When To Buy Options

Buying options can be a very profitable strategy, but it can also be a very risky strategy. Trade it correctly and you can make unbelievable gains. Trade it incorrectly and it can take your account to $0 faster than you would have even imagined possible.

I like to trade options every now and then, but the conditions have to be just right. In order for me to jump in I want.

1. To see a trend

If there is a good solid trend in both the stock market indexes and in the individual stock then the odds are pretty good that the stock will continue in the same direction in the short term. By confirming the trend with the overall market you are increasing your odds of success, which is really all you can do in the stock market.

2. Low Volatility

This isn’t the most important thing to look at, but when you buy an option volatility makes up a big part of that option. If volatility is high then it can easily come crashing down and effect your option in a bad way. It might even make you lose money on an otherwise profitable trade.

On the other hand if volatility is low and goes up it can potentially raise the price of the option. So it is something that would be nice to have on your side, but sometimes it just isn’t feasible.

3. Confidence in a System

Before anyone takes a trade they must have unquestionable confidence in their own system. Why because it is the only thing that will save you from emotions controlling you. Once in there should be no second guessing anything. If you think your rules need to be changed do it after you are out of the position.

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