What are the top 10 Commandments of Options Trading Strategies

Options Trading/Strategies

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This blog is about the top 10 Commandments of Options Trading Strategies.

Options trading is a complex and often risky business. However, by following some simple rules, options traders can increase their chances of success while minimizing their losses.

Option strategies are the simultaneous, and often mixed, buying or selling of one or more options that differ in one or more of the options’ variables. Call options, simply known as calls, give the buyer a right to buy a particular stock at that option’s strike price. Conversely, put options, simply known as puts, give the buyer the right to sell a particular stock at the option’s strike price. This is often done to gain exposure to a specific type of opportunity or risk while eliminating other risks as part of a trading strategy. A very straightforward strategy might simply be the buying or selling of a single option; however, option strategies often refer to a combination of simultaneous buying and or selling of options.

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Options strategies allow traders to profit from movements in the underlying assets based on market sentiment (i.e., bullish, bearish or neutral). In the case of neutral strategies, they can be further classified into those that are bullish on volatility, measured by the lowercase Greek letter sigma (σ), and those that are bearish on volatility. Traders can also profit off time decay, measured by the uppercase Greek letter theta (Θ), when the stock market has low volatility. The option positions used can be long and/or short positions in calls and puts.

Below are the 10 Commandments of Options Trading:

  1. Do your homework. Before entering into any options trade, make sure you understand the underlying security, as well as the risks and rewards associated with the trade.
  2. Have a plan. Options trading is not a get-rich-quick scheme. Carefully craft a plan that takes into account your investment goals, risk tolerance, and time horizon.
  3. Use stop-loss orders. A stop-loss order is an order to sell an asset when it reaches a certain price point—the point at which the loss on the trade would become too great to bear. By using stop-loss orders, options traders can limit their losses on any given trade.
  4. Let winners run. Once an options trade is profitable, resist the urge to take profits too early. Instead, let the trade run its course and reap the full rewards of a successful trade.
  5. Cut losers short. On the other hand, when an options trade is going against you, don’t be afraid to exit the position and take your losses. Trying to “fight” the market will only lead to further losses.
  6. Manage your risk exposure. One of the most important aspects of successful options trading is managing risk exposure. Make sure you don’t have too much of your portfolio invested in any one security or sector. Diversification is key to mitigating risk in options trading (or any kind of investing).
  7. Use limit orders. A limit order is an order to buy or sell an asset at a specific price—the price at which you are willing to enter into the trade. By using limit orders, options traders can better control their risk exposure and avoid getting caught up in volatile markets.

8 . Be patient . Patience is a virtue in all aspects of life, but it’s especially important in options trading . Don’t enter into trades just because you’re feeling antsy—wait for opportunities that meet your investment criteria . And once you’ve entered into a trade , resist the urge to “trade emotionally” and instead let your original analysis play out . Over-trading is one of the biggest mistakes options traders can make .

9 . Stay disciplined. Like patience, discipline is also key to success in options trading . Once you’ve developed a sound investment strategy , stick to it ! Don’t let emotions influence your trades — if anything , emotion should be kept out of trading altogether . The best way to do this is by developing a clear set of rules that you always follow when making trades . If you can do this , you’ll be well on your way to success as an options trader.

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10. Have realistic expectations . Finally, it’s important to have realistic expectations when trading options . Remember : there are no guaranteed winners in options trading ! Every trade involves some degree of risk, so don’t expect to win every single time. If you approach each trade with reasonable expectations and focus on long-term success, however, you’ll be well on your way to becoming a successful options trader

What are the top 10 Commandments of Options Trading Strategies


  • Thou shall always take 100% daily gains or 200% all time gains.
  • Do not fall into temptation and buy during the first 30 minutes of market open. (Selling positions is still permitted)
  • Thou shall not buy calls on green days.
  • Thou shall not buy puts on red days.
  • Avoid greed and do not buy consecutive options on 1 company.
  • Give thyself at least 3 weeks time to play the option.
  • End your suffering and sell if down 50% all time on an option play.
  • Avoid gluttony and do not day trade options. (Swing trades allowed)
  • Be fruitful, multiply earnings and sell covered calls if holding any.
  • Celebrate and binge drink after big gains (or losses)
  • Off topic, but relevant – You absolutely need to be doing a 401k or IRA as well as investing in crypto: 401ks and IRAs offer fantastic tax advantages that straight investing does not. Also if you have an employer who matches you are leaving money on the table by not taking advantage of that. It’s foolish. Crypto is great and should definitely be in your portfolio but it should not be your whole portfolio.
    1- WallStreetBets
    2- Wikipedia

Options trading can be complex and risky business, but by following some simple rules traders can increase their chances of success while minimizing losses

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  • Non-ACA healthcare
    by /u/Kidogo80 (Financial Independence / Retire Early) on October 2, 2023 at 3:02 pm

    Have any early retirees used a non-ACA healthcare plan? Philadelphia is the most common one I have seen, but I never got a clear idea of what they did and did not cover. I have a moderate use of mine (mainly physical therapy). I don't mind paying out of pocket if I am saving enough on a premium anyhow. Really, if I had to choose, I would get a healthcare plan that would just cover emergencies and unexpected big costs (cancer, car accident, etc) and leave me to cover the maintenance stuff. submitted by /u/Kidogo80 [link] [comments]

  • Fire Flow Chart Version 4.3
    by /u/happyasianpanda (Financial Independence / Retire Early) on October 2, 2023 at 2:47 pm

    Here is 4.3 in light mode and 4.3 in dark mode Edit: 4.3 in light mode PNG and 4.3 in dark mode PNG Please read the flow chart entirely before commenting since some Redditors have been commenting or PMing of missing items; sometimes it’s just buried deep. Please provide constructive criticism where I will evaluate for the next version; please be as specific as you can (i.e., In section 4, after the X block, you should include…). If you provide details on what exactly you’d like changed and provide justification, that can be sufficient to persuade me. Please keep in mind that this is geared towards the United States. While I am aware that some other flow charts exist for other countries, I do not know where all of them are or what the latest ones. If there are folks that would like to make their own flow chart, I am happy to provide the template. Change Log In Section 1, I’ve highlighted “HYSA” with minor additional statements In Section 4, changed the income ranges and added a statement of where the ranges come from for future readers. In Section 4, I’ve also added a “beginners” box In Section 5, I’ve added USA SECURE 2.0 box In Section 5, I’ve added a special consideration for those that are unable to max out both employer tax advantage account and IRA pm Provided a Dark Mode as well Version History; for those interested. Version 1.0 Version 1.1 Version 1.2 Version 1.3 Version 2.0 Version 3.0 Version 3.1 Version 4.0 Version 4.1 Version 4.2 submitted by /u/happyasianpanda [link] [comments]

  • Daily FI discussion thread - Monday, October 02, 2023
    by /u/AutoModerator (Financial Independence / Retire Early) on October 2, 2023 at 9:02 am

    Please use this thread to have discussions which you don't feel warrant a new post to the sub. While the Rules for posting questions on the basics of personal finance/investing topics are relaxed a little bit here, the rules against memes/spam/self-promotion/excessive rudeness/politics still apply! Have a look at the FAQ for this subreddit before posting to see if your question is frequently asked. Since this post does tend to get busy, consider sorting the comments by "new" (instead of "best" or "top") to see the newest posts. submitted by /u/AutoModerator [link] [comments]

  • 529 plan?
    by /u/Canyoubeliezeit (Financial Independence / Retire Early) on October 1, 2023 at 8:27 pm

    Someone FI related. If you as a couple make 300k would you use a 529 plan for kids college? Spouse thinks there is a better way to “hide” the $ so likes can get scholarships etc. TIA! submitted by /u/Canyoubeliezeit [link] [comments]

  • Financial Check Up / Saving for a Home
    by /u/Outrageous-Pickle696 (Financial Independence / Retire Early) on October 1, 2023 at 8:03 pm

    Hi, im pretty new to FIRE and finance. I was hoping for a financial check in. Im a 25 year old single female, living in the San Francisco Bay Area working as a nurse. I just recently got a new job with a base pay of $144,000 annually ($88.00 an hour). This number will go up with union negotiatons and any overtime I do. My job does offer a pension after 5 years, which I am planning on staying for that. Not sure what that number will be. All I know is the pension will improve the longer I stay. If I stay 15 years, they do offer free healthcare costs in retirement. My primary short-term goal right now is to buy a house. Long-term, I am hoping to go into a less stressful career that pays less and/or more ideally not work at all. I am currently renting for about $1,450/mo. What is the best way to buy a house at this time within 5-7 years? Save the money in cash or invest it? Houses here are over a million dollars which is discouraging. I have recently just starting putting most of my disposable income into a downpayment savings cash account. Currently I have: @ 52k in cash (16k is my down payment cash savings) @ 96k in a brokerage account (mainly invested in VOO) @ 20k in a Betterment General Investment account (not sure what to do with this money if anyone has any ideas, please let me know) @ 19k in a Roth IRA @ 33k in a Traditional Rollover IRA from previous employer @ 4k in a new Traditional 401k from my new job -no debt. I have maxed out my ROTH IRA for this year and am trying to max out my 401k for this year. Would appreciate any advice. Thank you so much for taking the time to read 😊 submitted by /u/Outrageous-Pickle696 [link] [comments]

  • Moving after you've RE'd: What should I consider
    by /u/lanez0r (Financial Independence / Retire Early) on October 1, 2023 at 6:34 pm

    Hi friends, My husband (39) works a remote job that is very flexible and comes with basically zero stress. He can work from anywhere. I (35) work an in-office job that is high stress. I make a lot of money (Base comp is great, and I receive stocks and bonuses 1-2x a year) and "enjoy" working but am looking forward to the idea of doing Barista FIRE in hopefully the next few years. We have a daughter (2.5 years) and may or may not have another child. We live in Austin, TX and are eager to move after I quit my current job. Our main motivation to move is that we want a different lifestyle--Austin isn't exactly the best city for those who wish to spend a lot of time outside year round. We have plenty of other reasons to move, which I won't go into here (BTW, Austin is a WONDERFUL city for a lot of people, I was born and raised here, it's just not "me" anymore). My question, is for those who have left the city you FIRE'd from, permanently or temporarily, what were all your considerations regarding where to go? I am making a spreadsheet and want it to be very robust to help us narrow down what feels like a very sizable list of cities and states. There are some things that are obvious for us, like...what is the weather like, how lush/green is it, what is the COL, are quality grocery stores available, etc. But there are things I know I am not thinking of, and I'd love to hear that from you. PS: Also open to hearing about cities you love, and why! That isn't the purpose of this post BUT I'm interested. TL;DR: What are all the things a young family of 3 should consider when moving to another place after FIRE-ing? submitted by /u/lanez0r [link] [comments]

  • How to celebrate hitting a major milestone?
    by /u/JoshRTU (Financial Independence / Retire Early) on October 1, 2023 at 3:29 pm

    I'm about to hit the last major milestone before I hit FI. Curious on how folks have celebrated their major milestones. Especially ones that delivered more value than expected. I do travel a good amount already so would be interested in unique travel experiences. So far I'm thinking of - 3 michelin star meal, or a lovely ceramic bowl from local artist. submitted by /u/JoshRTU [link] [comments]

  • SWR Based on Portfolio Earnings
    by /u/rjdevereux (Financial Independence / Retire Early) on October 1, 2023 at 10:25 am

    Has anyone done the analysis of SWR based on portfolio earnings? For example, you can spend 75% of your portfolio's initial earnings adjusted for inflation. So if you have a $1mm portfolio with a PE of 25, the earnings are $40k, and the safe withdrawal level you can adjust for inflation is $30k. It seems like this would give more stable numbers compared to portfolio value especially if you use the 10 year CAPE to smooth out the earnings calculation. ​ submitted by /u/rjdevereux [link] [comments]

  • Daily FI discussion thread - Sunday, October 01, 2023
    by /u/AutoModerator (Financial Independence / Retire Early) on October 1, 2023 at 9:02 am

    Please use this thread to have discussions which you don't feel warrant a new post to the sub. While the Rules for posting questions on the basics of personal finance/investing topics are relaxed a little bit here, the rules against memes/spam/self-promotion/excessive rudeness/politics still apply! Have a look at the FAQ for this subreddit before posting to see if your question is frequently asked. Since this post does tend to get busy, consider sorting the comments by "new" (instead of "best" or "top") to see the newest posts. submitted by /u/AutoModerator [link] [comments]

  • Are $100 Oil Prices Realistic? Maybe Not By End-2023, But Almost Certainly By 2025.
    by /u/These-Stage-2374 (Financial news and views) on October 1, 2023 at 6:02 am

    submitted by /u/These-Stage-2374 [link] [comments]

  • How to find out how much Social Security will pay out
    by /u/jjmmzz (Financial Independence / Retire Early) on September 30, 2023 at 11:55 pm

    Does anyone know how to find out approximately how much one should expect to be paid from Social Secuirty in the US? From their website they give me an estimate but it assumes I’ll work until 65. I’m trying to find out a better estimated assuming I only put in what I have up to this point. submitted by /u/jjmmzz [link] [comments]

  • Families on a single income?
    by /u/InSalehWeTrust (Financial Independence / Retire Early) on September 30, 2023 at 10:46 pm

    I'm interested to hear how many people in this community, with kids, are working toward financial independence with a single income. Why did your family make this decision, how long have you been doing it, and how's it going? Happy to hear from those bringing in $250k per year, but I'm particularly interested to hear from those doing this on a more modest income. submitted by /u/InSalehWeTrust [link] [comments]

  • Changing Primary Residence
    by /u/TacomaGuy89 (Financial Independence / Retire Early) on September 30, 2023 at 10:35 pm

    It occurs to me that the best tax strategy may be to change houses and "upsize" as soon as equity grows to $500k (or whatever the capital gains exclusion cap is). Of course, sounds like kind of a pain too. Anyone use this strategy? *Edit typo submitted by /u/TacomaGuy89 [link] [comments]

  • Janet Yellen says a government shutdown could risk tipping the U.S. into a recession
    by /u/_mattske (Financial news and views) on September 30, 2023 at 8:55 pm

    Does anybody actually care what economic grandma has to say anymore? submitted by /u/_mattske [link] [comments]

  • House Lawmakers Approve Legislation to Dramatically Expand HSA Limits
    by /u/renegadecause (Financial Independence / Retire Early) on September 30, 2023 at 12:57 pm

    FYI, there's a bill that just passed a House Committee to pretty much double HSA contribution limits. If passed, would this change your investing calculus? ​ Changes in HSA Modernization Act (H.R. 5687) Contribution limit boosted. In what might be the most significant change from the two bills is a provision in H.R. 5687 to increase the HSA contribution limit to equal the sum of the annual deductible and out-of-pocket limitation permitted under a high deductible health plan (HDHP). For instance, in 2023, the basic limit on annual contributions that can be made to an HSA is $3,850 in the case of self-only coverage and $7,750 in the case of family coverage. Under the proposal, the basic limit for 2023 would be $7,500 for self-only coverage and $15,000 in the case of family coverage. In addition, as under present law, the basic contribution limit is increased by $1,000 for an eligible individual who has attained age 55 by the end of the tax year. The proposal would be effective for tax years beginning after 2025. The Joint Committee on Taxation estimates that this provision alone would cost an estimated $44 billion over 10 years. Spouses permitted to contribute “catch-up” funds into the same HSA. Another key provision in H.R. 5687 is to allow both spouses to make catch-up contributions to the same HSA. Under the proposal, if both spouses are eligible for catch-up contributions and either one has family coverage under a HDHP, the annual contribution limit that can be allocated between them includes the catch-up contribution amounts of both spouses. Thus, for example, the spouses may agree to have their combined basic and catch-up contribution amounts allocated to one spouse to be contributed to that spouse’s HSA. The proposal would also be effective for tax years beginning after 2025. Changes in Bipartisan HSA Improvement Act (H.R. 5688) Contributions permitted if spouse has health FSA. Under this change, contributions could be made to an HSA if the individual’s spouse also has a health flexible spending arrangement (FSA). As such, for purposes of determining whether an individual is eligible to contribute to an HSA, coverage under the employee’s spouse’s health FSA would be disregarded. To qualify, the aggregate reimbursements under the health FSA for the plan year must not exceed the aggregate expenses that would be eligible for reimbursement under the FSA if the expenses were determined without regard to any expenses paid or incurred with respect to the otherwise HSA-eligible individual. FSA and HRA conversions to fund HSAs. In addition, H.R. 5688 would permit certain amounts in a health FSA or health reimbursement arrangement (HRA) to be rolled over into an HSA. This provision apparently would resurrect a provision from the Health Opportunity Empowerment Act of 2006 that expired in 2012. Under the proposal, a distribution from an employee’s health FSA or HRA contributed directly to an employee’s HSA would be considered a “qualified HSA distribution” also provided certain conditions are met. The aggregate amount of qualified HSA distributions may not exceed the total annual limit on FSA contributions ($3,050 in 2023) or twice this amount in the case of an eligible individual who has family coverage under a high deductible health https://www.napa-net.org/news-info/daily-news/house-lawmakers-approve-legislation-dramatically-expand-hsa-limits submitted by /u/renegadecause [link] [comments]

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