Option Trading Secrets

A quality of vital importance for sophisticated investors

Preparing to play

Preparing
the will to win is important, but the will to prepare is vital Joe Paterno

Options trading and stock trading, which trades are more dangerous game? Education, education, education Play it on paper Do your home work

The prediction game

Secret prediction methods

It is impossible to forecast the future or stock price However there are some methods that will improve your ability to predict the futures; workable crystal ball
Using technical analysis Using psychological moment analysis Regression back to the mean Remember Murphys law
If the possibility exists of several things going wrong, the one that will go wrong is the one that will do the most damage Phc bt trng lai, Ha V n ch

Vix CBOE Chart

Tracking the charts Very powerful tool

Use the law of supply and demand Option is a heavy leveraging tool

The options buyers secret weapon Shock and Awe

Murphys law again When youre buying option the only thing you bet against is Surprise Volatility The Bell curve theory V.S The Chaos Theory Stock is the only instrument offering the greatest potential for surprise movements

The secret advantages of option writing

You can enter the trades where you have a very high probability of winning no matter what the market does You are able to have quick profits all the time Two factors you must pay attention to:
Time Distance

Remember : get out of the hot seat!

Strategic Defense 36th stratagem If everything else fails, Retreat Sun Tzu, The art of War
Use stop loss Cover the options when they lose most of the value

Never be afraid to take a loss

Exit when you feel uncomfortable Exit when the underlying scenario or the trend changes

Naked put Writing can create a win-win Strategy

The 12th Stratagem Take the opportunity to pilfer a goat

You want to make money? You want to buy at the low? You want to own the fundamental stocks? You want to catch the falling knife?

Option Analysis
Here are the factors when entering the trades
What is the fair value of the option? Make sure you buy undervalued and sell overvalued. True cost of hedging is the true value What is the probability of profit if you hold the position until expiration? What is the probability of hitting loss or profit goal during the life? What is the delta?

Option analysis

Spread advantages
The seventh stratagem create something from nothing
A spread is best defined as a combination of buying selling two or more options at the same time usually on the same underlying asset The most difficult part of spreading is learning to design a spread and understanding the risk-reward picture for the spread.

Avoid repair strategies

When you design the spread
Avoid repair strategies Avoid delta neutral strategies

The top secret war room

Tell No one what you are doing, if not you are putting pressure on yourself not to take a loss WHEN YOU SHOULD

Dont try to catch on the falling knife

Dont write a put in the face of a major downtrend

The ultimate power play The secret surrogate

One of the most powerful strategies is used to create a powerful payoff picture
Long term option debit spread

The power of Time The power of Knowing the unknowns The temptation of being right The excellence of Leverage
A powerful weapon in your arsenal

A gold surrogate

A Chaotic Scenario
Buy 1 year gold call option at 2000 costs 105$ Sell 1 year gold call option at 2400 gains 50$ If gold moves beyond 2400 within 12 months, how much $ you earn for one ounce? 400$ over 55$ cost, or over 700% return a year