Explaination of stock option trading tips and tricks
Use the options Greeks to measure risk. Do not hold any position than can — in the worst case scenario — cost more than you are willing to lose.
Be careful about the number of option contracts you trade. Do not expect miracles. Not zero, just tiny. Selling naked options is less risky than buying stock. But, like stock ownership, there is considerable downside risk. The most effective way to accomplish that is to buy one option for every option you sell. That means selling spreads, rather than naked options.
Hope is not a strategy. Start here if you're new to options trading. You will learn what option contracts are, why you should trade them and understand the mechanics of what makes up option prices. Option strategies provide the flexibility to profit from rising, falling and also directionless markets.
Go ahead and jump straight to the Option Scanner. This software will show you volume spikes in contracts that often precede large price movements in stock prices.
Many refer to these volume buys as being the result of inside information. You be the judge! Approximatley 29, spreads went through over only 2, in open interest. The Delta of an option does more than approximate the price move compared to the underlying; it also describes your directional bias, serves as a proxy position for the underlying instrument and estimates the probability that the option will expire in-the-money.
Delta isn't static though; it changes constantly with other pricing factors and it's important to know what they are. As options approach their expiration date, their value can erode quickly.