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 Pre-Open searches 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 Movers searches 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 trading skills

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 information.

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 business?

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 expected move.

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 trading positions.

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 "market risk".