The Shocking Truth About 90% of Option Trading Strategies
Compared to trading stocks, it seems pretty tough. With stocks, you care about one thing: up or down.Long or short.
And if you create option trading systems around only the direction of the stock... well, sometimes you can miss out.
Like how a stock can rally and you don't make money because you chose the wrong strategy. Or how you get squeezed out of a position only to see it come back into your favor-- without you along for the ride. If there's one simple thing you can understand when using options, it's that of how to trade volatility. Let me explain...
Options have two parts to their value: intrinsic and extrinsic. The intrinsic value is the relationship between the strike price of the option and the price of the stock. The extrinsic is what is left over. That is the "risk premium" in the option, and it's how the option prices in volatility. So when we trade options, we not only care about "long or short," but also "how long will it take" and "how fast will it move." It's about how you value the extrinsic of an option-- and how you trade it.
Rookie option traders always care about where the stock is headed. Pro traders care about where volatility is headed.
And if you combine the two, that's where you make real money. Don't know where to start? First-- check out this free [pdf] showing my trade decision matrix.
And if you want a fully comprehensive options trading system, check out OptionBounce.
To learn more from OptionBounce creator, Steve Place, join us this Thursday for a special webinar event where Steve will share current strategies he is focusing on in today's markets! REGISTER HERE
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Risk Disclaimer: Past performance is not indicative of future results. Futures trading involves substantial financial risk. Views of guest commentators do not represent those of TradingPub.com. Article intended for educational purposes only and not meant in anyway as a solicitation to buy or sell certain securities. Please consult your personal financial adviser before using this information for your own trading purposes.