A lot of people get nervous once you start talking about options. After all, they’re not your standard investment. You really have to read between the lines and have a keen eye for short-term trends… Sometimes, those trends only last for a few hours.
But, with all that said, with keen investing sense and the right preparation you could make some very nice gains on the open options market.
Through my own experience, both as a trader and from learning from my father, I’ve discovered some powerful secrets that could help you in becoming the best options investor you can be…
Maximize Your Options Gains with These Six Trading Secrets
At first glance, it may seem like speculating with options is a risky business. After all, price swings of 30% in an hour are far from comfortable for most investors. But with risk comes reward — and when you can manage that risk successfully, the rewards far outweigh the risks over time. That’s where these six trading secrets come in…
They’re the tools I’ve turned to for decades to maximize my gains as an options investor while keeping my risks tolerable. My Options Hotline readers have used these rules to maximize their options gains over the years too, and now, I’m passing them on to you…
1. Create a sound money-management strategy.
This one flies in the face of the conventional image of a speculator. But believe me, all consistently successful speculators start with a plan. It doesn’t have to be anything too involved — just make sure you’re clear on your objectives, and set some guidelines for yourself. Figure out your entry and exit strategy for each play, starting with how much to invest, how many open positions you plan to have, how you will monitor positions, what kind of stop-losses you will use to preserve capital, etc.
2. Know your broker and monitor your investment.
When choosing a broker make sure to ask as many questions as necessary and that you get the appropriate answers before simply giving over your money. If you are a beginner, find out about the broker’s history and references, and speak to them frequently to establish a relationship. Make sure that either you or your broker will be constantly monitoring your investment — today’s markets are very volatile and with options the price can shoot up 30% or more in just a few hours… so it is necessary that your broker is able to see the option is performing and be able to execute an order in a timely manner, to ensure that your capital is protected.
3. Stick with your exit strategy if a trade goes against you.
That doesn’t mean you have to be inflexible, however. Just because an option has met your profit target, you don’t have to automatically sell. But there has to be a compelling reason to stick with the trade — something more than a feeling that the trade will continue climbing above your target price. (After all, you selected that target price for a reason.) And always use a stop-loss or a trailing stop order to make sure you’re ready for any reversal that might pop up.
4. Always, always, always, ask questions.
The Internet age is creating a generation of independent investors. But some are still too proud to admit that there are things they don’t know. In the speculation game, what you don’t know can hurt you.
5. Learn from your mistakes.
Find out what works for you. There will be losers along the way — but just make sure you know what you did wrong in previous trades (e.g. you set a stop loss of 15% and were stopped out too early and the option rebounded to 56% profits). Take every trade as a lesson and use it to improve as you continue trading.
6. Remember that knowledge is power.
You can never know too much… strive to learn as much as you can about options and their inner workings, strategies, fundamentals, everything… so that you will be better equipped to profit with options trading.
Of course, these are not the only, ahem, options you have for being successful in trading options. There are some devices you can use to get ahead of other investors…very far if you’re smart and plan ahead.
Perfect Your Options Trades for Free with “Virtual Trading”
Technology has made significant strides at flattening out the learning curve for investing in options. Now, one free online tool can help you perfect your options trades in real time without risking a single cent. Here’s everything you need to know to gain options experience without the risk…
“Virtual Trading” Is the Road to Real Profits
Still, the pen-and-paper method is a little outdated now. Today, lots of websites offer “virtual trading” — free computer programs that let you practice trading without putting any money at stake. Most require you set up an account… not an actual brokerage account, but a membership account — containing basic information like your age and interests.
After you make your virtual order, the software does the rest. If you placed a market order, the security is added to your virtual portfolio. If you used a limit order, the program won’t place your order until the real market hits your limit price.
It’s a lot easier to trade when you’re not spending real money. But virtual trading is so lifelike, you might actually lose sight of that when you really start trading. This is especially true since actual trading will involve money you can afford to lose. If you’re not careful, it will all seem like a game… and in games,
taking unnecessary risks is part of the fun.
Picking the Right Virtual Trading Platform
Here’s a rundown of several of the free virtual options trading platforms you can sign-up for right now…
paperTRADE
This full-featured trading platform from tradeMONSTER offers newbie options investors the chance to experience options trading on a realistic trading platform.
CBOE Virtual Trade Tool
While not as robust as other trading platforms, this simple options trading tool still gets the job done without the advanced tools that some beginnings may find confusing or unnecessary.
Trade Smarter Options
This innovative binary options platform isn’t as realistic as the other offerings, but this website shines by simplifying the options investing process to limited outcomes. If you’re having trouble grasping options concepts, this site may be a good intermediary step for you.
PaperMoney
thinkorswim’s virtual trading system is simply their award winning real-time trading platform with virtual money. This system offers investors the advanced features you’d expect from a real options broker.
Not So Scary, Is It?
Trading options isn’t all that scary now, is it? Using virtual trading in combination with the six secrets I learned from my father, you could show yourself very brave in the world of trading. Just be smart, be observant and then you could be profitable.
Author Resource:
Steve Sarnoff is a contributor to The Penny Sleuth, which offers unbiased commentary from expert analysts and authors about penny stock symbols.
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