Articles

Trading one week prior to expiration

by Michael Thomsett

For anyone wanting to maximize timing for short options, trading on Thursday or Friday for the following week’s expirations (7 or 8 days away) is a good timing strategy. According to Jeff Augen in his book, “Trading Options at Expiration” those options expiring in one week will lose (on average) 34% of remaining time value… [READ MORE]

Options: 5 Ways To Exploit Price Changes 

by Michael Thomsett

So many traders start out with a sensible plan, only to abandon it because of the way the markets move. This abandonment of a smart plan invariably leads to potentially large net losses. Here are five thoughts about how underlying price changes can be timed and exploited: Pick long calls or short puts after the… [READ MORE]

Trendlines and Channels – Recognizing And Using These Indicators 

by Michael Thomsett

Reversals show up in many forms – but in the moment, how do you know when a trend is about to lose momentum and turn in the opposite direction? There are no guarantees that an apparent turn in direction is going to be permanent. However, one relatively simple technical indicator helps you to spot the… [READ MORE]

Options: Flaws In The Put Selling Strategy 

by Michael Thomsett

Selling puts is comparable to covered calls in terms of market risk, but with some notable differences. Rolling flexibility. The short put can be rolled to any later-expiring strike without consequence. In comparison, rolling a covered call has to take into account the potential of exercise and resulting capital loss on the underlying. Dividends Stock ownership includes… [READ MORE]

Uncovered Calls – 10 Suggestions To Keep In Mind 

by Michael Thomsett

The naked call is probably the highest-risk option strategy of all, right? Not necessarily. Most options traders associate risk with specific strategies. But you might want to question this assumption, based on a different definition of risks in trading: risk is not only determined by the attributes of a strategy, but more so by when and… [READ MORE]

Options: Trading Short Close To Expiration

by Michael Thomsett

The great dilemma for options traders is well known: Options close to expiration cost less but expire soon. Options with more time to develop profitably cost more. How do you balance these conflicting attributes? Trading short options very close to expiration might be the most powerful form of leverage you can use. Even though expiration… [READ MORE]

Continuation candlesticks for continued trends

by Michael Thomsett

  One of the most difficult chart-reading skills is determining whether a directional change is a reversal or a retracement. During a dynamic trend, the distinction is a key one to recognizing when to exit, or when to hold on. As a general rule, retracement – a pause in the prevailing trend during which price… [READ MORE]

The Covered Call, A “Gateway” Strategy 

by Michael Thomsett

Covered calls are not only low-risk; they also open the door to many other conservative strategies. The “gateway” strategy introduces a world of low-risk ideas for traders and investors. Benefits of the covered call include income generation without excessive market risk. The covered call discounts the basis in stock, thus reducing market risk. There are… [READ MORE]

Forward Rolls – Exercise Avoidance With 4 Hidden Dangers 

by Michael Thomsett

Covered call writers can avoid exercise by closing the call and replacing it with a later-expiring one. But some pitfalls may also occur along the way. The forward roll works because a later-expiring contract is always worth more, due to higher time value. You can always change out the short position profitably. You can roll… [READ MORE]

5 Ideas For Swing Trading With Options

by Dorothy Klocek

Most swing traders use long stock for expected upswings; and either short stock for downswings or just stay out because shorting is high-risk and expensive. Two things are problematical with this idea. First, the risk is real, and second you miss half of the swing opportunities by avoiding going short. There is a solution, and… [READ MORE]

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