Be careful! Options trading is the highest risky trading in the stock market. But don’t worry, here I going to deeply explain why Option Trading is so risky than other types of trading and how you can overcome the bad things while trade on options.
If you are a beginner about options trading, read it first What is options trading and how to understand it easily. Because here we discuss top 7 tips which beginners may not clearly understand, if he/she
doesn’t know about how to trade options.
Top 7 Options Trading Tips for Beginners
All the tips read carefully if you want to make a profitable trade on options trading. These tips are not like general tips, there are my self experienced tips which you can’t read anywhere without paying money like paid membership or buying a course. So, it’s special for you.
1. Choose The Best Option Strike Price.
If you choose the Out-The-Money option to trade, that means you plan to lose your money. On the other side, the price value of In-The-Money options is respectively very high. So, I love to trade At-The-Money options. Most volatile and most profitable.
2. Analyze Main Stock for Entry & Exit
If you going to trade on Nifty Options, must follow the Nifty Index level to analyze the trade like entry and exit. After taking entry, don’t follow the options chart, just open the Nifty candlestick chat to take any decision regarding your next move.
3. Don’t Wait Much More Time For Target Achieve
Do you know the time decay reality of option trading? Beware from it. It’s the most dangerous enemy of profit. Let’s explain how time decay spoils your profit.
Price value of every option going down with respect to time. If the Nifty index price unable to move too much up or down, options prices all are going down due to time decay.
So, after the entry of an option trade, don’t wait too much time to make your target achieve. If you feel Nifty unable to move in your favor, exit from the trade with little profit.
4. Don’t Forget To Trail StopLoss While in Profit
Option Trading is all about timing. Within a few seconds, your profit may turn into a loss. So, my suggestion is when you are running a profitable trade, trailing your StopLoss to little profit so that if any time market suddenly takes a turn in opposite direction, you must have some profit rather than a huge loss.
5. Avoid Holding For The Next Day While Your Trade in Loss
Stocks holding for the next day is fine, but not an option. Nobody knows how the market will open in the next day. So avoid taking such risk.
If today you’re in profit, then exit.
If today you’re in loss, then exit.
Avoid holding the option for the next day. I know, if next day opening in your favor, then you make a huge profit. But, if happened the opposite? Your 90% capital may burn!
I always prefer to exit on the same day, because we can’t analyze the market or take any action at the time between closing and opening. If I hold, the result depends on luck and my luck is not so good.
6. Avoid Trade Daily, Try To Trade Last 3 Days Before Expiry
The price value of options are gradually falling day-by-day and time to time. Before few days of expiry, the price value of options will be very budget-friendly. At that time we can easily afford at the money options which is more profitable. So, I always love to trade on Option last 2-3 days, not daily.
7. Only Trade On Huge Momentum, Otherwise Not
Remember again time decay. If I analyze Nifty will be going high more than 1% today and take a call option then it’s a risky trade. Because, if Nifty not moves in the first half and going up after 2 pm, my StopLoss will be hit before the market moves up.
In that case, my analysis was correct, but I’m in loss.
So, I always trade on Options when the market in high momentum. Most of the time I use RSI Best Settings to find out the momentum.