Rules for Option Trading Success

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Rules for Option Trading Success

Author: A.J.Brown Total views: 7 Word Count: 327

A number of my readers have been asking me how I trade options. A lot of the questions I've received indicate people are looking for firm rules they can use. Frankly, there aren't many "hard and fast" rules I use. Although I do have three that I'll share with you.

Caveat emptor: There aren't any guarantees. By following these rules, you might make some money; you might lose some. I offer these rules to give you some insight into how I trade. Obviously, you will need an overarching trading strategy to get the best results.

Keeping this mind, here are my 3 rules for option trading success...

1. Don't buy any options that expire in the near term. 2. Don't buy options that are out of the money. 3. Don't hold an option contract through its expiration.

This is clearly a list of what NOT to do. But this list can be rewritten in the positive sense like this...

1. Always buy options that don't expire for a long time. 2. Only buy deep in the money option contracts. 3. Always dump option contracts before they reach expiration.

There you have it: the only three "hard and fast" rules I consistently follow when I trade options. The rest of my trading really depends on the movement of the underlying stock and the particular set-up I'm trading. Unfortunately, there aren't any blanket rules that fully address the unpredictable forces in the market.

The truth is, I have a number of additional "rules" to help me trade. But these rules can't be applied in all situations. They're more like guidelines. I still have to analyze a number of other factors before I use them.

Perhaps my three option trading rules have given you a new angle to look at trading. After all, much of the popular advice involves trading the news -- something I don't advise. News is only one factor you should consider in your trading. You should never base trades on news and news alone.

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About the Author

A.J. Brown is a published author and option trading coach. He has been trading for nearly 10 years, and has trained hundreds of people how to trade options. Visit his blog to learn more about trading stock options.

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