Logo
April 13, 2022
www.tradewins.com
Other Exciting News

Using Diagonal Put Spreads to Quantify Risk and Aim to Profit on Bullish Stock Moves

Tuesday, April 19th at 3:30PM CT

Join AGT with guest speaker Chris Verhaegh for a FREE educational trading webinar covering options trading.

Chris will detail how to set up a diagonal put spread and discuss how these trades play out over time. He will also explore the risks and effects of time value decay in options.

Register Here Now…
Space is Limited

Attendees will receive a free giveaway courtesy of Chris!

Click Here: Save Your Seat Today
Recent Articles
Some of the Safest Places to Invest Now by Ian Cooper
Top That Trade Weekly Update by Alan Knuckman
TradeWins Author Team

 

 

Tomorrow, you could begin doubling your account every single month starting with one letter.

The letter will come from a 20-year trading professional named Ian Cooper. He says, “In 2022, following my trades you would be doubling even tripling your account some months. Let me show you how.”

He will show you exactly what to do... and he’ll give you the blueprint for just $1.

Get Daily
Trade Alert Now
About TradeWins
Inside Trading Newsletter
Webinars
Videos
Trading Strategy
Options
Futures
Forex
Day Trading
Subscription Services
E-Books
Customer Satisfaction Survey 2020

Steps That Can Lead to Successful Options Trading
by Andy Chambers

Identify the Long-Term Trend

The first step is to trade with the trend. Always start your analysis of a market by looking at a monthly chart. By looking at a monthly chart, you get a chance to see the ‘big picture’. Start by applying a 40-month exponential moving average to the chart. When you look at the monthly chart, try to get a feel for what the overall trend is. Pay close attention to the most recent few months (let’s say the last 5 or 6). If the moving average has been moving higher, the trend is up. If it’s falling, the trend is down.

Next, take a look at the price pattern, particularly the major price swings. If the recent pattern has been higher highs and higher lows it’s an indication that the longer-term trend is up. A pattern of lower highs and lower lows would indicate the trend is down. There are many ways to define the trend. The main thing is that the trend should be clearly visible to the naked eye. If the trend isn’t clear on the monthly chart, you may not want to trade this market.

Compare the Shorter-Term Trend to Seasonal Charts

If your analysis of the monthly chart indicates that the market you’re looking at is trending (either up or down), take a look at a weekly chart. Compare the weekly chart to seasonality charts. Try and focus on markets whose current trend seems to be following the seasonal trend. Don’t worry if they don’t match perfectly, they seldom will. The seasonal chart should be used as a guide. If the current chart seems to be following the seasonal chart of the positive years, then the short-term trend in the market you’re analyzing would be up. Similarly, if the current chart seems to be following the seasonal chart of the negative years, then short-term trend would be down.

Look for an Opportunity to Trade in the Direction of the Trend

Once you’ve identified the long-term and short-term trends, look for a chance to enter a trade in the direction of the trend. If your analysis tells you that the long-term trend is up and that the current pattern of prices seems to match the positive seasonal chart, look at the daily chart for an indication that traders are continuing to ‘like this market’. If the price trend has been up and the market is currently undergoing a mild pull back, and today the market traded lower before reversing to finish the day higher, it may be an indication that the market is still in demand.

On a daily chart, pay close attention to bars on the chart that are longer from top to bottom than most of the other bars on the chart. These long price bars are an indication that the bulls and the bears are participating heavily in this market. On such days, if the close is near the high of the day, the bulls are in control. If the close is near the low, the bears are in control.

Choose an Option that will Allow you to Profit if your Analysis is Correct

When the overall trend is up and the market that you’re analyzing seems to be following the positive seasonal pattern, look for a bullish indication from your daily chart. Once you get that confirmation, get a current list of call options for that particular market. Try and focus on call options whose expiration dates are around 45 to 90 days away. If you choose an option that has less than 45 days until expiration, you may not be giving your trade enough time to work and you’ll be fighting time decay in the value of your option.

Next, decide on a strike price. If you happen to have quite a large trading account, you should focus on options that are ‘in-the-money’. The value of an in-the-money option will move very similar to the value of the underlying futures contract. The advantage of the option vs. the futures contract is that it usually requires less margin and your loss is limited to the cost of the option. An in-the-money call option is one whose strike price is below the current price of the futures contract.

If your account is smaller, you can purchase ‘at-the-money’ or slightly ‘out-of-the-money’ options. An at-the-money option is one whose strike price is very close to the current price of the futures contract. Options whose strike prices are farther away from the current price of the futures contract are referred to as out-of-the-money options. An out-of-the-money call option is one whose strike price is above the current price of the futures contract.

Be very careful not to purchase options that are too far out-of-the-money. These options can be very cheap, but they’re usually cheap on purpose because their chances of producing any profits are very slim. It’s too much like throwing your money away. Give yourself a fighting chance by focusing on options that are either in-the-money, at-the-money or possibly slightly out-of-the-money.

Managing Your Open Positions

It’s very important, each day that you’re in an options trade, to do your analysis. As you’re analyzing other markets for the possibility of a new trade, make sure that you do your analysis on the market that you’re trading. It may be difficult, but try not to be biased. If your analysis happens to indicate that the market may be in the process of changing trends, consider closing your position.

Protective Stops

When you’re trading futures contracts, protective stops are mandatory. If you purchase a futures contract and you don’t have an active order in the market that will close out your position with a reasonable loss, you’re playing Russian Roulette. You may get by with it on some of your trades, but sooner or later, you’ll get clobbered.

But be careful about the use of stops when trading options. We happen to think that it’s a bad idea to have an active order in the market to close out an option position. Instead, you should focus your attention on the underlying asset. If you happen to own a put option in Oil futures and your analysis of the monthly and weekly trends indicate that the trend may be reversing, you should close out your put option. Or, if your analysis tells you that the current trend seems to be flat, why stay with the trade?

 
www.tradewins.com
© Copyright 2022 TradeWins.com. All rights reserved.
TradeWins Publishing, 22C New Leicester Hwy, #117, Asheville, NC 28806
Email: support@iss-trading.com   |   Phone: 888-233-1431   |   Fax: 888-258-4938

PLEASE READ: Auto-trading, or any broker or advisor-directed type of trading, is not supported or endorsed by TradeWins. For additional information on auto-trading, you may visit the SEC’s website: All About Auto-Trading, TradeWins does not recommend or refer subscribers to broker-dealers. You should perform your own due diligence with respect to satisfactory broker-dealers and whether to open a brokerage account. You should always consult with your own professional advisers regarding equities and options on equities trading.

1) The information provided by the newsletters, trading, training and educational products related to various markets (collectively referred to as the “Services”) is not customized or personalized to any particular risk profile or tolerance. Nor is the information published by TradeWins Publishing (“TradeWins”) a customized or personalized recommendation to buy, sell, hold, or invest in particular financial products. The Services are intended to supplement your own research and analysis.

2) TradeWins’ Services are not a solicitation or offer to buy or sell any financial products, and the Services are not intended to provide money management advice or services.

3) Past performance is not necessarily indicative of future results. Trading and investing involve substantial risk. Trading on margin carries a high level of risk, and may not be suitable for all investors. Other than the refund policy detailed elsewhere, TradeWins does not make any guarantee or other promise as to any results that may be obtained from using the Services. No person subscribing for the Services (“Subscriber”) should make any investment decision without first consulting his or her own personal financial adviser, broker or consultant. TradeWins disclaims any and all liability in the event anything contained in the Services proves to be inaccurate, incomplete or unreliable, or results in any investment or other loss by a Subscriber.

4) You should trade or invest only “risk capital” – money you can afford to lose. Trading stocks and stock options involves high risk and you can lose the entire principal amount invested or more.

5) All investments carry risk and all trading decisions made by a person remain the responsibility of that person. There is no guarantee that systems, indicators, or trading signals will result in profits or that they will not produce losses. Subscribers should fully understand all risks associated with any kind of trading or investing before engaging in such activities.

6) Some profit examples are based on hypothetical or simulated trading. This means the trades are not actual trades and instead are hypothetical trades based on real market prices at the time the recommendation is disseminated. No actual money is invested, nor are any trades executed. Hypothetical or simulated performance is not necessarily indicative of future results. Hypothetical performance results have many inherent limitations, some of which are described below. Also, the hypothetical results do not include the costs of subscriptions, commissions, or other fees. Because the trades underlying these examples have not actually been executed, the results may understate or overstate the impact of certain market factors, such as lack of liquidity. Simulated trading services in general are also designed with the benefit of hindsight, which may not be relevant to actual trading. In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk of actual trading. TradeWins makes no representations or warranties that any account will or is likely to achieve profits similar to those shown.

7) No representation is being made that you will achieve profits or the same results as any person providing testimonial. No representation is being made that any person providing a testimonial is likely to continue to experience profitable trading after the date on which the testimonial was provided, and in fact the person providing the testimonial may have experienced losses.

8) The author experiences are not typical. The author is an experienced investor and your results will vary depending on risk tolerance, amount of risk capital utilized, size of trading position and other factors. Certain Subscribers may modify the author methods, or modify or ignore the rules or risk parameters, and any such actions are taken entirely at the Subscriber’s own election and for the Subscriber’s own risk.