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| Three Rules for Option Trading |
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| Written by A.J. Brown |
| Friday, 15 August 2008 14:31 |
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I get a lot of questions from option traders. Lately, my readers have been asking me about how I trade. What they really want are "black and white" rules they can use. Unfortunately, there aren't many rules like this. I do have three though -- and I'll 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... 1. Don't hold any near-term option contracts. 2. Don't buy option contracts that are out of the money. 3. Never hold an option until its expiration date. Instead of a list of things NOT to do, you can think of these from the flip side... 1. Always buy options that don't expire for a long time. 2. Only buy deep in the money option contracts. 3. Always dump option contracts before they reach expiration. These three rules are the only "black and white" rules I use in my trading. After that, it depends on the chart pattern I'm trading. There simply aren't any rules that can address the unpredictable forces of the market. Put another way, I do have additional "rules" I depend on. But they're contingent upon a number of variables and factors that require close scrutiny and analysis. 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. About the Author: Arnold "A.J." Brown is an investment writer and option trading coach. He has been trading for nearly a decade, and has taught hundreds of students how to trade options. Go to his blog to learn more about trading stock options. Kindly provided by LJ-Marketing.dk You are welcome to use this article on your own website, if you include the link just before this text. |
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