A Systematic Options Trading Approach
1. Follow these steps to find great stock option trades.
2. Get an early read on the market by viewing the
in the OneOption stock option Scanner. They will identify stocks that will be
up/down right on the open. Identify groups that will be on the move, and
analyze the news to determine the driving market forces for the day. Look at
the prior day's movers to refresh your memory.
3. In the first 30 minutes of trading, review the
in the OneOption Stock Option Scanner. Identify areas of relative
strength/weakness within the market. Form a market opinion for the day and
determine intraday support/resistance levels.
4. Narrow the universe of stocks. The searches have eliminated the
vast majority of stocks using sophisticated programs. You will see stocks that
conform to a particular price pattern, and they are poised to move.
5. Select the stock lists in the
OneOption Stock Option Scanner,
and quickly "flip" through hundreds of charts. Visually identify attractive
candidates. This process is all about pattern recognition and it is explained
in the Tutorials. Understand the concept and gain one of the most powerful option
6. Use the one-month and one-year stock charts to further reduce your
list to a handful of candidates. If the one-week chart looks good, zoom-out and
look at the one-month chart. If that looks good, zoom-out and look at the
one-year stock chart.
7. Review the news. What's driving the stock? Avoid trading "hot"
news. There is too much "noise," and the stock needs to digest the event. By
all means do not initiate a position before earnings are released. Identify
long term guidance revisions up or down by the company. That is valuable trade
8. Look at the financials. Is the company making money? Are the
profit margins improving? Do they have cash so that they can increase dividends
and buybacks? Are they a "pipe dream"? What is the overall state of the
9. If your answers to the above questions warrant it - develop an
option trading game plan. Identify support and resistance levels
and know when you are getting in and out.
10. Form an opinion on the direction, magnitude and duration of the
11. Consider your overall confidence level in the option trade and
"size" your position accordingly. Your market opinion also needs to be factored
in here. If your market opinion is neutral try to balance long and short option
12. Characterize the options quotes in terms of
volatilities and liquidity. Are the options' implied volatilities expensive?
Are the bid/ask spreads wide? Is there any volume or open interest?
13. If appropriate, identify an option trading strategy.
14. Try to carry a balance of bullish and bearish positions where you
are long relative strength and short relative weakness. This portfolio can be
weighted toward a bias but there should always be a mix. This will help reduce