I've gotten a lot of questions about how I trade options lately.
Many of those questions are really roundabout ways of asking if I have any hard and fast rules for trading options.
I don't have many rules that I consider "hard and fast," but I do have three.
So I thought I'd share them with you here.
Caveat emptor: There aren't any guarantees.
By following these rules, you might make some money; you might lose some.
I offer these rules to give you some insight into how I trade.
Obviously, you will need an overarching trading strategy to get the best results.
Now that we've gotten that out of the way, here are my three "hard and fast" rules...
And it is.
But these three rules can also be rephrased in a positive way...
The rest of my trading really depends on the movement of the underlying stock and the particular set-up I'm trading.
Unfortunately, there aren't any blanket rules that fully address the unpredictable forces in the market.
The truth is, I have a number of additional "rules" to help me trade.
But these rules can't be applied in all situations.
They're more like guidelines.
I still have to analyze a number of other factors before I use them.
I hope the rules I've shared here give you some new insight into how to trade options for profit.
After all, many of the so-called "experts" say to trade the latest news.
I don't suggest doing this.
You want to be aware of what's going on so you don't get blind-sided.
But you don't want to base your trades on the news all by itself.
It's simply too unpredictable.
Many of those questions are really roundabout ways of asking if I have any hard and fast rules for trading options.
I don't have many rules that I consider "hard and fast," but I do have three.
So I thought I'd share them with you here.
Caveat emptor: There aren't any guarantees.
By following these rules, you might make some money; you might lose some.
I offer these rules to give you some insight into how I trade.
Obviously, you will need an overarching trading strategy to get the best results.
Now that we've gotten that out of the way, here are my three "hard and fast" rules...
- Don't hold any near-term option contracts.
- Don't buy option contracts that are out of the money.
- Never hold an option until its expiration date.
And it is.
But these three rules can also be rephrased in a positive way...
- Always buy options that don't expire for a long time.
- Only buy deep in the money option contracts.
- Always dump option contracts before they reach expiration.
The rest of my trading really depends on the movement of the underlying stock and the particular set-up I'm trading.
Unfortunately, there aren't any blanket rules that fully address the unpredictable forces in the market.
The truth is, I have a number of additional "rules" to help me trade.
But these rules can't be applied in all situations.
They're more like guidelines.
I still have to analyze a number of other factors before I use them.
I hope the rules I've shared here give you some new insight into how to trade options for profit.
After all, many of the so-called "experts" say to trade the latest news.
I don't suggest doing this.
You want to be aware of what's going on so you don't get blind-sided.
But you don't want to base your trades on the news all by itself.
It's simply too unpredictable.
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