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Strategies & Market Trends : Canadian Options
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To: Dan Courtemanche who wrote (842)3/1/1998 4:36:00 PM
From: Dave.S  Read Replies (1) of 1598
 
Don:

I want to add to my remarks from post#844. I hope that I didn't try to discourage you from trying to become a professional options trader.

You can do quite well as a buyer of options but there are some basic rules that you have to follow:

1) Don't trade all the time. Wait for optimal conditions before buying premium.

2) Never buy when the volatility has spiked for some reason. Chances are the vol will return to normal levels and you'll lose even if the stock price has gone your way. This usually means don't buy just before an event which will cause a discrete movement in the stock price such as an earnings report. Wait until the vol is lowered. High vol on the calls, for example, is caused by clients buying from the specialist who has to raise the vol (thus raising the prices) due to the greater demand.

3) If you want to buy a call (for example) on an uptrending stock, wait for a dip in the stock price and buy then. Do not chase the price upwards. Dips are caused by profit taking and are usually a good entry point. This takes a bit of nerve but has a high probability of success.

There you are, a simple formula for success in buying options.

The biggest problem as a pro is staying out of trouble. That is, waiting for this correct entry point and avoiding making mistakes because of boredom. The best traders only trade infrequently but recognize the opportunities. I, for example, have found that my trading frequency has decreased over the last 4 years.

Dave
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