Options trading is even more complicated than normal trading. This is true even in a market rally. A defined options trading strategy is a requirement for success. The first step is to assign an outlook to a stock from very bullish to very bearish. This outlook needs to have a time frame associated with it. The next piece is looking at the volatility of the stock. Depending on the volatility of the stock, different option strategies are favored.
- Option trading has several unique challenges and one of them which overwhelms option traders is how to chose from the myriad of option strategies available.
- Specific option rules have to first be learned by option traders in order to select highly performing stocks and one needs to have a good stock trade.
- Options traders can be very agnostic when it comes to stock direction, so the first way to go is to assign an outlook to a stock.
“A good way to start is to take the last year of implied volatility and identify the high and low of the last year. Once the high and low are identified by dividing it in 3 parts then a strategy is assigned.”