subject: Strategies For Options Traders [print this page] Having traded stocks for over a decade, I've recently gotten very involved with options. I find these to be a great means of expanding my risk portfolio a little bit, and the rewards of a successful trade are truly a great thing.
I would advise you to study up on options as much as you can before you begin trading them. Too many people learn the hard way by losing the entire amount of their investment. Don't let that be you. Here are a few words to the wise that I hope you'll take seriously.
First of all, realize the concept of time decay in options. This basically means that the further out you buy a contract for, the more of a premium it's going to sell at today since it has more time to fluctuate in terms of price.
Let's say you buy a contract for December while we're in the month of April. The stock price is at $13, and the strike price on the contract is $16. Clearly, there's a higher percentage chance that this stock will break $16 between now and December than there is between now and May. As a result, contracts with an expiration date that's further out will sell at a higher price.
Many smart traders also like to hedge their risk by doing things like straddles, or buying puts on their calls and the opposite as well.
A patient and wise investor will generally do this for the protection and the piece of mind.
Had they hedged by giving up just a few dollars, they would have kept 90% of what they lost.
By adhering to these tips, I'm sure of the fact that you'll be well ahead of the typical novice.
by: Mindy Barnes
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