Option Trading Tips

In this four part Option Trading Tips series, I share my best advice for those new or relatively new to option trading.

Options hold great promise - I can't imagine investing (yes, investing) without them - but they can also be dangerous when not handled properly.

In this series of articles, I lay out what I consider to bemy four best pieces of advice for those who are interested in using options conservatively to generate solid trading returns or to significantly boost their long term investments.

The links to the full articles are below:

Option Trading Tip #1 - Consider Being a Net Seller of Options

There are some significant structural advantages built in to strategies that involve selling or writing options.You basically have two choices when it comes to option trading - you can be a net buyer of options or a net seller of options.

The primary advantage is that when you sell options, you get paid for the passage of time. That doesn't guarantee profitable trades, of courses, but it's a good first step.

And not all credit or net credit strategies are created equal - but I attribute much of my own success to the specific application of option selling stragies that pay me when I'm "right" and enable me to renegotiate when I'm "wrong."

Option Trading Tip #2 - Avoid Chasing Option Premium

When selling options, the lure of choosing trades based on high premium levels (which you receive when writing or selling an option) can quickly mitigate whatever structural advantage the trade might otherwise have.

Quality First, Premium Second. That may sound simplistic, but it's an easy mantra to stray from. And you stray from it at your own peril.

Option Trading Tip #3 - Be Wary of Monthly Option Income

Selling options for current income is a perfectly respectable use of smart option strategies.

But where you can get yourself into trouble is when you strive for a consistent and reliable amount of income each and every month.

In my experience, high yield income and paycheck consistency of those returns don't always get along. Think twice before you place a quota of monthly expectations on your trades.

If you do plan to withdraw a set amount from your brokerage account each month for living expenses, I would recommmend that the amount you pick is well below the "average" monthly return your trades typically produce.

Otherwise, you're going to be tempted to lower your quality standards and elevate your risk in order to reach those goals at certain times.

Option Trading Tip #4 - Keep an Option Trading Journal

The best advice usually comes across as boring. But there's a reason why it's called the best advice.

And I can tell you from personal experience, when I began chronicling in detail my own trades, that's when my own trading results went to the next level.

When you keep a personal trading journal, you learn from each trade, and you begin to gain insights you otherwise wouldn't have. In short, you become a better trader because you become a "deeper" trader.

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