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Great Option Trading Opportunities: Look Before You Leap

Posted by Pete Stolcers on December 31, 2009

Option Trading Question

How do I find great option trades?

Option Trading Answer

In options trading, when you find a strategy that works or a particular stock that is doing well for you, it is easy to want to jump right in with both feet and everything that you have.  Doing this however, can result in major option trading losses and you need to be really careful if you are thinking about doing this. Seasoned options traders know that you never put everything you have into any one option. Diversity is the key to reducing your risk when trading and giving you a better chance to make a profit rather than large losses. Because option trading can be quite volatile, you never want to put too much into one area because things can change incredibly quickly so that something which might have been trending favorably for quite some time, can suddenly take a dive and if you are not watching, you run the risk of losing everything that you have.

As a savvy options trader, you will keep an eye on several options at once and make sure that there is lots of diversity. The more you diversify, the safer options trading will be for you and the less risk you will have. So no matter how well something is doing, don’t get overly confident and invest only in that one thing. If you are thinking of doing this, talk to other options traders and see what they have to say about it. Maybe invest a little bit more in that particular option but make sure that you keep a close eye on it and do the research that you need to in order to learn everything you can about it. Options trading will always have some risk to it, but options traders need to do their best to keep the risk as minimal as possible to get the highest return possible for their money. Just remember not to dive in with both feet. It will almost never turn out the way you want it to.

Option Trading Comments

  • On 01/06, Scott said:

    I’ve started selling out of the money puts on stocks that I am bullish on, with the intent of closing my position for a profit closer to expiration.  I like to sell the puts versus buying the calls (depending on the company) to have the decay in the time value work in my favor.  As long as my put stays out of the money, is this a relatively safe approach to picking up a few extra dollars in my account?  Thanks

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