An Options Trading Overview from a Fellow Trader On ThinkOrSwim

[csricksdds]

The nice thing about trading options is that one can limit their risk. When buying an option, risk is limited to the amount paid for the option. Selling options is not recommended for the inexperienced trader (since loss can be substantial unless limited by using spreads). I have a high school classmate who lost 500K selling QQQ Puts (he was subscribed to a site that kept telling him to “hold on” until it was too late). Lesson learned: don’t rely on someone else to tell you what trades to make? “Paper Trade” until you fully understand what you’re doing and how to manage the risk involved.

Only about 10% of options traders make consistent money. I have learned to appreciate the 90% who make my trades successful (just don’t be one of them)!

This site useThinkScript is a wonderful place to learn and share ideas. One of the Natural Laws of Life states: When two or more individuals share with each other, all of them have more!”

Also learn to understand Theta Decay. An option bought begins to decline in value as soon as it’s purchased, and will be worth zero at expiration unless it’s ITM (In-the-money) with value only equaling the amount still ITM. It’s like buying a new car (which begins losing value as soon as you leave the dealership).

It’s amazing to me that people will insure their homes, automobiles, and health (hoping they never need to use the insurance) and yet very few individuals insure their money (portfolios). The options market is a good hedge for many things when used in the right manner.

I see many complicated chart setups with all kinds of indicators top and bottom. It has been my experience that since the market only moves three ways (up, down, and/or sideways) that I should keep things AS SIMPLE AS POSSIBLE to give me an indication of the markets intention.

Life is complicated enough without making it harder, which is why I like my Best Trading Chart Setup because (for me) that’s AsGoodAsItGets.

Remember: Most indicators repaint – but so does life!

If this is helpful to anyone please give a thumbs up/down or comment.

 

[ahantrades]

Hi Rick, just wondering what delta, strategy and days out do you use for most of your options trades?

 

[csricksdds]

Hi Rick, just wondering what delta, strategy and days out do you use for most of your options trades?

Most of my trades are now day trades with the SPY and QQQs. I'm usually finished by late morning and will trade ATM (50 Delta) until noon). I will usually go slightly ITM after noon. I will occasionally trade AMD, GOOGL or MSFT for a Friday Expiration but rarely hold for more than a day or so. I posted "Chasing Butterflies" last night which is something I did more often in the past rather than now than now but those are fun trades. When placing trades 30+ days out they would be as Spreads to ease the Theta Decay although my longer trades would usually be Credit Spreads rather than Debit Spreads. The risk can be very similar in both types but the credit spread brings in immediate money which one tries to keep whereas the debit spread costs money up front and then we try to sell it for more? Most any direction trade that follows the money is a good trade as long as greed is kept under control.