Stock Options | Trading Stock Options to Make Money
Walking a Way from a Bad Options Trade Is a Great Way to Make Money
No one ever got hurt sitting on a pile of cash. That is the most important lesson I can teach anyone wanting to learn to trade options or just learn to negotiate. No one ever negotiates fairly unless the threat of walking away is real. So the message is… make the threat real. Never get so starry-eyed over a security or an option or even a job that you give up the option to walk away.
So How Do I Know When to Buy Stock Options?
If you’ve read anything I’ve written to date, you know that I am absolutely ruthless when it comes to pulling the trigger. I get what I want for a contract and price, and I plow in HARD. I set my trade triggers and I walk away. Does this mean I leave some money on the table when the options trading is hot for my contracts and my trade trigger is executed? Sure. But like the Wall $treet banker once said – “No one ever got hurt taking a profit kid.” Words to live by.
Having said that, I do a tremendous amount of research on companies. I have a list of over 200 companies that I track on a daily basis to watch (generally) for opportunities. Does that mean I am following them minute by minute? No. But EVERY day I know APPROXIMATELY where these stocks should be price wise, and when I see a big movement – THEN I look closer.
When Do You Pull the Trigger and Buy Stock Options?
My last check before I pull the trigger and buy stock options is technical charting. I know a lot of finance student will roll their eyes and say technical analysis doesn’t work, blah blah blah but I’m not talking about using technical analysis for long term movements. I go through a quick scan using technical analysis (see my scanner) as a final check for a couple of reasons:
1. A final question re: my analysis, “Did I miss something?”
2. A market psychology question: “What does the movement in the market look like and again… did I miss anything?”
Once I have concluded that the fundamentals of the company haven’t changed and that the other forces unrelated to the underlying value of the company are moving the shares (a.k.a. somewhere there is an ‘over-motivated’ buyer or seller in the market – a.k.a. someone who no longer has the option of ‘walking away’ like we describe above) – I pull the trigger.
I don’t always win, true. As I said, I’m always asking myself if I missed something, and I always give myself the option of leaving a bad deal behind.
So should you.
