If you’re ready to start your journey into options trading one of the most important things you can do first is to sign up with TradeUI to get access to a wide array of options trading tools all at your disposal to really optimize your trading profits like never before trading with SMART money and you can check that out here
Portfolio Diversity: Theory into Practice!
When it comes to portfolio diversity, understanding if the play is right for you would depend on the type of trading that you’re considering doing. In order to do proper portfolio diversification, you would want to turn that THEORY of trading into practice and there are many steps to do that one of the most important making the determination of whether you’re a a DAY trader, SWING trader, or a LONG-TERM trader and that in turn helps to make the determination of whether or not that the particular options trade will fit your comfort level and bring in the kind of returns you’re expecting. Once you make the determination of the type of trader you are, you can then in turn move on to the next step.
Most Liquid Options: Options Volume Explained
After determining if you have the right type of portfolio diversity you want to make sure you’re considering investing and/or trading in the most liquid options, and that’s where the volume comes into play and will explained to help you make a determination if the play is right for you. If you’re a day trader you would want to make sure not only that the option has LOTS of volume but that the spread on the bid and ask is relatively stable, the wider the spread the more dangerous of a time you’re going to have not only entering but liquidating at a reasonable profit when it comes to DAY trading.
In regards to longer term trading the spread isn’t AS important as is how confident you would be in the directional move up or down. Volume of course still is important so when it comes time to sell, you want to make sure you can liquidate either way so always be weary of the spread on a stock and it’s overall volume and how consistent that volume can be!
IV Percentile Vs IV rank: Optimizing Options Trading
IV Percentile Vs IV Rank, an often overlooked factor when it comes to optimizing your options trading but a very important one regardless. When it comes to IV PERCENTILE it represents the percentage of an amount of days that the particular implied volatility has traded at a range below the current IV, and understanding this can really help add a unique dynamic to your trading style. What exactly is IV rank, though? IV is implied volatility and it is in fact a measurement of the level of volatility currently happening in the particular contract. The higher the IV the more your premiums will move but the less momentum an individual ticker gets, the faster your options can crush. In general, when optimizing options trading it’s usually best to trade from a low IV into a higher IV, but in certain day trading circumstances a higher IV can be really profitable if you’re in for a quick scalp.
Option Strategy for Beginners for CONSISTENT Income
When jumping into options one of the most important things you can do is have a strategy and whether you’re beginners, more advanced, or an expert the most important thing to do is make sure that your strategy fits the type of trader that you are so you can obtain a relatively consistent income on a day to day basis. You want to make sure that if you’re developing a strategy, that it is ideally the right fit for a longer term setup or that you can continually repeat as a day trader to make sure you maintain the consistent income you’re looking for as an options trader. There are a wide variety of strategies that you can consider and with the wide array of features at TradeUI you can really optimize your profits by utilizing the platform and you can get started with it here, tradeui.com
Option Strike price EXPLAINED
After you have picked out an options strategy, it’s a good idea to make sure you fully understand and get the options strike clearly explained so that you know the benefits and how you can match it with your strategy whether you’re a day trader or a longer term trader to ideally get the most out of optimizing your options trading to perfection.
One of the most important things to factor in with options is that they do DECAY over time, so closer to expiration those options decay more rapidly so it would be a BAD idea to swing or long an option on a given strike on a contract expiring shorter term as comparative to going months out to choose the right strike to help you ensure you avoid the decay of your option and benefit the most from the movement. In general choosing the strike price can be tough but the most important thing to remember is that deeper IN THE MONEY options move more 1:1 with your underlying stock where-as OUT OF THE MONEY option strike prices tend to move more extrinsically which on a shorter term scalp or day trade might actually be the better trade but that all depends on your risk.
Position Sizing and Risk Management:
After all is said and done, you want to next determine your position sizing to help perfect your risk management. In general, position sizing can be relative to the size of your portfolio and the level of risk you’re willing to take to maximize the reward potential.
As an options trader, it’s often best to risk no more than 2% of your over-all trading capital on a given position, which in a day trading scenario can still add up to quite a lot of profit if you perfect it and in a longer term scenario can add up to a lot of profit too if you take the time to master strategies like the IRON CONDOR or take the time to better understand how INTRINSIC VALUE works.
With options trading it is also important to set a tighter stop loss than you would normally with shares trading as you’re trading an amplified value and options trade more on MOMENTUM than they do on the underlying move of a stock but of course, both are important to watch either way.
You can always increase your position sizing as time goes on and you better perfect your strategy, but don’t ever increase your position sizing to try to make up for losses as you’ll ultimately end up compounding more and more loss rather than perfecting your strategy to make sure you stay net positive. Just remember, no trader wins 100% of the time!
Option Strategies for the future: Thinking ahead!
As with any type of trading, it’s important to understand that option strategies should always factor in potential market volatility and changes to the overall market dynamic. There are scenarios that can drastically effect your longer term and even shorter term positions so try to be prepared for any number of scenarios and make sure however your portfolio diversification is, it can handle that risk.
If you want to get started with options trading, make sure to check out TRADEUI which you can find at this link here
Video I suggest you watch How to use TradeUI to trade options!