Basic Options Trading Tools
A beginning options trader needs to obtain and develop tools and skills necessary for options trading. Today online options trading allows a trader to access markets from his own trade station, using sophisticated software, a fast computer, and a high band width internet connection. In order to make money trading options, traders need to study the fundamentals of the stocks, commodities, or currency pairs that underlie the options contracts that they trade. Then they need to keep abreast of market sentiment using technical analysis tools. The basic options trading tools that we are concerned about in this writing are the fundamental and technical analysis tools that allow an options trader to make sense of the market. These are the basic options trading tools that can routinely lead to profits in buying and selling puts and calls on stocks, commodity futures, and currency pairs.
The Basics of Making Money Trading Options
What are the basic options trading tools for finding and executing a profitable option trade? Discipline and hard work will always serve the options trader well. A smart trader develops an options trading plan, sticks to it when he is making money, and modifies it when he needs to. He avoids acting like a gambler but rather approaches the business of trading options as, a business. He looks for opportunity in volatile markets, carefully analyzes fundamentals in search of information that the general market has missed, and buys cheap options that come into the money with time. A smart options trader seeks to make more money in good trades than he loses in bad trades. He avoids the psychological pit falls of greed and panic and learns to trade with equanimity even when markets are in chaos. Using these basic options trading tools he will buy calls to lock in opportunity and use puts to preserve stock gains.
Long ago, after the stock market crash that ushered in the Great Depression of the 1930’s, investors learned to use the concept of intrinsic value in assessing investment opportunity. This concept, originally applied to stocks, is useful in assessing the prospects of both investing in and trading in other markets...