With the market acting in a volatile manner as of late, and with many traders and investors expecting a decline sooner than later, it is extra important to consider your outlook for the market when choosing option strategies.
Making stock option picks with profit potentials, whether the market is up or down, depends on diligent market research and a thorough understanding of stock option fundamentals. In my class, I always talk about how essential it is for traders to take into consideration the overall market sentiment when choosing strategies.
Finding profitable trading opportunities can be tough no matter what the market is doing. But you don’t have to do all the work yourself. Some professional trader services, such as?Market Taker?s Group Coaching, make stock option picks that they share with other like-minded traders, saving individual traders time and effort.
But whether you do your own research or rely on a seasoned professional for your option picks, its essential to understand some basic facts about options trading.
Making stock option picks based on individual stock assessment requires an understanding of specific fundamental parameters. Traders may learn how to read an annual report and 10K stockholders report for income statements, past earnings, sales, assets, new products, and overall industry trends.
Stock option picks based on technical analysis is essential for success and requires the investor to examine the historical price movement and sometimes volume in order to determine price patterns and forecast future price movements. The single most important technical analysis technique is the simplest: Support and resistance lines. I use them all the time and it is the most important component of my trading. Specifically, horizontal support and resistance lines at the same price level in two or more multiple time frames.
Option strategy picks based on broad market analysis examines overall activity based on performance indices. Is the overall market bullish (moving up), bearish (moving down) or neutral (moving sideways)? Ask yourself if you prefer to be on the side of the overall market? Without a doubt, the answer is probably a resounding yes! The broad market will affect individual equities and don’t forget to take into account implied volatility and possible changes.
Stock option picks based on psychological market indicators attempts to interpret the facts and gauge whether a change from bullish to bearish (or vice versa) is on the horizon. Successful options traders are frequently contrarians who buy puts in a bullish market and purchase calls in a bearish market — against convention.
The bottom line is that a lot goes into picking successful option strategies. Either doing it on your own or using the help of a professional with experience and ?putting it all together? can make the process easier and can result in better trade ideas with greater profit potential.