Kirk Du Plessis 2 Comments. They tend to settle into a trend, and hold it for longer, whereas stocks tend to bounce around all over the place. This inherent stability provides an opportunity for options traders, especially for those who are not after the huge gains, but are happy to trade more frequently for smaller bites of the cheese. This means that the maximum amount of movement in a stock's price can be captured using the leverage of an option trade.
You are aiming for small gains in short times, and most trades will be completed within days. The technical analysis requirements for a trade of this strategy are not onerous - in fact it is easy to over analyse, and end up not having the courage to make a trade. In essence, you need to know how to identify a trend, and to be able to give a measure to the strength of the trend. You also need to be able to pick up the likelihood of an imminent trend reversal , by identifying support and resistance lines.
Options trading can be overwhelming if you don't know where to start. Each program was hand-crafted to help you regardless of your current options trading experience. Click here to choose your track? The best option to pick is one that has a Delta between 70 and This is so that you are not buying the most expensive options, but you are still going to capture the movement of the stock as much as possible. You also need to pick an option that is about two months from expiry, so that time decay does not have too drastic an effect.
In any case, you will be in and out of the trade so quickly that time decay should not be significant. Set an entry for the trade somewhere near the lower end of the daily trading range, or wait for a one or two day pull back before entering. As soon as you have entered the trade, the first and most important step is to set up a stop loss. Only stupid and irresponsible traders work without stop losses, especially when dealing with options.
The first rule of options trading is to minimise your losses! Quite often this will be filled within a day or two, which means that you get to do another trade. The time requirements are not too demanding, and the process can be somewhat automated. Add your comments below and let me know what you think about trading DITM options? Has it been a worthy investment for you? Did you run into any snags? Guest Post by Rob Forbes.
Kirk founded Option Alpha in early and currently serves as the Head Trader. Kirk currently lives in Pennsylvania USA with his beautiful wife and two daughters. I think there is always a time and place for it. Is this something you might try Kirk? Or is it not conservative enough of a strategy?
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