Hi there once again.
We have had two more triggers today in UA and NFLX. They are now very much oversold (which is great for us) due to profit taking. It is earning season, so we will watch closely to see how they recover from this, but there could really be some big bucks to me made from these two trades. They have been consistently trending higher over the last few months - and these are very tradable charts. Getting into the action just after earnings can be a very difficult thing to judge, but happily my triggers and confirmations will give us the direction to place our trade. IRM is still not tradable - yet! I am still awaiting confirmation that it is going to go in the right direction - hopefully it should be sooner rather than later, or else we will have to take it off the trigger list and wait for something else to happen!
IWM is offering an interesting scenario - It has hit resistance and rebounded... I am very nearly tempted to play a put play here over the next couple of days. There could be some cash to be had here - even if it is a modest 10-20% gain. Do I want to risk it??? The trend line is going higher, and it is not in my main strategy - however it is a strategy we could play... I think I am passing, and we will see what happens if it hits the resistance again. If it breaks through, I will probably buy because it is trending upwards. Because it is trending upwards makes me nervous about buying a put at this time.
Anyway, a couple more stocks have been added to the watch list, and it currently looks like this:
RS:
BIDU
MELI
SINA
PCLN
FOSL
ULTA
MWIV
IPGP
WLK
DECK
PII
ALB
SRCL
UA
NFLX
INFA
SFLY
TPX
CHSI
NEU
SHS
KRO
CACC
AGP
LS:
MMSI
FMCN
BJRI
IRM
SLGN
PTEN
CPHD
CEVA
IL
CROX
GIII
CPX
RES
ANN
FARO
TIBX
LTD
LXU
RAX
HS
Happy trading. Let's wait to see what happens in the next couple of days and we may have a trade.
Showing posts with label Online options trading. Show all posts
Showing posts with label Online options trading. Show all posts
Wednesday, April 27, 2011
Tuesday, January 19, 2010
What Online Options Trading is Not
Like any other trading instruments like forex, index, futures, commodity or even shares trading, options trading involves learning specified trading skills tailored towards options. Furthermore, application of these skills in the real market using real money, patience, perseverance and control in terms of money management and trading psychology are all essential in your options trading journey. In summary, options trading demand a fair amount of hard work from you, thus it's definitely not a get-rich-quick program.
As mentioned, you could buy options as cheaply as $50 per contract or you could buy options which are as high as few thousands dollars per contract. Don’t be misled by thinking you could buy a bundle of cheap options at $50 per contract and prayed that you could strike lottery if the share moves up (or down) substantially and your options would now fetch few hundred or even few thousand percents in profit. The price of the option contract, known as the premium, is set by the market maker and if its set so cheaply, just beware that there’s a reason behind it. Cheap options could be priced that cheaply because (1) the share on which the options are traded are not or not in the habit of making a substantial move (2) the option may be expiring soon thus it’s time value is diminishing rapidly. Sorry to burst your bubble but you might end up holding a bundle of options which would expire worthless if you did not bother to do your homework to check whether the stock is going to make a substantial move in your anticipated direction in the near future, ie. earnings outcome, upcoming FDA approval for drug etc.
If you want to sustain your options trading journey from the stage where you would commit every beginner mistakes till the stage where you could cut your losses quickly and decisively and learn how to let your profits run, I believe you would require at least the following pre-requisites :
1) You are not under-capitalized
From my experiences and what I read from most options trading books, web-sites, it is advisable that you have at least a minimum capital of US$5,000 to trade options. If you could afford more, of course it's better.
In the beginning of your options trading journey, you are bound to commit trading mistakes like buying too early, exiting too late, entering the order wrongly ie. sell instead of buy, overbuying, holding on to a losing position.
Due to your inexperience, you might also end up buying options for the wrong types of stocks in the beginning. All these costly mistakes would certainly lead you to lose your capital fairly quickly. Trading losses are also known as drawdowns. Let’s say you experienced a series of losses (this COULD happen) and your capital is down 50%. If you started out with $5,000, you would still have $2,500 hopefully to turn your situation around. But if you started with $2,000 instead and after a 50% loss, you are now left with $1,000, which might not give you enough fire power to build up your trading capital especially if you still carry on losing due to your inexperience.
Thus, if you are under-capitalized, my advice is - don’t trade, unless the particular situation is extremely favourable to the options that you intend to trade eg. if you would have a high probability of winning when you buy a call in a very bullish market and likewise you would be profitable buying a put in a very bearish market.
2) You practice good money management
For instance, if you allocate only 5% of your trading capital on every trade and you happen to lose 3 trades in a row, you would have lost 15% of your capital & still have 85% of your capital left. Let’s say you started out with $5,000 trading capital and you allocate only $250 (5%) for each trade. If you encountered 3 losses in a row, you would be down $750 with a balance of $4,250 capital, still quite substantial to keep trading for a while if you continue sticking to the 5% commitment per trading rule. To recover your capital back to $5,000, you would require a 17.6% gain (750/4,250 x 100%).
Let’s say you did not practice proper money management in your options trading and you plunge $1,000 in the few 3 trades which lose money subsequently. Now you would require a 42.8 % gain (3,000/7,000 x 100%) in order to recover your capital back to $5,000.
The lower you traded down your capital, the higher the percentage of gain you have to achieve in order to recover your trading capital. Thus, it’s very important that you practice good money management in your trading right at the beginning ie. committing only 5% or less of your capital in every trade so that you could keep your trading capital for a longer period and minimize the necessity to achieve higher percentage gains in order to recover a heavily traded down account.
The following table would give you a guideline on how much percentage gains you would require to build back your starting capital.
Down % Gain Required
5% 5.3 %
10% 11.1 %
15% 17.6 %
20% 25%
30% 42.9 %
50% 100 %
75% 300 %
Hope you would bear in mind the above considerations when you trade options.
As mentioned, you could buy options as cheaply as $50 per contract or you could buy options which are as high as few thousands dollars per contract. Don’t be misled by thinking you could buy a bundle of cheap options at $50 per contract and prayed that you could strike lottery if the share moves up (or down) substantially and your options would now fetch few hundred or even few thousand percents in profit. The price of the option contract, known as the premium, is set by the market maker and if its set so cheaply, just beware that there’s a reason behind it. Cheap options could be priced that cheaply because (1) the share on which the options are traded are not or not in the habit of making a substantial move (2) the option may be expiring soon thus it’s time value is diminishing rapidly. Sorry to burst your bubble but you might end up holding a bundle of options which would expire worthless if you did not bother to do your homework to check whether the stock is going to make a substantial move in your anticipated direction in the near future, ie. earnings outcome, upcoming FDA approval for drug etc.
If you want to sustain your options trading journey from the stage where you would commit every beginner mistakes till the stage where you could cut your losses quickly and decisively and learn how to let your profits run, I believe you would require at least the following pre-requisites :
1) You are not under-capitalized
From my experiences and what I read from most options trading books, web-sites, it is advisable that you have at least a minimum capital of US$5,000 to trade options. If you could afford more, of course it's better.
In the beginning of your options trading journey, you are bound to commit trading mistakes like buying too early, exiting too late, entering the order wrongly ie. sell instead of buy, overbuying, holding on to a losing position.
Due to your inexperience, you might also end up buying options for the wrong types of stocks in the beginning. All these costly mistakes would certainly lead you to lose your capital fairly quickly. Trading losses are also known as drawdowns. Let’s say you experienced a series of losses (this COULD happen) and your capital is down 50%. If you started out with $5,000, you would still have $2,500 hopefully to turn your situation around. But if you started with $2,000 instead and after a 50% loss, you are now left with $1,000, which might not give you enough fire power to build up your trading capital especially if you still carry on losing due to your inexperience.
Thus, if you are under-capitalized, my advice is - don’t trade, unless the particular situation is extremely favourable to the options that you intend to trade eg. if you would have a high probability of winning when you buy a call in a very bullish market and likewise you would be profitable buying a put in a very bearish market.
2) You practice good money management
For instance, if you allocate only 5% of your trading capital on every trade and you happen to lose 3 trades in a row, you would have lost 15% of your capital & still have 85% of your capital left. Let’s say you started out with $5,000 trading capital and you allocate only $250 (5%) for each trade. If you encountered 3 losses in a row, you would be down $750 with a balance of $4,250 capital, still quite substantial to keep trading for a while if you continue sticking to the 5% commitment per trading rule. To recover your capital back to $5,000, you would require a 17.6% gain (750/4,250 x 100%).
Let’s say you did not practice proper money management in your options trading and you plunge $1,000 in the few 3 trades which lose money subsequently. Now you would require a 42.8 % gain (3,000/7,000 x 100%) in order to recover your capital back to $5,000.
The lower you traded down your capital, the higher the percentage of gain you have to achieve in order to recover your trading capital. Thus, it’s very important that you practice good money management in your trading right at the beginning ie. committing only 5% or less of your capital in every trade so that you could keep your trading capital for a longer period and minimize the necessity to achieve higher percentage gains in order to recover a heavily traded down account.
The following table would give you a guideline on how much percentage gains you would require to build back your starting capital.
Down % Gain Required
5% 5.3 %
10% 11.1 %
15% 17.6 %
20% 25%
30% 42.9 %
50% 100 %
75% 300 %
Hope you would bear in mind the above considerations when you trade options.
Tuesday, January 5, 2010
Successful online Stock Option Trading With Five Key Trading Secrets
Stock option trading has presented the public the opportunity greater cash windfalls by trading options than almost any other form of trading or investing in the market in history. The low level of controlled risk together with far superior leverage presents the possibility an option trader the opportunity to make a fortune trading stock options however aspiring option trader requires a level of comprehension about what really forms a reliable option trading approach to insure success with trading stock options. There are five key secrets that any option trader must use when approaching trading stock options in order to be successful.
To start, the first secret is that you must factor the affects of time into the value of the option you are choosing to trade. The two essential parts you must factor when considering time into the stock option trading process. The first essential part to be considered is the time remaining on an option till it expires. Stock options have a set time period of anywhere from 30 days up to three years in some cases till they expire worthless so you must then select the proper stock option with enough time on it in order to profit. You must be sure that you purchase the correct option containing enough time on it to insure that time decay doesn't erode your investment away before your position has enough time to be profitable.
This brings us to the second key secret of successful stock option trading as well as the second essential key in the option selection process of trading options which is factoring time into your option trading method. Trading a particular stock option and knowing the statistical factors of your option trading method and particularly, in this case, knowing the average time you hold a position once a trade has been entered. For instance, if your average holding time for an option trade is 9 days then you would avoid buying an option with three months of time premium left on it because you would be paying more for extra time with the option's purchase price. Neither would you buy an option with less than 30 days till it expires because time decay would dissipate the option's value so fast that even if the option's underlying stock moved in the direction of your trade time decay would be so great you that any gains you made would be eaten away by time decay.
The third key secret to successfully trading stock options is grasping the relationship of volatility between the general market (i.e.: S & P 500, DOW Industrials, the Nasdaq, etc.), the underlying stock or instrument that the option is based on, and the effect is has on the value of the option itself. When the general stock market an index experiences low volatility or low trading volume then the stocks that make up the market tend to trend with the general market and also begin to follow suit themselves with periods of low volatility which result with the value of stock options to becoming cheap. However if the general market's volatility begins to spike it causes individual stock option premiums to increase in value as long as the market moves in the trader's favor.
The fourth key secret to trading stock options successfully is having an option trading method that combines these key secrets into a coherent method for giving clear entry signals, clear exit signals, a system of trade management, and a profit factor greater than your average loss over a given amount of trades. Understanding all the fundamental steps of various trade setups is pointless if you don't have a trading approach that leads you through every level of the trade management process. A winning stock option system guides you thru every step and details each step towards helping you become a consistent winner in the stock option markets as well as being a profitable trader in the end.
The final key to trading stock options successfully is your trading discipline. An individual trader's discipline are vital to trading stock options successfully. It is critical that a trader approach stock option trading while factoring in their own level of trading discipline into their overall approach to trading the markets. You can give two traders the same exact profitable trading system but it's very likely that they will experience very different results. The reason for this is usually is because the one that has the ability to remain as detached from his losing trades as well as his winning trades while maintaining the discipline to follow the system's rules no matter what occurs on any one individual trade will emerge the net winner. A trader's discipline is so essential that even if a trader has the greatest stock option trading system ever devised but has no discipline he will likely turn into a losing trader so keep this in mind when devising your approach to trading stock options.
These five key secrets are a foundation to help you help you avoid the mistakes of many other individuals who come into stock option trading seeking fortune but only end up with busted trading accounts that end up being zeroes out in the end. By understanding time decay, factoring an option's time into your trading method, how volatility impacts a stock option's intrinsic value, what details a winning stock option trading system, and your own trading psychology you now have an understanding of five key secrets that help you build a successful trading approach to trading stock options in today's markets.
To start, the first secret is that you must factor the affects of time into the value of the option you are choosing to trade. The two essential parts you must factor when considering time into the stock option trading process. The first essential part to be considered is the time remaining on an option till it expires. Stock options have a set time period of anywhere from 30 days up to three years in some cases till they expire worthless so you must then select the proper stock option with enough time on it in order to profit. You must be sure that you purchase the correct option containing enough time on it to insure that time decay doesn't erode your investment away before your position has enough time to be profitable.
This brings us to the second key secret of successful stock option trading as well as the second essential key in the option selection process of trading options which is factoring time into your option trading method. Trading a particular stock option and knowing the statistical factors of your option trading method and particularly, in this case, knowing the average time you hold a position once a trade has been entered. For instance, if your average holding time for an option trade is 9 days then you would avoid buying an option with three months of time premium left on it because you would be paying more for extra time with the option's purchase price. Neither would you buy an option with less than 30 days till it expires because time decay would dissipate the option's value so fast that even if the option's underlying stock moved in the direction of your trade time decay would be so great you that any gains you made would be eaten away by time decay.
The third key secret to successfully trading stock options is grasping the relationship of volatility between the general market (i.e.: S & P 500, DOW Industrials, the Nasdaq, etc.), the underlying stock or instrument that the option is based on, and the effect is has on the value of the option itself. When the general stock market an index experiences low volatility or low trading volume then the stocks that make up the market tend to trend with the general market and also begin to follow suit themselves with periods of low volatility which result with the value of stock options to becoming cheap. However if the general market's volatility begins to spike it causes individual stock option premiums to increase in value as long as the market moves in the trader's favor.
The fourth key secret to trading stock options successfully is having an option trading method that combines these key secrets into a coherent method for giving clear entry signals, clear exit signals, a system of trade management, and a profit factor greater than your average loss over a given amount of trades. Understanding all the fundamental steps of various trade setups is pointless if you don't have a trading approach that leads you through every level of the trade management process. A winning stock option system guides you thru every step and details each step towards helping you become a consistent winner in the stock option markets as well as being a profitable trader in the end.
The final key to trading stock options successfully is your trading discipline. An individual trader's discipline are vital to trading stock options successfully. It is critical that a trader approach stock option trading while factoring in their own level of trading discipline into their overall approach to trading the markets. You can give two traders the same exact profitable trading system but it's very likely that they will experience very different results. The reason for this is usually is because the one that has the ability to remain as detached from his losing trades as well as his winning trades while maintaining the discipline to follow the system's rules no matter what occurs on any one individual trade will emerge the net winner. A trader's discipline is so essential that even if a trader has the greatest stock option trading system ever devised but has no discipline he will likely turn into a losing trader so keep this in mind when devising your approach to trading stock options.
These five key secrets are a foundation to help you help you avoid the mistakes of many other individuals who come into stock option trading seeking fortune but only end up with busted trading accounts that end up being zeroes out in the end. By understanding time decay, factoring an option's time into your trading method, how volatility impacts a stock option's intrinsic value, what details a winning stock option trading system, and your own trading psychology you now have an understanding of five key secrets that help you build a successful trading approach to trading stock options in today's markets.
Subscribe to:
Posts (Atom)