Directional trading with options
In a series of articles, I will share with you with of the methods I use to generate monthly returns for my clients. I will cover directional, non-directional and trend-following methods. Most traders are aware of the basic strategy of buying a call if you think a stock is going up, or buying a put if you think a stock is going down. This is known as directional trading. It relies on with details about the stock, like when earnings are coming out or if the company is going to make a presentation. At the onset of the trade, you must be correct on the direction of the stock by a specific time period and what price it will strike to. You have to be correct on stock volatility and overall market volatility to make the option price go up or down. There are quite a few decisions to make before putting on a directional risk trade. The more decisions you have to make, the more chances you have to make an error, so the directional decisions you can take out of the equation, the better the odds of a profitable trade. This is called non-directional trading and is meant to profit from option premium decay over time. My favorite vehicle, with the highest percentage of successful trades, comes from the SPX Credit Ladder. I will be clear here in stating that there is no magic method in trading and all money put into the market is with speculation. By adhering to the rules, you can significantly improve your odds of creating and maintaining a steady income stream. I have a variety of SPX credit spreads currently open. For information on my portfolio management services, please contact me at Suz investsps. Portfolio Manager Jim Cramer and the AAP Team reveal their investment tactics while giving advanced notice before every trade. All of Real Moneytrading 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and options and technical analysis. Trading SU10 Team uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar. With Top Stocks, Helene Meisler uses short and long-term indicators to pinpoint imminent breakouts in stocks. Your browser is not supported. Please upgrade to one of the following browsers: By Suz Smith Follow. Let's start with the advantages of this method of trading: Your entries are structured the same each time. Your focus is not on being right or wrong, it is on managing risk. Your trade structure is significantly out of the money, so there is a low directional exposure. A very strong move in the market may cause you to make an adjustment, but you do not worry about day-to-day fluctuations. You do not have to worry about earnings risks, you focus on the same asset over and over. Directional major risk would be a black swan event where the market gaps up or down several hundred points in the overnight when we are unable to respond. The credit spreads do well in a choppy or range-bound market as they are high probability trades and you seldom stop out. The credit spreads are not time-consuming to options or maintain, and are a great option for people who work full-time jobs. Look for the highs and lows and where it is currently trading. Look at the moving average convergence divergence MACD and Stochastic to see if we are getting ready for a trend change. Take where we are trading from, currently This gives you your "safe zone". Make sure the point range is underneath major moving averages 20 day and 50 day and outside the Bollinger bands. For a bear call spread, make sure you are not selling at a gap area. Look at the options chains. Start with the weekly chains and see how much premium you can get for a 25 point spread. Go as low or high for bear call spreads as you can while still maintaining a decent premium capture. Get as much premium as you can while staying in the "safe zone". Plan on closing the spread for a dime. Exploit this strategy when major market moves happen to the upside or downside. If the market has a serious downside, I will put on the strategy in larger size. I prefer the bull put spread vs. Think of it as: May week 1, May week 2, close May week 1 and put on May week 3 etc. Do not overly commit your portfolio to this strategy -- the same risk tolerances should apply as to all other trades. Be forward looking when starting out; you may have to start with a May monthly to capture the premium. Try to sell high volatility. This means we should be favoring bear call spreads over bull put spreads, as the premiums will be higher for the calls. You can sell trading bull put spreads and bear call spreads, and that is a condor. I'd recommend trying one side first and get comfortable with the strategy and then build upon your knowledge base from there. Get an email alert each time I write an article for Real Money. More From Suz Smith Market Is Unexciting Yet Intimidating Trading For Income, Part 3: Premium Capture Trading for Income, Part 2: REAL MONEY'S Options IDEAS. Select the service that's right for you! Action Alerts PLUS Portfolio Manager Jim Cramer and the AAP Team reveal their investment tactics while giving advanced notice before every trade. Real Money Pro All of Real Moneyplus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis. Model portfolio Trade alerts Recommendations for over 4, stocks Unlimited research reports on your favorite stocks. Top Stocks With Top Stocks, Helene Meisler uses short and long-term indicators to pinpoint imminent breakouts in stocks. Daily trading ideas and technical analysis Daily market commentary and analysis. Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data provided by Interactive Data. Company fundamental data provided by Morningstar. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by Interactive Data Managed Solutions. TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this directional does not update. The data does update after 90 days if no rating change occurs within that time period. IDC calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month. About Privacy Policy Terms of Use Careers Customer Service Advertise With Us.
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Harriet Ann Jacobs, also an escaped slave, refers to Turner in her 1861 narrative, Incidents in the Life of a Slave Girl.
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