Golden Rules of Option Trader

AS OPTION TRADER REMEMBER CERTAIN GOLDEN RULES FOR OPTION TRADING

1. DO NOT HOLD AND SIT TIGHT WITH YOUR OPTION. TRADE EVERY DAY. SAY, YOU HAVE BOUGHT A PUT OPTION AT 100, LETS SAY IT HAS COME TO 90, YOU DON'T HAVE TO WAIT FOR IT TO GO ABOVE 100 TO BOOK PROFIT, YOU SELL YOUR OPTION ON MARKETS INTRADAY FALL AND YOU BUY BACK THE OPTION ON MARKET RISE AND POCKET THE DIFFERENCE OF AT LEAST 10 TO 15. AS FAR AS POSSIBLE AVOID CARRYING OVER OF OPTIONS UNLESS YOU ARE SURE OF THE MARKETS NEXT DAY. IF YOU BOUGHT A CALL OR A PUT AT START OF THE MONTH AT 150, YOU WILL FIND ITS VALUE AT 75 OR LESS BY MIDDLE OF THE MONTH SO IF YOU HAVE NOT TRADED DAILY , HALF OF THE VALUE IS LOST BY MID MONTH.

2. DO NOT EXHAUST ALL YOUR MONEY IN BUYING OPTIONS. ONLY TRADE IN 60% OF MONEY AND ALWAYS HAVE 40% RESERVE FOR OPPORTUNISTIC TRADES.

3.WHETHER MARKET GOES UP OR DOWN OR FLAT, OPTION VALUE WILL REDUCE BY AT LEAST 5 POINTS EVERY DAY, SO TRADING DAILY AT LEAST GIVES YOU BACK THE DAILY 5 POINT AUTOMATIC LOSS DUE TO TIME DECAY. SO WRITING OPTIONS(SELLING FRESH A CALL INSTEAD OF BUYING A PUT AFTER MARKET RISE OR SELLING FRESH A PUT INSTEAD OF BUYING A CALL AFTER MARKET FALLS) HAVE A MUCH BETTER CHANCE OF GAIN THAN BUYING OPTIONS.

4. IF YOUR OPTION VALUE GOES DOWN BY 25% , BOLDLY QUIT THE OPTION. THIS WILL PROTECT YOU FROM SEEING ZERO VALUE FOR YOUR OPTION.THE HABIT OF HOLDING ON TO THE OPTION THINKING THAT IT MAY GAIN AFTER SOME DAYS MAY GIVE YOU ONLY 1 SUCCESS OUT OF 10 ATTEMPTS SO BE BOLD TO QUIT EARLY.(THIS IS THE MOST IMPORTANT POINT IN OPTION TRADING, PEOPLE GENERALLY BOOK BIG LOSS IN OPTIONS WHEN THIS GOLDEN POINT IS NEGLECTED.)

5.THOUGH AVERAGING OF OPTIONS LOOKS VERY ATTRACTIVE, IT IS LIKE SLOW POISON. AVOID AVERAGING AS FAR AS POSSIBLE. ADJUST YOUR MIND TO DO REVERSE TRADE, MEANING IN CASE OF HOLDING 2500 PUT SELL A LOWER OPTION SAY 2400 PUT IN CASE OF FALL IN MARKETS & RISE IN PUT VALUE, OR IN CASE HOLDING 2700CALL, THEN ON MARKET RISE WHEN CALL VALUE RISES SELL HIGHER CALL OF 2800 OR IF HOLDING A PUT, BOLDLY BUY A CALL AGAINST THE OBJECTION OF YOUR MIND.

6. THE ABOVE OPTION RULES ARE TIME TESTED AND MOSTLY FOUND TO BE CORRECT. ALTHOUGH MOST OF THE TIME YOUR ANALYST WILL GUIDE YOU WHEN TO BUY OR SELL BUT YOU ON YOUR OWN ALSO BE RIGID ON THE ABOVE 5 GOLDEN RULES FOR OPTIONS.YOU MAY FAIL ONCE BUT 9 OUT OF 10 TIMES YOU YOU WILL NOT REGRET.

7.THE MOST IMPORTANT THING TO BE KEPT IN MIND IS THAT YOU MUST HAVE YOUR OWN MENTAL MUST QUIT/STOP LEVELS SAY ABOUT 15 POINTS TO AVOID BIGGER LOSS IN CASE THE COMMUNICATION FROM ADVISERS SIDE FAIL DUE TO UNFORESEEN CIRCUMSTANCES