Stock Options trading is an excellent avenue for traders who aspire to get a good grasp of this field. In fact, many people venture into this kind of trading without getting the required information in order to understand how trades within the market work and how they also differ from trades within the whole market. So, if you are planning to start future trading, here are a few things you need to keep in mind before you venture into it.
What is stock options trading?
Options trading is a process which allows you to purchase as well as sell stocks within a specific price in a specific timeline. It also gives buyers immense flexibility to not purchase security within a specific date or price.
Selecting strike prices
Most people like to purchase things just because they are affordable and cheap and unfortunately apply the same concept when it comes to options trading too. Because of this reason, traders like to buy deep during strikes which are often available at very low rates. However, it is not always possible to get that stroke price. Since we tend to trade our options for a very short period of time, it is important to consider strike prices that are out of money since the possibility of getting exercise can be quite high.
Never Try Averaging
Averaging is never considered to be an advisable solution because here you don’t have to select the closest strike that you can add to your position as once your stock starts moving in the expected direction, your strike will begin fetching a lot more profit as a result of which your losses shall also be reduced and you will also get full recovery.
If you are a retail trader who doesn’t have enough knowledge regarding options trading, refrain from purchasing options at least 1-2 days prior to getting the quarterly results as volatility jumps a notch higher because of which we also shoot premium options. And even if the stock moves in your favor, chances are you will end up losing the cool-offs during the IVs.
Traders who have views on a specific counter must also take their time before taking the final consideration. So, if your trader is expecting a 7% move in the stock within a span of four weeks and the present expiry is much closer, you should go for the expiry that comes next month.
Build The Right Strategy
There are several people who prefer single trading strategies, either because they would like to buy the options or at least sell them. However, the best part of such options is that you can always pick a different strategy depending on the scenario of the market. You can also purchase both the put and call options or even sell both depending on the volatility in the market. You can also purchase and sell various strikes for the call options or even buy and purchase various put options if they seem bearish or bullish. There are many other strategies that a trader should implement depending on the conditions of the market.
So, before you plan on venturing into this kind of trading, make sure to keep all points in mind. If you are a beginner and still not clear about what is options trading, then make sure to check our main website.