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A Simple Options Trading System For New Traders

For most new traders, finding an options trading system that works for them can be confusing. Many of us are familiar with buying or selling stocks, but when it comes to option trading strategies, there are so many more variables that need to be considered.

A simple but potentially very profitable options trading system is to follow the trend of a stock, and buy calls if the trend is up, or puts if the trend is down. But just like anything in today’s economy, nothing can be predicted with perfect accuracy. When you decide to start options trading, it’s important to learn all the strategies and become familiar with them before you risk your money in the market.

Options Trading System – The Long Call

A long call is the basis of many option trading strategies. Buying a call option gives you the right, but are not obligated, to purchase 100 shares of stock from the seller. You have this right only for specified length of time, and you pay a premium for the rights to own the option.

The longer the time to expiry, the higher the premium you you pay. But for new traders, buying a call as part of their options trading system is a relatively low risk strategy that offers the potential for leveraged profits, with the premium you paid the most you can lose.

Another Call Option Strategy – Selling Instead Of Buying

Since over 90% of bought options expire worthless, another strategy used by professional options traders is SELLING call options in a downtrend. You can either sell naked (unhedged) or covered (using a spread).

The ideal time to use this type of options trading system is as near as possible to the top of counter-trend rallies. You’ll get the biggest premiums there from bullish traders expecting the rally to continue, and the fastest price decay as the downtrend resumes, so you can buy back the position and lock in your profits. This is a VERY good strategy if you use it in a down-trending market.

Options Trading System – The Short Or Written Call

Writing call option involves selling right to buy 100 shares of stock from you at a specified price within a specified time frame. However, selling a call option does not obligate the buyer to buy the shares from you. When deciding to use this option is best to use a hedging strategy. A good example of the of a hedged strategy is the covered call.

The covered call strategy is where you to write a call option against a parcel of shares you own. You receive a premium when you sell call options against the stock, and if the stock price rises through the strike price, you are obligated to sell your shares to the option buyer. Writing covered call options is a good strategy for generating monthly income. When done correctly, this can be a very profitable options trading system that is easy to learn and implement.

Options Trading System – The Long Put

Buying a put option is the opposite of buying a call option. Owning a long put option gives you the right, but not the obligation, to sell one hundred shares of a security options to an investor at a specified price, within a certain time period. Buying puts and calls are a simple way to benefit from the movement of an underlying security, and form part of the options trading system most traders use.

The biggest difference between a call option and put option is that with a put option you have a limited profit potential, since a stock can only go down to zero. You should only use the long put option when you believe the stock price is going to go down before the contract expires.

Another Put Option Strategy – Selling Instead Of Buying

As I said earlier, over 90% of bought options expire worthless. Knowing this, professional options traders also sell PUT options in persistent UP-trends.

The ideal time to use this strategy is as near as possible to the bottom of counter-trend pull-back. You’ll get the biggest premiums from bearish traders expecting the downtrend to continue, and the fastest price decay as the rally resumes. This is a VERY good strategy if you use it during market rallies.

There are literally dozens of strategies you can take advantage of, and over time you should make an effort to learn and understand them so you can develop a profitable options trading system of your own.

How To Use Technical Analysis As Part Of Your Options Trading System

Options Trading System Technical Analysis
Options Trading System & Technical Analysis

If you are using an options trading system that doesn’t incorporate at least some basic technical analysis, you could be missing out on some very reliable signals for trade entries and exits. Understanding TA can also take a lot of the guess work out of trading the Options market.

It is very hard to argue which way the trend is heading if the index is making a series of higher tops and bottoms on our chart. Positioning yourself with puts and calls during a trend is like getting carried up an escalator – all you are doing is going with the flow.

Options Trading System – TA + Trend + Options = Profits

But if your options trading system ignores technical analysis, and you are fighting the trend, it makes it harder to be consistently profitable, regardless of whether you’re a buyer or a writer of options.

Following a trend and understanding support and resistance can also allow you to enter positions in additional contracts as the price rises or falls. This lets you compound your profits with less risk than if you ignore technical analysis completely. Always remember – the trend is your friend, so that’s the way you want to trade.

So does an options trading system that incorporates TA work all the time? Of course not, nothing does. You are going to lose on some trades because we can never know for sure what the market is going to do. Technical analysis points us towards probabilities and all we can do is make our decisions based on those.

The beauty of options is that we can always roll out, up or down as required, so if we get the trend wrong, we can adjust the strategy to suit the market. Compare that to a horse race, where once the race has started, you’re stuck with your decision.

Options Trading System – The Best Option For Fast Results

So what options do you have if you’d like to trade options, but you’re not confident in either your technical analysis or trading ability? A great way to cut down the learning curve and become a profitable options trader is to ‘borrow’ a successful trader’s system and use it for yourself. That means you could start trading profitably almost right away.

For many traders, it makes sense to let somebody else spend the hundreds of hours and thousands of dollars it takes to learn options an options trading system that makes money. Then all they have to do is follow the trades as they are announced and get on board.

How To Choose An Options Trading System

Options Trading System
Find A Proven Options Trading System

Are you ever worried you could lose money on following a bad options trading system? There is a simple way to eliminate this feeling, and it’s with knowledge. But not just any kind of knowledge, you need the kind that comes with years of experience getting in and doing it.

Most beginning options traders lose a bunch of money and then give up. It’s usually because they don’t really know what they’re doing. They lose money, then they get disappointed, and finally quit entirely thinking that options are just too risky for them.

Options Trading System – Are Options Really That Risky?

Well, there is a bit of truth in the theory that trading options can be risky. But only when you don’t have a proven options trading system, and the knowledge you need to make sound decisions about the money you’re investing.

So is there an end to the beginner’s cycle of “giving it a try”… losing your money… and then quitting altogether?

Yes there is.

There’s a simple road map to get you started with a successful options trading system.

Would you walk through the Amazon jungle without a well trained guide who knew the terrain and where the most danger was? Would you ride a camel through the Sahara desert without a local guide to help you find the watering holes?

Probably not. And it would most likely be suicide if you tried. But that’s exactly what happens for most options traders getting into the market for the first time. They’re going out on their own, into an unknown market full of professionals who trade for a living, without any kind of options trading system or guide. It’s no wonder most of them get slaughtered.

Options Trading System – You Don’t Need To Be Alone?

So it’s probably a good idea not o make the same mistake most of these new traders do. You don’t have to. Your best bet is to get yourself a guide who knows what’s going on so you don’t have to get lost in the crowd because you don’t have the knowledge or experience you need. By doing that, you start to develop a profitable options trading system and be one of the few people who make it in this business.

If you really want to profit from options trading and get past the losses, frustration, and failure that other traders experience, then…

Click here to learn more about a proven options trading system

Remember, practice DOES NOT make perfect. Practice makes it permanent – only PERFECT practice makes it perfect. A good options trading system will help you to practice perfectly, while making money at the same time.