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Use an Options Trading Watch List

Posted by Pete Stolcers on December 2, 2009

Option Trading Question

How can I create a watch list?

Option Trading Answer

Creating a watch list for option trading can be rewarding and help boost your success rate. Here are few ways to devise your list.

Start by picking out a few stocks that interest you technically and fundamentally. Determine if the price action that lead you to your choices are real or temporary.

Next, create two lists to review, one consisting of bullish stocks and the other bearish stocks. A bull market is associated with increasing investor confidence, and increased investing in anticipation of future price increases capital gains. A bullish market trend in the stock market often begins before the general economy shows clear signs of recovery. A bear market is a general decline in the stock market over a period of time. It is accompanied by widespread investor fear and pessimism.

During your process take note of other prospects you are exposed to that may gain future consideration. Also, group stocks on your option trading list based on whether they are starting to move or are moving but are over extended. This will enable you to watch how the stocks in each group respond to overall market moves.

For successful options trading, watch the groups over a period of days so that you can detect their relative strengths and weaknesses to the market. If the market is rallying, review how the bearish stocks are behaving as well as your short positions. If a stock on your list is too strong, it needs to be removed. Watch your bearish list as the market rallies and your longs are participating let them run.

Take profits after a stock has made a nice move up but has lost its steam. As you watch your bullish list, give stocks that are moving higher "playing time" when they take a breather.  Remove stocks that are not moving higher. Even though extensive research is vital to developing option trading watch lists, they don’t all behave. You’ll need to test the process and make it your own in order to be successful in options trading.

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