January 20, 2009
I want to trade options easy?
forextrade1970 asked:
Hello. I want to trade options only long calls and long puts instead of trading just stocks. The problem is that when i trade in the money contracts for the next month for example the expected profit is lower than the risked money. Is there a solution to this problem? I mean i want to risk as little as i can and my profit to be higher than the risked money.
Hello. I want to trade options only long calls and long puts instead of trading just stocks. The problem is that when i trade in the money contracts for the next month for example the expected profit is lower than the risked money. Is there a solution to this problem? I mean i want to risk as little as i can and my profit to be higher than the risked money.
Thanks
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Comments on I want to trade options easy? »
If you use the implied volatility of the option to calculate the expected profit there is no solution to the problem. The pricing model is designed to prevent there from being a solution.
If you base your expected profit on a volatility greater than the implied volatility of the option, you will find times the expected profit is higher than the amount risked.
If you cannot come up with your own estimate of future volatility, you probably should not be trading options.
You could start by reading “The Master Swing Trader” by Alan S. Farley.
Then read “Rule the Freakin Markets” by Michael Parness.
If you paper-trade at the same time, by the time you get done reading those books you’ll have a leg up on 90% of your competitors.
And you might like to follow along as I do just that same thing in my blog series “Trading To A Million”. If your interested I sourced it below.