Options Trading Tricks - 3 Rules For Option Trading
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by: Trader_1
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Word Count: 414
Lately I've had numerous inquiries about how I trade options. A lot of of these questions are actually indirect ways of enquiring if I use any invariable rules when I trade options. I do not have a lot of rules that I view as "strict", but I do use three guides. I'll share them with you and I hope they'll help you as well.
Just remember, abiding by these formulas does not assure you will make any profit at all. As a matter of fact, you might suffer a loss whenever you simply apply these three principles. I share them solely in order for you to get an idea of my specific trading style. In order to ensure these formulas work out, they must be blended with a successful trading philosophy.
Okay, so now we have that out of the way, let's have a look at these three tried and tested formulas...
1) Do not buy any near-term options contracts. 2) Do not purchase options contracts that are out of the money. 3) Do not hold an option until the expiration date.
Obviously this is a list of what NOT to do when trading. Now this list can also be rewritten as a to-do list like...
1) Always purchase options with lots of time left before expiration date. 2) Always purchase options that are deep in the money. 3) Always get rid of option contracts ahead of their expiration date.
That's it: the three simple "strict" principles I systematically follow whenever I trade options. The remainder of my trading actually hinges on the movement of the underlying stock and the specific set up I'm trading. Regrettably, there aren't any across-the-board formulas that completely address the irregular movements in the markets.
The fact is, I use a few additional "guidelines" to assist me in trading successfully. Of course these principles can not be utilised in every situation. They are more like guideposts. I also must break down a few other components before I apply them.
Possibly my three simple option trading tips have given you a new way to look at option trading. As we see, a good deal of the best-selling advice calls for trading the news -- something I do not suggest. News is simply one component you need to look at in your trading. You should not base your trades on news and news exclusively. Look deeper before you dive into a new trade.
About the Author
Trading options without a great mentor can be a very risky business. For one of the most successful online options trading courses come see us at Options Trading Tips. Andy Doering also has more information at Options Basics.
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