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Strategies & Market Trends : Befriend the Trend Trading -- Ignore unavailable to you. Want to Upgrade?

To: Dr. Stoxx who wrote (4782)	9/16/1999 3:44:00 PM
From: Ken Adams	Read Replies (1) \| Respond to of 39683

TC, I can't really say I've read much about option trading that was helpful. There are any number of books about options, but they focus on spreads, straddles, writing puts and calls, etc. Strategies. In the late 70's Schwab opened an office here in Denver. They had two broker/traders working in it. I was in the midst of taking two years off work and spent a lot of time at the office. Both of them were very knowledgeable on options trading and got me started. Needless to say, I lost many $$$$ early on. I learned, for me, the best choice was usually the second month out and the closest to being at, but just out, of the money. That was and still would be the way I would trade options on equities. Options on indices took more learning. I don't mean to sound like I have it figured out, because my trading reminds me a couple times a month that I still do totally dumb things. But, the index options move faster. They are very liquid (the right ones, I mean). Because of this, I go farther out of the money, mainly to get lower premiums and be able to get more contracts for less dough. The risk is the same if your DD is wrong, no matter what the premium is. I still like to work in the expiration that has more than 8-10 days left, out to about 6 weeks. My best OEX trades have come with about 15 days left. I have never (recently) held a position more than 2 days. I would, given the right chart, but I haven't. Recently, I bot 4 contracts one day, the move was good, but a little slow. The next day I bot 5 more of the same strike. The market then started a fast move and I dumped all 9 near the close that same day for nearly 90% gain. A major rule I have for myself is to limit the risk to no more than $1500 per shot. When these things turn on you, they can strip you naked before you can hit the sell key. I've also learned to take profits early (same with losses). You will quickly learn (as I failed to early on) that option profits never return. I have a friend who says "If they want to pay you, take it!". Terrific advice. More later, if you're still interested. <g> Ken P.S. I can't say I'm right about this, but I think you can forget about "fair value" and option pricing models. That's too fundamental for my style. I'm not marrying these things, I'm just renting them for a few hours.