10 Options Trading Tips for Novices

With such a variety of strategies to employ in such a complex market as the one of options, some may object that options trading tips are not enough to successfully practice this activity. Well, it would be absurd to claim that these suggestions alone will help you avoid any losses, but they will nevertheless draw your attention upon some very interesting aspects.

When you begin trading options, you not only want to set off in an auspicious manner, but also to maintain a constant firm position and be solidly grounded throughout the process. Here are 10 options trading tips to do that.

The first one is to get approval – In order to start the trade with options, you need to receive an approval from your broker because the Securities & Exchange Commission requires one. Based on this approbation, the Commission receives the confirmation that trading these derivatives is appropriate for your financial situation and goals. It is one of the preliminary steps to be taken in order to move things off and it actually signals that you get approved for basic option strategies if you haven’t traded them before.

The second tip is to be disciplined, establish a set of personal rules that must be observed until the end of your transactions. When you enter a trade motivated by a certain reason (an earnings announcement, a particular value for an indicator you use or a pending economic report), you have to operate your exit from the trade platform when circumstances change or the original reason that determined you to purchase the security no longer exists. In other words, don’t let a stock or option position which you planned to hold for three weeks become part of your long-term portfolio.

The third advice on our list of options trading tips is to keep track of the expiration date because knowing this piece of information is essential to managing one’s positions. Take into consideration the fact that many option chains include the actual expiration date for each month along with the option quote data and use it to your advantage. In some cases, it is likely to find the expiration “deadline” included with your account position information.

Coming next in line is the necessity to practice. Keep in mind that you can paper trade a security with which you are not that familiar. Yes, it is true that the emotions that you experience when trading this way do not actually render the “real deal” of having money on the line, but it will help you get acquainted with new types of securities.

Getting into details, the following lines will complete the list of 10 options trading tips with some suggestions related to seeking a call ratio backspread position. After exploring the ground and identifying the general background of the market, use the tips below to successfully implement a call ratio backspread:

  • identify a maximum loss amount for the combined position and exit the position if it is reached because losses appear when there is limited movement in the stock;
  • seek an initial credit and if you create the trade for a debit, make efforts to maintain that debit as low as possible;
  • use options with 90 days to expiration when possible to create a time gap during which the stock can continue to move upwards;
  • place your focus on stocks valued between 25 and 75 dollars per share;
  • when the position has registered a 50% profit above  the upper breakeven, prepare to exit an equal number of long and short calls;
  • finally, exit the position with 30 days to expiration when the passage of time has a negative influence on the long calls.

Of course these 10 options trading tips are only the tip of the iceberg, but practice and constant assimilation of notions help you expand your “horizon” in this respect.

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