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This
“consistent approach” to options trading can also be called a
“trading system”, or an “options trading system” in this
case. The term
“trading system” is not necessarily confined to a series of
computerized “black box” trading signals.
A trading system could be something as simple as “buy an
option on a stock in an uptrend that breaks the high of the previous
bar after at least two days of pull back down movement that make
lower lows.” A
trading system is simply an organized approach that takes advantage
of a repeated pattern or event that brings net profits.
Since an Option is a “Derivative” of the stock you must derive
your options trading system from a stock trading system.
This means your trading system must be based around actual
stock price movement. That
said, your trading system doesn’t need to work for all stocks it
just has to work for certain types of stocks, certain volatility of
stocks and certain price levels of stocks etc… So focus your
trading system on certain stocks that have price behavior that is
predictable to the net results you wish to abstract from a stock.
You
can develop a trading system, a trading approach, and a trading methodology by
identifying a price movement pattern (or lack of price movement pattern) or some
event that occurs on some sort of regular basis.
This means you can trade price behavior patterns on price charts such as:
traditional chart patterns, trends, swings, pivot points, boxes etc…
or you can trade events that motivate stock price such as earnings runs,
post earnings runs, stock splits, seasonal factors etc…. Bottom line to make
the maximum profit in options trading you want your stock to move in your favor
fast and you want it to move far. Just
a relatively small movement in the price of a stock can double your money in
options!
There
are so many different strategies and combinations that you can trade
with options. You can
buy calls and puts for directional trades.
You can employ call spreads and put spreads to trade
directional movements with a buffered risk, and profit.
You can sell or purchase spreads to receive the credit of the
premium decay by options expiration.
You can trade straddles and strangles if you expect a big
move but are not sure in which direction.
You can also get into ratio back spreads, condors, and
butterflies… And if
you’re really feeling crazy you can sell ‘naked’ options (just
better use a stop loss or you’ll end up like one of my old trading
buddies who ran an account to $20 million then gave it all back
selling naked options.) You can go to cboe.com for more information on options
trading.
Directional
options trading systems are the best.
Keep it simple, buy calls for and upside trade or buy puts
for a downside trade. But
this means you need a directional stock trading system in order to
trade directional options.
Here
are a couple of different approaches for directional systems:
Develop
an option trading systems that trades the swings in stock price
movement. There are
many good swing trading systems available today.
We suggest you obtain one.
Bottom line with swing trading is that you want to swing
trade with the trend. Options
brokers these days have advanced order technology that will allow
you to enter swing trades based on the price movement of the stock
so you don’t have to watch this stock all day.
That huge advancement to swing trading options.
Swing
trade the day bars. Most
swing trading systems are based on daily bars on the stock price
chart.
Swing
trade the Intra Day Bars! Their
other fantastic systems based on intraday charts that pin point
swing trading entries.
Develop
an options trading system that trades three to six month trends.
This is where the big money is.
Trading the large trends is where many are able to place
larger sums of money to develop their net worth.
Develop
an options trading system that trades pivot points.
Pivot point trading is arguably the best way to trade
options, at least at our site, because price action usually is
explosive, and happens quickly in our direction when a trade works.
This is good because you can use shorter-term options and
levered yourself a little better.
And it’s also nice you can make great gains in five days to
four weeks on average so time decay issues become less of a worry.
There
are many different directional trading methods you could use to
trade options. You need
to pick one, work it, and never use more than 10% position size per
trade on small accounts 1 to 5 % max position size on larger
accounts. This
methodical way of money management trading options is the fastest
way to potentially rapid account growth, helping you avoid needless
set backs.
When
you lose on a trade you lose at least 30% of your options position,
at least.
Sometimes you lose more, 50% to 70% loss in just one trade.
So if you’re throwing your entire account into the next
trade what’s can happen when a trade fails to blossom into profits
and stops you out??
Worse yet what if your stock has some really good or really
bad news and it happens to overnight against you and you take a 70%
hit on your options?
So,
again, if you heave your entire account into the next trade and you
take a 50% hit… you’re hosed!
What’s worse is that once you allow yourself the integrity
breach of “betting the farm” once, you’ll likely tried again.
You’ll be even more tempted especially if you lose because
you’ll want to try and “make your money back”.
This is not good and unfortunately it happens way too
frequently.
So…
if you’ve started in achieving options trading success with your
options trading system and all the sudden your account has doubled
etc… do not double your position size simply only increase your
position size by 10 to 20%, maximum 30% of you’re feeling a little
crazy.
Take
a hard look at your options trading system.
How many times out of 10 does it win on average?
What stocks are you trading and what options contracts are
you trading?
How much time he mean do you need to buy in order to trade
your options trading system?
How many points will take of movement on your stock for your
options position to double in price with your current options
trading system?
Now
it’s time for you to do the math on how fast your account could
potentially grow. (granted your option trading system is
profitable).
Here is how you would do it if you increased your position
size by 20% every time you doubled your account: To increase your
position size by 20% (after you’ve doubled your account) means
that instead of trading $10,000 per trade you’d be trading $12,000
per trade.
No you wouldn’t go from trading 10 contracts to trading 12
contracts since options prices are all different.
Keep
the math simple and prosper.
If your options trading system is profitable you can
experience incredible growth by slowing increasing position size.
In this example of using
Partial
compounding with your options trading system you could actually
maximize profits over the long run.
Since each options trading system is different, test yours
out to find the optimal
Compounding
amount.
But in short, if your trading system is profitable, it wins
more than it loses and it’s wins are bigger than the looses start
with a max 10% options position size and stick with it until you
double your account over a number of trades, then only increase your
position size slightly.
And never ‘bet the farm’ on any one trade!
OPIVO Trading allows you
a new great angle for your online options trading program. You can
take a three week free trial, no obligation. And at three
weeks you should be able to see plenty of OPIVO trades. in
order to get more information on OPIVO Trading simply fill out the
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