Options is one of the major strategies implemented by traders while trading. An option strategy is important for the beginners to learn as it is a fast moving trade pattern.
It is also an alternative mode of trading which should be known to all investors who are trying to earn a premium on their savings. Options trading works even in cases when the market conditions are not in favour of the investor so under the circumstances the investor allows the option to expire so that his losses are not more than the premium he would have earned. However if the market conditions are in the favour of the investor he makes the use of the option strategy to make profits.
Short-term trading strategies buying calls and puts options
In the option strategy there is a call option and a put option for the investor. In the call option an investor buys stocks at a pre-defined price or the strike price before the call option expires. In the put option the buyer sells the stock when the stock prices reaches a certain price as determined by the trader. Option trading is a little complex for the new investors, one of the reasons they take a back seat while implementing these strategies. Looking at the brighter side of the strategy is that it helps a new entrant in the market to protect the downside of making an investment.
Looking for good stocks for investment using proprietary test trading strategies
There is another way used by many investors to find the right and the bright stock for investment. It is called back testing. A particular trading strategy is used and tested on a set of historical data and is checked for its performance. Most of the trading platforms allow and support back testing. In this form of investment the winning stocks can be identified without actually taking the risk of investment. Many times programmers are hired for the purpose of back testing.
Identifying profitable market environments for investment
Any investment needs to be made keeping in mind the need and aim of investment for the investor. He would need to analyse his risk appetite and then look for a greener zone of investment. There are few pointers which need to be kept in mind while looking for a good investment option. The first is to look for stocks with strong financials and the market shows a good projected profitability for the company. Investing in such stocks makes sense. The second is to check on the intrinsic value of the stock and understand if the stock value is inflated or not by checking on the financials of the company.
Timing to enter and exit market using option positions
The call and the put option has to be physically entered by the investor. The options available to the trader will be buy to open or sell to open options. In the exit position the investor needs to fill either buy to close or sell to close position without manually filling the order. The question which each trader faces is when to enter and exit the market. Usually a trader exits the market after a failed breakout either booking profit or losses in the transaction. The trader can re-enter the market when the stock prices exceed the high of the breakout or the low of the breakdown. The re-entry in the market by a trader is when the market shows a sign of recovery and the short term failure is over and the trend continues.
Ideal setups and positions while trading
An ideal condition for a trader in the market is when he has multiple choices of option trading available to him in which he can choose multiple strikes and expiration dates for the stocks in which he wants to trade. Every trader has an underlying strategy in mind which he follows. The trader needs to investigate and find the option which suits his trading strategy. This will maximise the success rate of the trader. The investment objective, the volatility of the stock and the amount of risk the trader wants to take needs to be kept in mind.
Protecting capital in both bull and bear market and deciding when not to trade
To survive in a bear market the investor should know where to invest and when not to invest. It is intelligent on part of the investor to sometimes hold back the investment spree when the market looks very turbulent and it is hard to estimate which way the wind will blow. In a bearish market the stocks which are related to staple consumption by consumers are good stocks to go with and trade. For risk aversion investment in Government bonds is another good measure which provides fixed return and is safe. A put option is the best strategy in a bearish market to restrict losses. In a bullish market it is better to stay put with equity shares and keep churning the portfolio. It is said that options and trading can help in managing the risk in a bulls market. The out option protects the downside of risk.
Finding important buy and sell signals
Trend trading is common among traders these days. This strategy of trading the investor tries to capture the movement of stocks in a certain direction. There are many popular tools used by the traders since the olden ages of trading which shows the current trend of movement of stocks. With the help of moving averages price data it is quick to spot short term momentum which helps the traders in making a decision.
To understand the different trading techniques which a beginner should learn while doing option trading. It needs to be downloaded in a systematic manner to a new investor and should be systematically put into practice under the guidance of a learned investor or guru. To learn more about the different techniques and strategy of option trading it is important to learn the art well. Share market profile is an institute for the beginners to learn the art of trading in a step wise manner. To know more about the institute log on the website www.sharemarketprofile.com