use and apply in my stock options trading. If you choose to use them, you do so at your own risk. You are able to adjust them as you wish, or dismiss them altogether, that’s up to you.

The first thing you had better do if you are thinking of getting into options trading is to become acquainted with all of the language, and just exactly what is what. You need to learn just what stock options are, and the difference between call options and put options. You need to become acquainted with option premiums, and their outcomes on the costs of your trades. If you don’t understand these basic principles, you will never be able to become a successful options trader. There are tons of information about these subjects available on the web, just do a search on “online option trading” or “option trading schools” and you’ll see tons or results. You may also want to join an option trading forum or newsgroup as well, so that you can learn from other options traders. This is often one of the better techniques to learn something new, by having a mentor who has already made it through the mistakes. You can also join option trading courses or seminars, or buy e-books on the internet with respect to this. Whatever you do, make sure you educate yourself before heading into the markets.

Once you’ve taken the time to become comfortable with the points of options trading, the following thing you need to do is work out just how much disposable cash you have to trade with Article on how much capital to invest. If you don’t know this, you can’t even start to trade. Don’t consider putting any money in this that you cannot afford to lose, as there are no guarantees in the stock market, no matter how skilled you may be. If you’re somebody who pays their bills and has little to no cash leftover, then you shouldn’t even try to invest until your financial state of affairs improves, but again, that is of our own choice. Just know that if you invest or trade with money that you can’t afford to lose, and you do lose it, it can be very hard to get caught back up again.

When you first begin with options trading, start by “paper trading”. After you have acquired some confidence and your paper trades are doing well, then possibly you are able to jump into real trading. Always remember to try and downplay your risk, so when you first start you should try to trade options that have lower option premiums (priced at very low rates), so that you don’t bear a lot of risk, and don’t stand to lose a lot of money if you make a error. Many starting out options traders will invest in many small stock counters, so that they have a wide spread, which gives them better financial trade protection. It unquestionably isn’t a good idea to invest everything you have in one option, at least not for most novice traders.

Set yourself a time frame, and then appraise your trading at the end of that time to see how you have done. Most fresh traders begin with 6 months, which gives them time to create an option trading system, and fine-tune it so it works for them. If you feel that you have become a good trader and have made more cash than you have lost, then by all means, continue if you wish, and maybe even move on to larger trades. If you have made bad selections, and have finished up in the minus side, then you might want to go back to paper trading or spend some more time learning from other people, and try again in the future, or at least stay with small trades until you hone your skills.

In the end, you’ll have to find the best method that works for you. Just be sure that you don’t invest money that you can’t lose, take time to learn as much as you can about options trading, and then just give yourself time to become comfortable as a trader.

Author: Brian Lee
Article Source: EzineArticles.com
Provided by: Latest trends in mobile phone

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