How
I Trade Options
My methodology is:
1.
Look at daily charts of Index, Stock or ETF
and look for a turning point or good continuation. My chart has the EL
indicators that you see in the daytrading blog PLUS some extra ones that are
proprietary. I use a short list of underlyings so I always trade from the same
list, each of which I get to know well.
2.
Once I see a probable direction, I look for
a target price.
3.
Once I envision where the market is going,
I pick an option strategy from my list which includes;
a.
Iron condors
b.
Butterfly
c.
Unbalanced butterfly
d.
Others
4.
The strategy I pick partly depends on
whether I see a tighter range or a larger range. I also look where I am in the
swing cycle.
5.
Once I pick the underlying, the direction
and the option strategy to use, I model it in my option software. I use Option
Net but TradeStation has OptionStation which can provide the required
information. Option Net is what I use because I can back test with it.
OptionVue has similar functionality but is more expensive.
6.
Once I am happy with the model, I place a
combo order with my broker. A combo order simultaneously executes all the legs
of my proposed option position – all or nothing – at a limit price. I try and
trade as close to the mid price between a regular bid and ask of the marketmakers.
I may work orders below or above the market if I have a short term view.
7.
Once the position is on, I immediately place a Good Till Cancelled
SELL combo order. I have a trading plan of where to exit, where to
adjust and where to be stopped out.I also place alerts in my software to send
me an email if something wild happens and the price of the underlying goes
outside preset danger parameters. I don’t like to closely monitor these option
positions as it can lead to a break of discipline and tiredness.
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