Stock options can be very profitable in the stock market provided you use them right. Whenever you are buying an option you should take some time to consider why you are buying it.
Here are some tips to figuring out when the best time to buy an option is.
1. When the Stock is giving you a Technical Signal
Going down to the basics, you need a reason for buying the option to begin with. If you are just buying the option and hoping the stock will suddenly have a huge move in your direction you‘ll be disappointed when it doesn’t.
In addition to that you also want to have some consistency in your trading approach. If you are buying options on breakouts stick with that and learn it well before you move onto another form of trading.
2. When you have a good risk to reward ratio
You don’t want to be risking 100% of your option contract to make a 20% return. When trading options you really need to look at risk to reward ratio. Most professional traders use a risk to reward ratio of 2 to 1 which means you have a possible reward of $2 for every $1 you risk.
3. When you are trading with the trend
This one factor increases your odds of being correct so much so don’t ignore it. Trends can persist for a while so trading with them and not against them is a smart thing to do.
4. When it will not kill you
You only want to buy an option when you can afford to lose the money. If you are not going to be able to pay the rent money if you lose it, don’t put it into option trading. All money you put into a trade should not be a large amount of your trading account to begin with.
For more on stock options visit http://www.stocks-simplified.com/stock_options.html
For some stock tips visit http://www.stocks-simplified.com/stock_tips.html
When I was young I wanted to learn how to trade the stock market. So I traveled around the country listening to professional traders talk about how they are making money in the market. Now I understand how easy it is to make money in the stock market and started a site http://www.stocks-simplified.com to help others learn.