Online Options Trading – 1 Strike Out of the Money Trading
I have been buying options on various stocks for some time and this is my trading plan. Trading out-of-the-money options is a good way to grow your portfolio with less cost involved. Trading can last anywhere from a few days to a month or two.
Entry
o Determine the direction of the trend. Is it up or is it down?
o Buy call if the trend is up, or buy put if the trend is down.
o The best time to enter is after a 1-2 day withdrawal.
o A good time to enter is just before the market closes. (If the stock is moving higher than the close, it will most likely continue overnight.)
Departure
o When entering I always set my limit at $1.10. (.10 is to cover commissions). After it’s profitable for 50 cents, if it’s profitable and the 30-minute charts or the MACD looks like it’s starting to pull back, I may consider exiting.
o For stops I like to use $1.00 below the ticket price. However, I will adjust this for stock. Higher dollar stocks with high volatility I will raise the cap and lower dollar stocks with lower volatility I will lower the cap.
what option
o Expiration: I used to trade with at least 30 days to expiration. Now I trade the current month + 1. In other words, if it’s in the month of June, the first month it would take as the expiration would be July.
o Delta–I want to see a delta between 40 and 48 cents. Any value greater than 48 and the jump between out of the money and in the money will be lost. Less than .40 works, but you will most likely have to wait longer for your profit. (Remember that for every $1 move in the stock, your option will only move about the amount of the delta.)
o Price: I want my sale price to be less than $10.00. It will occasionally go as high as $12.50 per option. I actually prefer options under $5.00. Yes, they are there.
o Open Interest – I look for an option that has the highest open interest for the time period I am considering. It must be greater than 100.
I have been trading options online buying out of the money options for several years now and probably 90% of my trades are done this way. You can start small and watch your account grow little by little. A profit of $50 made over and over again grows fairly quickly and can be reduced with an investment of as little as $500.