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.

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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.

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 .


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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.

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

Furthermore:

  • 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.
    Sources:
    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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  • Post FI Motivation
    by /u/FlapJackBeehive (Financial Independence / Retire Early) on January 27, 2023 at 8:46 pm

    How can we stay motivated to work and deal with the unenjoyable parts of work after we are FI but not RE yet? In my case I am FI but I want to keep earning so I can increase my safety net and standard of living post RE. I also want to make an action plan and cultivate some new hobbies for “retirement” before I make the leap so I am not just playing video games. Anyone have mind shifts that helped them or general advice for staying motivated at work when you don’t technically have to. submitted by /u/FlapJackBeehive [link] [comments]

  • Budgeting for "one time expenses" in retirement.
    by /u/Yangoose (Financial Independence / Retire Early) on January 27, 2023 at 6:20 pm

    When looking at my annual expenses it's easy to dismiss certain things as a one time expense. After all, it's not like I'm getting new gutters every year right? The problem is that it's always something and sooner or later even those "once every 20 year" expenses come back around. I spent a few minutes brainstorming a list and applied what I feel to be pretty conservative amounts on everything, like keeping a car for 20 years. I tried to keep it simple. For instance furniture could be anything from a mattress to a couch to a dining table. I'm wondering how everyone is budgeting for such things. Do you see some huge glaring expenses my list is missing? EDIT Some good additions: AC (for hotter climates) Porches, decks and fences Tree maintenance submitted by /u/Yangoose [link] [comments]

  • FAANG - High Risk vs. High Reward
    by /u/ZookeepergameKey7536 (Financial Independence / Retire Early) on January 27, 2023 at 5:05 pm

    29 years old -- I have a job opportunity in-front of me at a FAANG. I've calculated it would accelerate FIRE by 3 years (36 y/o vs. 39 y/o) roughly given the numbers I have in front of me today. I already save a ton of money and live a great lifestyle. I currently enjoy what I do, I don't absolutely love it but it's a great setup. Great boss, projects are kinda-sorta exciting, I have job security and rarely work more than 30 hours a week. Here's my thought process for jumping to FAANG: Pros: Stock appreciation, while not guaranteed, could pay handsomely Domain/industry of team within FAANG is exciting Opens up higher earning potential sets bar of total compensation name of FAANG General experience working at FAANG/ at scale Cons: Pressure to perform at FAANG longer hours/higher expectations Technical stack is less exciting to me / could be boring and dreadful Looming recession Could be labeled as a job hopper if I don't stick with FAANG. I haven't had a job longer than a year, in 2 years. Tenure history: 6 months, 3 months (laid off), 1 year) Total Comp Numbers: Current: ~ 194k (11% bonus included) FAANG: ~ 275k (23% of this is RSUs) ---------------------------- Additional context: I don't have many responsibilities right now. I'm looking to get married soon and start a family but it's at the earliest 1-2 years away. I think my current job allows me to live life outside of work. I know that can change at the drop of a hat but I envision the unknown of FAANG not allowing me to do that, but then again who knows! I've been given some advice that taking risks early in your career usually pays off. But I don't know if I'm early in my career...I have roughly 6 years of industry experience already and with a FIRE date in less than 10 years, I have part of me saying to stay the course of the known but then another part of me saying take the risk, see what it happens, it will probably be okay. If I don't join FAANG I will probably get a Masters and slightly pivot tech disciplines. I think that would get me to a 300k total compensation in 3-4 years anyway. Thoughts, advice, tell me I'm crazy, would you do? submitted by /u/ZookeepergameKey7536 [link] [comments]

  • Discouraged
    by /u/Longtermlurker022 (Financial Independence / Retire Early) on January 27, 2023 at 4:32 pm

    Finding FIRE has been so amazing and I realize this is a subset of the population but damn this FIRE culture is discouraging. I went to professional school (occupational therapy program) & didn’t graduate until 26. Now I am very discouraged with the career progression possibilities, hindsight is 20/20 I suppose. I know other rehab professionals probably feel similarly (PT & Speech). So anyways I am 30 y.o. And have a net worth of about 50k. With the pay ceiling in my profession I doubt I will ever make much more than 100k and discouraged about career growth after investing so much time into school. Maybe I’m jaded bc seeing all of the high earners on this thread but I feel fucked and discouraged. I can’t see myself doing this profession until I am 60 years old 😵‍💫 submitted by /u/Longtermlurker022 [link] [comments]

  • Daily FI discussion thread - Friday, January 27, 2023
    by /u/AutoModerator (Financial Independence / Retire Early) on January 27, 2023 at 10:02 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]

  • Weekly FI Frugal Friday thread - January 27, 2023
    by /u/AutoModerator (Financial Independence / Retire Early) on January 27, 2023 at 10:00 am

    Please use this thread to discuss how amazingly cheap you are. How do you keep your costs low? How do become frugal without taking it to the extremes of frupidity? What costs have you realized could be cut from your life without pain? Use this weekly post to discuss Frugality in general. While the Rules for posting questions on the basics of personal finance/investing topics are more relaxed here, the rules against memes/spam/self-promotion/excessive rudeness/politics still apply! 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]

  • Bill Ackman says Hindenburg's Adani report 'highly credible' (26 Jan. 2023)
    by /u/marketrent (Financial news and views) on January 27, 2023 at 5:55 am

    submitted by /u/marketrent [link] [comments]

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