Before you begin buying options you must decide how much of
your investment portfolio to risk. 10% of your portfolio is an ideal beginning
maximum for most investors.
- Every passed day costs you, and your option could expire
- The easiest and safest to profit with an option is to
buy one. You simply pay the premium and wait to see if the index rise if you
buy a call option or fall if you buy a put option.
- If the stock price rises above the strike price of your
call option or if the stock falls below the price of your put option, you win
- If the stock does not behave the way you thought, you would
lose your bet, as well as the premium you paid for your option.
Do not wait for Options to expire:
As important as selecting the right option and paying the
right price is knowing when and how to take profits. Most option buyers lose not
because they take the wrong positions, but because they fail to take profits
- When your option begins to profit you must be ready to act.
- First, be alert to sell your position if the index drop
down (if you bought a call option), or rises (if you bought a put option) 5%.
- If your option is in the money and if the index makes a big
move in your direction, sell your position and pocket the money.
- If your option is in the money goes past the strike price
and enters its last week before expiration, take profits.
As important as taking profits is cutting losses to a
- The harder part is convincing yourself to to cut the
- If you do not cut your losses quickly, you will not last as
an options player.
- If an option falls in value by 50% after you buy it, sell
it and close your position.
Basically as an Options trader you
have to know
- Your possibility of a loss
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