new to option

Nov 26, 2004
8
0
11
kuala lumpur
#1
hi!! just need to know that what ae the rules to follow so that we will not lose out in option trading....2)what are the things to consider before we choose the strike price? 3) how do we rate the volatility?? tq ppl in need
 

Rhody Trader

Well-known member
Dec 11, 2004
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#4
My personal philosophy on which options to trade is as follows:

1) Pick the strike price closest to the current market rate ( At-The-Money or ATM ). If you select one out-of-the-money, your odds of closing the trade profitably decrease rapidly. The pay-out to cost ratio may seem fantastic, but your chances of success are low. At the same time, options that are well in-the-money do not provide optimal risk/reward situations as their costs are substantially higher.

2) Select a contract month that will have at least 1 month of time left on it when you anticipate selling. This will help avoid getting in to a situation where you start seeing rapid declines in the option premium because of time decay.

As a directional player I don't spend much time thinking about implied volatility. I've had a lot of success with these guidelines.
 
May 26, 2003
370
14
28
Scotland
#5
Options are a highly versatile financial instrument, and they allow you to take advantage of many different market situations.

In order to assist you, I would need far more information as to what you want to achieve and what risk levels are acceptable to you.

To be honest, the advice given to you by Rhody Trader is far too simplistic.

You should ALWAYS take into account implied volatilities.

I am pleased that Rhody Trader's system works for him, but I personally would not recommend taking his approach.
 

Rhody Trader

Well-known member
Dec 11, 2004
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#6
There are definitely a lot of different things you can do with options depending on what you are trying to achieve. I used to work in the options market, so I'm well aware of the various types of strategies, pricing, etc. For someone new to the market, and making a stright-forward directional bet, it is better to keep things simple. Once a comfort level with the basics of how the markets work is reached, then you can start looking at more intricate strategies.
 
Nov 26, 2004
8
0
11
kuala lumpur
#7
hi

Rhody Trader said:
There are definitely a lot of different things you can do with options depending on what you are trying to achieve. I used to work in the options market, so I'm well aware of the various types of strategies, pricing, etc. For someone new to the market, and making a stright-forward directional bet, it is better to keep things simple. Once a comfort level with the basics of how the markets work is reached, then you can start looking at more intricate strategies.

hi thks 4 ur reply..so what would u suggest for a beginer to trade in options?? what are the strategies that you can recommend?? of cause my first intention is to get extra income but later would like to be a full time trader...hear from u soon. tq david
 
Nov 26, 2004
8
0
11
kuala lumpur
#8
hi

Airthrey Capital said:
Options are a highly versatile financial instrument, and they allow you to take advantage of many different market situations.

In order to assist you, I would need far more information as to what you want to achieve and what risk levels are acceptable to you.

To be honest, the advice given to you by Rhody Trader is far too simplistic.

You should ALWAYS take into account implied volatilities.

I am pleased that Rhody Trader's system works for him, but I personally would not recommend taking his approach.
hi pal!! first i will try in virtual trading and to familirise with the strategies that works for me...i want to become a full time trader but at a minimun risk...hope that u will giv me more info regarding how to pick the strike price, and what are the rules that i must comply/ follow in order for me not to lose out in option trading

tq
david
 

anley

Well-known member
Dec 16, 2003
2,730
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#9
David

Do yourself a favour and forget about trading options. They are very complex, they are very expensive to trade (bid-offer spreads) and you will be trading against some of the best traders in the market.

If you want low risk then trade index ETFs with small size. If you want low risk with potentially very high reward you will not find it.
 

Rhody Trader

Well-known member
Dec 11, 2004
2,620
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Massachusetts
www.TheEssentialsOfTrading.com
#10
anley said:
David

Do yourself a favour and forget about trading options. They are very complex, they are very expensive to trade (bid-offer spreads) and you will be trading against some of the best traders in the market.

If you want low risk then trade index ETFs with small size. If you want low risk with potentially very high reward you will not find it.
Options trading can be complex, but does not have to be. The expenses are definitely higher than in other markets (less liquidity in most cases). It depends on what you want to trade options on. I do so in individual stocks where you can find some good risk/reward situations, but I tend to stay away from the indices.
 
Nov 26, 2004
8
0
11
kuala lumpur
#11
Rhody Trader said:
Options trading can be complex, but does not have to be. The expenses are definitely higher than in other markets (less liquidity in most cases). It depends on what you want to trade options on. I do so in individual stocks where you can find some good risk/reward situations, but I tend to stay away from the indices.
hi!! could u share with me ur experience, rules, strategies and approach for option trading in detail????
 

Rhody Trader

Well-known member
Dec 11, 2004
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Massachusetts
www.TheEssentialsOfTrading.com
#12
I use a combination of technical and fundamental analysis to identify stocks with good intermediate term prospects (4-12 week holding period usually). Rather than buy the shares, though, I trade call options to take advantage of the leverage and downside protection. I only trade at-the-money options with sufficient time to expiry that time decay will not be a major impact on the option price during my holding period. That means options which will have a month or more left at the time I anticipate exiting the trade.