Day trading strategies: the complete guide with all the advanced tactics for stock and options trading strategies. Find here the tools you will need to invest in the forex market
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BOOKS.YOSSR.COM-DAY-TRADING
CHAPTER 28:
Trading With the Trend Buying Calls o let’s get started by considering the most basic strategy of all, and that is buying a call option because you believe that the price of the stock is going to increase in the near future. Therefore the goal was buying a call option would be to purchase it at the right moment and then hope that the stock will go up so much that we are able to sell the option for a profit. This all sounds simple enough almost like something that you could never miss. Unfortunately, in practice, it’s actually a lot more challenging than it sounds on paper. The first consideration is going to be whether or not you purchase an option that is in the money or out of the money. If this strategy works maybe that is not really an important consideration provided that it’s not too far out of the money. The reason that people decide to purchase out of the money options is that they are cheaper as compared to in the money options. It’s also a fact that if the stock is moving in the right direction out of the money options will gain at price as well. So if someone tells you that you can’t make profits from out of the money options they are not being completely honest with you. In fact, you can make profits but it’s always going to depend on how the stock is moving and the distance between your strike price and the share price. The best strategy to use when going with out of the money options is to purchase them slightly out of the money by a dollar or two. What this does is it ensures the price of the option is going to be significantly impacted by changes in the stock price. Second, you wouldn’t be purchasing a call unless there was a good chance that the share price would be moving up. So if you are close in price to the market price, and there is a reasonable amount of time until expiration, there would be a good chance that the share price would actually rise above your strike price. If that happens it could mean significant profits for you. Of course, you can always take the risk of putting it a little bit more money upfront and investing in a call option that is already in the money. If the stock price rises, that is only going to solidify your position. You also have a little bit of insurance there. That comes from the fact that if you choose a decent strike price there is a solid chance it will stay in the money and so even if it doesn’t gain much value you will be able to sell it and either not lose that much, or still make a profit. So what are we hoping for with this strategy? The main hope would be that there is a large trend that takes off so that we can write the trend and earn a healthy profit. Since options are so sensitive to the price of the stock if such a trend occurs it’s pretty easy to make decent money. The key, of course, is getting in the trend at the right time and knowing when to get out of the position. |
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