If you are a beginner in the options trading and stock exchange world, then it is only natural that you feel a little intimidated and clueless about how to proceed. The market is constantly changing and among all these fluctuations, it can sometimes be hard to keep the track of things.
For trading options, there are many strategies and possibilities that you need to consider. Choosing the right option to trade is not easy but we have devised a series of steps that you can use to get a head start.
1. Be Clear About Your Profit Goal
This step is crucial as it determines how will you proceed further and how many risks are involved. Being certain about the profit goals will make it easier for you to decide whether you prefer a bullish or bearish outlook, selling option premium, or hedge against downside possibility. This step is crucial as without being clear about your profit expectations, you can not decide which strategy will work best to reach that goal. Websites like Pineapple Stocks (www.pineapplestocks.com) can help you learn how to trade better and set these goals, it is a good idea to use an experienced trader or mentor to help you out! As if you were going to learn to drive a car, you find someone who is well experienced and can patiently teach you how to drive a car.
2. How Many Risks are Involved?
The risk/reward ratio is a key factor for any strategy. If there are more risks than rewards, steer clear of choosing such strategies. Consider how much risk tolerance you have and then proceed with the least aggressive strategy that offers minimum risks. Another important factor is volatility (variation in trading price). You can go for either high or low volatility based on how much risk you are willing to take.
3. Consider Recent Developments
Events can highly affect the stock rates and options trading strategies. Take various upcoming events into account that have previously affected the market and are about to do the same. This way you can choose an expiration date near an event that facilitates your profit and acts to increase it.
4. Pick a Trading Option That is Most Reliable
There are plenty of trading options such as butterfly spread, long call, covered call, and many more. This makes it hard to pick a certain strategy. But you can easily determine what strategy will work fine for you by considering your financial objectives, market trends, recent events, and risk/volatility factors. By considering all these things, you can choose a strategy that offers the highest possible profit with the least downside risks to your assets.
5. Always Consider Expiration Dates
Every stock person knows that strike price is the fixed price at which an investor can buy or sell a certain stock but there is an expiration date within which you have to do the transaction. Ignoring this might lead to significant financial loss. Always consider the option expiration date and act accordingly.
Final Thoughts
These are all the basic steps that you need to consider before picking any options trading method. If you follow along with these guidelines and proceed as we have discussed above, you can make significant progress in the least amount of time. We hope this article has helped you in understanding trade options selection and in making all the right choices in this area. Once you get more familiar in trading and dive deeper into Options Trading and Option Order Flow, it would be good to try out SweepCast (www.sweepcast.com) for unusual options activity, it’s similar to BarChart but a much smoother interface and friendly group of active investors/traders.
Not everyone can be as great as Cathie Wood, but you can slowly get there over time! Keep up the faith!
