What's your options trading strategy?

Shawty_

Junior member
23 1
I love options. They are so flexible and can be used with a plethora of various strategies. They can be used to hedge risk. They can lead to loss of your entire account :) What strategy do you use to trade options? Here are some examples:

1. You make a price prediction on the underlying and use an option spread to capture the move.
2. You use statistical analysis on either the underlying or the option itself to forecast the upcoming move.
3. You use financial modelling to identify arbitrage opportunities in mispriced options or underlyings.
4. You use pair trading to capture convergence/divergence.

What's your pleasure? Please kindly go into your technique for the benefit of learners. We all started somewhere.
 

Adoralmeena

Member
54 6
Usually I test different strategies. Maybe my system that is too simple this time, but my approach contains only few components.I always look through the history at least for the last month. I don't trade when news comes out, I do not allow more than 10% of my capital to be on the market. Every trader has his own vision, I think it is necessary to test everything in order to get the picture and you become a successful trader.
 

ChrisDouthit

Member
59 7
In my opinion, doing research, calculate an opinion, and then selling premium is the best way to go because it delivers consistent profits can be replicated over and over again. Someone else may not want to put that much effort in their trades, so won’t work for them.

So the best strategy is whatever works for you.

However, I would say, the go to strategy for beginners of buying out of the money call options is probably the worst strategy.
 
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Bubba27

Active member
116 5
However, I would say, the go to strategy for beginners of buying out of the money call options is probably the worst strategy.
Why do you say that? Is it because if the price goes the wrong direction they have to pony up the money to buy 100 shares of whatever stock they were working with?

I am a beginner and want to try options trading. Buying calls is the first options methods that I read about. What strategy do you think is easier for the beginner? Selling puts?
 

ChrisDouthit

Member
59 7
Buying out of the money calls is the worst strategy because it has a low probability of success. If you buy a stock, not counting any research, it essentially has a 50-50 chance of being profitable. If the stock goes up you win, if it goes down you lose.

If you're buying out of the money calls, now the stock not only has to go up, but has to go up enough to clear the strike price and to make up what you paid for the call. So now this is way worse than a 50-50 shot.

Traders who buy out of the money calls consistently lose trade after trade and after a while thing option trading doesn't work.

The better strategy is to sell premium, but to do research to make sure you're making the correct move, and then make many small wins at a big over time. These end up crushing average market returns which is why smart money traders use this strategy.
 
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Bubba27

Active member
116 5
Thank you for the description.

I was reading a book about options and it has been tough for me to grasp. Even after repetatively reading some points over and over, options are still tough to memorize.

Signing up for a demo account for options trading may teach me faster than reading a book ...
 

ChrisDouthit

Member
59 7
Thank you for the description.

I was reading a book about options and it has been tough for me to grasp. Even after repetatively reading some points over and over, options are still tough to memorize.

Signing up for a demo account for options trading may teach me faster than reading a book ...
Options are confusing for everyone first, if you want to have a better understanding of how they work sign up for the free course at Option Strategies Insider.
 
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