If you are a beginner to options trading, this is the right article for you. Today we are talking about Tips for successful options trading strategies which will help you to be successful with approaching options trading so read the article carefully.
Tips For Options Trading Strategies
The first Tips you should know that options are not suitable for all investors as there are special risks inherent to options trading that can provide rapid and substantial losses. Also know that with Options trading you have to apply many options trading strategies so just because you can trade like a ninja in your paper money account doesn’t mean when you go to your live account that all those same privileges are there.
When we trade with paper money, we can practice it looks like smells like feels like real money but if you make a mistake you can just start all over again and there’s not a price tag attached to that.
Also know that all investing involves risk including the risk of loss so today you know our objective is to give you a number of tips that are helpful so that you understand how to approach this world of investment options and we’re going to do that by placing an example trade and then kind of going back and forth with our tips so if that sounds like a good plan to you.
If you have a lot of stock positions and you’re concerned about another major pullback and you’ve heard that it’s possible to use options as a way to protect your positions in the event of a downturn or that you can use options if a stock is approaching earnings and your concern that it may gap to the downside well yes you can use options for that it’s called the protective put.
If you put a protective put and you sell a call called a covered call together they call that a caller so you know there are strategies we will discuss later in this article. So you want to learn how to trade and maybe you’re 25 years old and you’re just getting started and you want to learn how to trade but you don’t want to risk losing that money.
I want to start with an options strategy that a person in a bullish market might work on this strategy. I’m going to focus on these two types of credit spreads- Short put verticals if it the market is going up and short call verticals if the markets going down.
The person that maybe already has a lot of positions like I said they might and they want to learn how to protect them they might want to look at covered calls and protective puts. Someone else who like some stocks but can’t afford to buy and he is confident that they will continue to go appreciate in value, that person may want to look at a long call.
So the first kind of tips is to know what your goal is because if you don’t have a goal you know how will you know what you’re setting out to achieve so you know whether that is to you know as simple as you need to make some money you want to you know to generate the me you’re looking maybe for growth you’re looking for a way to you know you’re looking for protection for your current positions that could be a reason maybe it’s that you are looking to be able to want to learn.
How to profit in a downtrending market if that happens again and whatever your reason is just have a goal and and have an understanding of what it is because that makes the second thing much easier.
Tips number two picks one Options trading strategy well: I would say pick one strategy Max 2 depending on what you want to achieve like I said if you’re concerned about another pullback and you own a lot of stocks and you’re saying my number one priority is understanding how to protect myself if there’s another big pullback.
You might want to focus on covered calls and protective puts if you have a smaller account and you want a conservative strategy that might kick off some income for you. You might want to look at short put and short call verticals but that’s not to say that’s the the right answer it’s not a recommendation.
It’s just saying that different strategies will be more appropriate depending on what you’re looking to do right so pick one strategy and then learn it and practice trading it. If your strategy is X when are you getting in when are you getting out what’s your positionsize on this strategy what are you doing to manage the strategy and that is such a critical thing.
It’s really important that you have a strong understanding and what do you do when the trade goes for you according to plan and then just as importantly what do you do if the trade goes against youand you know just so that you’re not thinking that I’m totally rigid on this.
It’s equally as important to know when to break your rules okay so now you’re confused like really what am I talking about well. If we look at the short put vertical as a strategy and I take a whole half-hour and just talk about this short put vertical strategy so here’s the quick and dirty what we’re doing with a short put vertical is we are going to sell a put and when we sell a put we’re agreeing to buy the stock.
It’s like back the truck up and it’s a hundred shares I don’t have thirty-seven thousand dollars to buy a hundred shares of Apple I just told you I have a five thousand dollar account okay so what we’re gonna do is we’re then going to come underneath the put we’ve sold and we’re gonna buy a put which now defines our risk.