Best Style of Options Trading
There are a number of ways to approach options trading and a number of ways to profit from trading options. One can profit from selling calls on stocks that one owns and one can buy calls to lock in opportunity on a stock that one expects to go up in price. But what is the best style of options trading? The best style of options trading will depend upon the time and resources that you can commit to trading options. Day trading can be profitable but it requires that you have the time and patience to sit at the trade station throughout the day. It commonly requires that technical analysis of stocks is in your skill set. Swing trading may be the best style of options trading for those who watch the markets but do not spend their entire day at the trade station. Position trading may be the best style of options trading for those with the patience to stake out a position and wait for months for their reward.
Day Trading Options
One of the potentially profitable options strategies is to follow stock options throughout the day and scalp profits from recurring fluctuations in the market. If you are accomplished at technical trading and can use tools like candlestick analysis to anticipate short term changes in market sentiment this may be the best style of options trading for you. Prices in options trading rarely move smoothly up and down. Rather the options market progresses with a series of overshoots and corrections throughout the day or even week. Market efficiency eventually brings prices in line with known fundamentals but changes in fundamentals and market psychology commonly bring about market inefficiency and the opportunity to profit in day trading options.
Swing Trading Options
For those with a good knowledge of the options market but not the time or inclination to sit at the trade station all day the best style of options trading may be swing trading. In swing trading options traders can use a short or long options strategy. The issue in swing trading is not whether or not you own the underlying equity and it is not a matter of seeking many small profits throughout the day. Swing trading profits come from correctly anticipating when options prices will move in short bursts and when they will correct. As with day trading technical analysis is important. However, the time frame is such that traders can attend to their trades once or twice a day, set and reset their trading stops, and make a profit within days or a few weeks. This may be the best style of options trading for those who are good at fundamental analysis of stocks as well as skilled at technical analysis.
Position Trading in Options
Position trading is the best style of options trading for those with a very clear view of the market and lots of patience.