Article Advise

submitted: Aug 15th 2008 | by: A.J.Brown | Total views: 1 | Word Count: 336 | |

A number of my readers have been asking me how I trade options. A lot of the questions I've received indicate people are looking for firm rules they can use. Frankly, there aren't many "hard and fast" rules I use. Although I do have three that I'll share with you.

Keep in mind, following these rules doesn't guarantee you'll make any money at all. In fact, you may lose money if you only use these three rules. I share them only so you can get a glimpse of my unique trading style. To make these rules work, they must be combined with an overall trading strategy.

Keeping this mind, here are my 3 rules for option trading success...

1. Don't buy any options that expire in the near term. 2. Don't buy options that are out of the money. 3. Don't hold an option contract through its expiration.

Instead of a list of things NOT to do, you can think of these from the flip side...

1. Always buy options that have plenty of time before expiration. 2. Only buy options that are already "in the money." 3. Always sell off your options before expiration.

There you have it: the only three "hard and fast" rules I consistently follow when I trade options. The rest of my trading really depends on the movement of the underlying stock and the particular set-up I'm trading. Unfortunately, there aren't any blanket rules that fully address the unpredictable forces in the market.

Put another way, I do have additional "rules" I depend on. But they're contingent upon a number of variables and factors that require close scrutiny and analysis.

I hope the rules I've shared here give you some new insight into how to trade options for profit. After all, many of the so-called "experts" say to trade the latest news. I don't suggest doing this. You want to be aware of what's going on so you don't get blind-sided. But you don't want to base your trades on the news all by itself. It's simply too unpredictable.

About the Author

Arnold "A.J." Brown is an investment writer and option trading coach. He has been actively trading for nearly a decade, and has taught hundreds of people how to trade options. Visit his blog to learn more about trading stock options.

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