Options are a blessing for the traders.
They are powerful, safe and economical.
Yet, people burn their fingers in options.
Reasons are not difficult to find.
Simple theory complicated...
Myth that complexity is the real thing...
Myth that "Options" is "different" and it can compensate for the shortcomings in basic understanding of the market...
A flood of option "strategies" of "spreads" and "hedges"...
Myth that those losing in Delivery and Futures trading can be winner here....no doubt losers in
Options finally quit trading...
Myth of "limited loss and unlimited profit"
Myth of "out-of-money" strike calls available at "pea-nuts"
Wonder whether this web of mis-information & half-truths is traders' creation or the creation of those who depend on traders!
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I am sharing my set of rules for Options trading:-
* Don't Day-trade with options. Use it for swing or positional trade only.
* Don't sell options!
(It is dangerous. you have safer and better ways)
* Don't buy put!
(It is another name for shorting. Shorting is dangerous, unpredictable and can result into endless wait!)
* Don't Hedge!
(Hedging is a sign of lack of confidence and lack of ideas. Trades can be safe even without hedging. Hedging eats up profit.)
* Buy only Calls!
* Buy calls for the current month in the first 3 weeks, and that of the next month in the last week of the current month!
* Prefer 'In-the-Money' strike rates especially 1 or 2 notches away from the spot price.
These move proportionately to the movement in the spot price.
They may appear costly but prove to be cheaper and more profitable. 'Out-of-Money' strike rates move much slower than the movement in the spot price.
* Buy the Call only when you would have bought in Cash-N-carry / Delivery.
In other words, don't buy the call till the entry-signal is clear and loud.
(It is assumed that you have got the basic training in stock trading)
(Is is assumed that u have finalised a method and will stick to it)
(It is assumed that u have done your homework before arriving at the buy decision.)
Just because 'Options' is a glamorous tool doesn't mean that foolish and complex trades will result in profit!
Treat options as a varient of Futures with much lesser margin and cap on the disaster loss.
(Every other definition is a farce and only good for self-amusement.)
* Buy @higher low, Buy @support
Buying at the right price is half the battle!
* Once u have bought the call, keep holding, keep rolling-over till it is raining money!
A Call buyer can never lose money if he buys at the right price and wait!
All taken premium will be returned.
Buying call at the right price is the safest and most profitable strategy on earth!
* Don't square-off the long Call till exit signal appears.
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Remember, Complexity thrills, but Kills!
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