Sunday, October 20th, 2019

Practical Options Trading Tactics


Successful options trading often boils down to practical options trading tactics, strategy, and tools. Options trading tools include your trade station, internet connection, and software. They also include your skill set. There are a number of basic options strategies. In brief, these are the long call, short call, long put, and short put. Long refers to owning the underlying equity and short refers to not owning it. A call gives the buyer the right to purchase an equity at a set price and a put gives the buyer the right to sell an equity at a set price. Traders use scalping, trend trading, range trading, and other approaches in order to gain profits in options trading. But, when the tools are in place as well as the options trading strategy, there is the daily nitty-gritty of trading, practical options trading tactics.

Dictionary Definition of Tactic

Tactic: conceptual action, action taken for one or more specific tasks. Usage: military, business, games, sports.

The Use of Tactics

An options trader may choose to use long calls in search of profits in options trading. This means that he or she owns the stock, currency, or future on which the option is based. This is commonly a situation in which the owner of the equity does not believe that the equity will go up in price. Nevertheless call options for the equity are in the money. Therefore he or she can sell an option contract or two with the expectation of gaining a profit from the sale and still keep the stock, currency, or futures contract. Practical options trading tactics in this situation have to do with picking the right time and price, entering and exiting the contract, and, in the case of fast paced online trading, setting trading stops.

Conservative or Aggressive Trading Tactics

Depending upon just how clear an options trading strategy is about the details of options trading, there may be a fair amount of leeway for practical options tactics. An aggressive trader will commonly enter more trades than a conservative trader. An aggressive trader will commonly enter trades when the situation is less clear than when a conservative trader enters a trade. Also an aggressive trader may stay in a trade longer than a conservative trader. A conservative trader will often see a profit and take it. An aggressive trader will often try to milk the last drop of profit from the trade. Practical options trading tactics and the most profitable options trading tactics are commonly based on a continual review of results and bottom line. Practical options trading tactics are also based on just how active a trader can be. Those of us with day jobs, so to speak, can only spend just some much time watching the market. As such we will rely heavily on limit orders and tend to stock with long positions instead of short positions. To the extent that we choose to do otherwise it will commonly have to do with buying calls only, especially on out of the money contracts with a long time until expiration. One of the practical options trading tactics in a volatile market for a trader without a lot of time can be a long straddle as it puts the trader in winning positions either way the market may move.

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