I posted this as a reply to a thread in WallStreetBets. I thought someone might find it useful.
The stocks you pick to trade options also matter a great deal. For example; I prefer NVDA & TSLA lately because they often recover very well from selloffs and will give you clearer direction. Both obviously are popular and their profitability will continue to bring in more buyers. Also, they are volatile and move well in both directions with NVDA being the easier of the two to trade.
If you have been losing money trading options because of volatility, getting shaken out, stress, etc then the following strategy may help. Determine the latest hot sector of the market i.e. energy, financials, retail, etc and trade options in the corresponding ETF. For example XLE – Energy, XLF – Financials, etc. These ETFs can still make you good money and won’t move dramatically in either position. They can help you learn the mechanics and make money at the same time without exhausting your mental energy.
My personal basic strategy is to find the ITM call or put that has the highest open interest and volume. These usually have the tightest spreads and make it easy for me to move in and out.
Try not to focus on the P/L, as you will get shaken out easily, but rather trade the chart. Sell half of your position at predetermined resistance levels that lose momentum without hesitation. This will ensure profitable trades.
Also, if you are newer to options trading then I recommend only trading 1 contract at a time as this will keep your stress level down and allow you understand how the particular stock/option you are in behaves. (Yes, they have their own behavior lol).
If you are more of an intermediate trader then slowly add to your position. If i intend to buy 10 contracts I will add 1-2 at the point when I get to my target entry. Often times what we believe is a great entry will temporarily break down and offer us a better entry. This is when I will add more. If I don’t get the small capitulation move down then i add on the way up. All of this is fine and never beat yourself up for not getting it “perfect”.
These are the lessons I’ve learned and allow me to consistently make money and trade for a living.
Disclaimer: This information is only for educational purposes. Do not make any investment decisions based on the information in this article. Do you own due diligence or consult your financial professional before making any investment decision.
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