Options Trading Ideas

Some of my thoughts on trading options

    Learn first. Trade later

    • Take the time to understand how options work
    • Recognize when positions are equivalent
    • Do not ignore ‘the greeks’

    Risk management is essential to success

    • Think of risk as you examine various strategies
    • Size is crucial. Avoid large position than can kill your account when the worst happens
    • Adjusting positions is ‘good.’ It cuts risk and gives trader an improved chance to earn money
    • Many new traders blow out an account before beginning to think about risk management

    It’s your money

    • Do not gamble with profits. That cash is your money
    • Minimizing losses is the key to success
    • Earning money is the easier part. keeping it is more difficult

    Don’t open a new trade because it ‘looks ok’

    • Verify that potential profit is worth the risk required to earn that profit
    • Make a trade plan

    Don’t hold short options into expiration

    • The last nickel or dime is for someone else to earn
    • Near term gamma is explosive
    • Short options can result in rapid, large losses
    • Avoid having your fate determined by ‘settlement’ prices for European style, cash-settled options
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