Options Pros Talk Put-Call Parity and More This rebroadcast of OICs webinar panel on Put-Call Parity...
Don't Miss Out on the Power of Stock Options
06/26/2014 8:00 am EST
A lot of traders are intimidated by the options market, but the staff at NetPicks.com dives into the details and shares a step-by-step process for getting into trading options quickly and easily.
Are you spinning your wheels trying to becoming a profitable trader? Are you sure you are trading the right markets? Let’s take a look at how you can use stock options to gain traction with your trading.
One of the many benefits of interacting with traders on a daily basis is the opportunity to see which markets are showing the best results. Without fail, I continue to see the highest success rate with stock options traders. The problem with this fact is so many traders are intimidated by the options market. They view options as advanced products that they don’t want to mess with. This couldn’t be further from the truth. When you dive into more detail, you will see that options provide all the great features of markets like forex, and futures, and much more. Stock options are the most flexible financial products available hands down. Let’s walk through a few basic steps that can get you trading options very quickly.
Step 1: Trading System
Talk to any successful trader and you will find that they have a detailed system in place that they follow on every trade. Trading options are no different. You have to have a system in place telling you when to get in and when to get out. There are many trading systems available in the marketplace that claim to give you an edge. The big key here is to have as system that prints entry and exit points right on the charts for you. You don’t want a system that requires a lot of discretionary decisions to be made. You also want to use a system that works on all stocks and ETFs. You don’t want to be limited to a few products. Markets change and you want a system that can adjust to those changes quickly. This is the only way you can stay disciplined to your system.
Step 2: Learn the Options Basics
Traders can be intimidated by options when they start to hear about pricing models, the greeks, and strategies like Iron Condors and Butterflies. While these topics can be beneficial, it is not necessary to master the advance topics before you get involved with options. Starting out with basic bullish and bearish strategies is a great starting point. This will allow you to take trades on stocks/ETFs for as little as a few hundred dollars. This leverage will open doors for the retail traders to look at stocks and ETFs of all prices.
Step 3: Use an Options Platform/Broker That Will Help You Select the Best Options
There are dozens of potential options brokers out there that will allow you to place options traders very quickly. They are not all created equal. You want to use a broker that will give you the tools that will help you place the best trades. My favorite broker platform to use is Thinkorswim by TD Ameritrade. The platform does not charge platform or data fees which is a huge selling point. Their commissions are competitive and the support is second to none. The platform provides tools to help quickly identify the best options to trade. I can identify and take my options trades in 20 minutes a day. This allows me to move on with my day to get to other things.
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Step 4: Establish a Watch List of Stocks/ETFs
The biggest mistake traders make is jumping around between different stocks and ETFs on a daily or weekly basis. This will lead to chasing performance and very inconsistent results. I like to take the opposite approach by looking at the same small list of products day in and day out. This allows me to get to know the products that I trade. Stocks/ETFs each have their own personality, which means getting to know these personalities allows you to trade with more confidence. I like to get a good mix of stocks/ETFs on my watch list. My list includes some of the most liquid options markets available. I have included a list of 10 of my favorite symbols below. I’m not trying to reinvent the wheel with my trading. I’m trying to trade the most liquid names with basic options strategies. As a result, I have been able to grow my account consistently over the past ten years.
Step 5: Continue to Expand Your Options Knowledge
We talk about sticking with the basics initially with your options trading by using basic call and put strategies. The nice part about options is—if this is as far as you go—you can be very successful with your trading. However, we mentioned earlier that options are the most flexible products in the world. As you start to master the basics then you can start to move on to other options strategies that allow you to profit in all types of market conditions. You can use options strategies like Iron Condors and Butterflies to profit in sideways markets when most traders are pulling their hair out. This is a great point to reach because you can focus all your attention on trading the same products regardless of what the market is doing.
Options markets continue to gain in popularity, which is a huge selling point given that volumes in many other markets continue to fall off a cliff. When polling traders that attend our educational webinars, we see the highest success rate with options traders. If you are someone that wants to focus on the areas that give you the highest odds of success then you need to get involved in the options markets. Start slow and then ramp it up into the advanced topics using the steps outlined above. Do this and you will be well on your way to becoming a profitable options trader.
By the Staff at NetPicks.com
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