Different options trading strategies entail different sets of criteria which must be balanced in order to yield success. Whether you are looking to profit or protect in a rising or falling market, or ride the fence with a neutral straddle or collar, knowing what you are looking to accomplish, what criteria need to be satisfied, and taking small, manageable positions is the best way to limit your capital risk, maximize your potential gain and learn from those strategies that do not quite pan out for you.
Different options trading strategies entail different sets of criteria which must be balanced in order to yield success. Whether you are looking to profit or protect in a rising or falling market, or ride the fence with a neutral straddle or collar, knowing what you are looking to accomplish, what criteria need to be satisfied, and taking small, manageable positions is the best way to limit your capital risk, maximize your potential gain and learn from those strategies that do not quite pan out for you.
The problem that many options traders experience is a lack of discipline to pursue a long term approach to investing in options. We often are tempted to bet it all on a big play the first time out, say 100 contracts on a ‘skinny’ (an option with a premium of less than an eighth of a point) and perhaps we end up on the winning side of that bet, but more often than not, we end on the losing side.
However, we’ve all heard the stories of extreme riches and despite the warning many of us will pursue the outliers such as this one:
In late 1993, when an investor was guided into a pharmaceutical index on the old AMEX (NYSE MKT). He bought 100 puts on the index trading at 1/16th a point or $6.25 per contract for a total outlay of $625 plus commissions.
After President Bill Clinton’s speech to a joint session of Congress on September 22, 1993 on Universal healthcare, the value of the index fell sharply; just prior to expiration the investor was able to close out the position at $13 per contract, netting a profit of $12,375 before commissions (and taxes). The problem with his big payday was that he spent the next several months looking for the next big score without focusing on developing core options strategies that would have, over time, netted him small consistent gains as opposed to one big trade.
Enjoy reading these stories and then snap back to reality.
Small consistent, mechanical-like positions is the most probable path to success. It’s really our mantra at OptionAutomator. We also believe in technology and tools to divorce us of our trading emotions and simplify trade discovery. While generic, I can offer you to read our pillars for successful options trading here.
