What should be noted in options trading?
$Nasdaq Composite Index (.IXIC.US)$ In February 2021, when the Chinese concept stocks were hot, Baidu rose for three weeks in a row, breaking through the high of 300 yuan. I bought call options at 300 yuan with a strike price ranging from 315 to 400. The market was indeed good at that time, and it later reached a high of 350. However, I did not take profits at the high point, and I was buying call options on the rise when the market was good, so the subsequent premiums were not high. This was because although the stock price rose later, the time value was eroded. I added another position later, hoping for a miracle. This is a mistake that beginners often make at the beginning, and I ended up losing nearly ten thousand dollars.
I think it is most important to pay attention to buying options.
Time value Your options' time value will slowly be eroded as the expiration date approaches. Exercise price I previously bought deep out-of-the-money options when the market was good, which is also a common mistake many beginners make (setting the target price too high). Timing of purchase Buy calls when chasing an uptrend or buy puts when chasing a downtrend. Generally, options prices have a significant premium over the actual value (meaning the options you buy are overpriced). Profit taking and stop loss If you have bought calls when chasing an uptrend or puts when chasing a downtrend, it is best to sell the options when the market aligns with your predicted direction and you have a profit. Making money is always right no matter when you exit. When the market starts to turn in the opposite direction, learn to stop loss and not hold on. Stop the loss in time. Although the stock price may eventually move towards your set target, you must pay attention to the time value of options. Direction Whether to buy calls or puts requires a clear judgment on the stock price and the trend of the large cap. Many beginners like to gamble, but even if they get it right the first time, they may lose everything in the next round. Without a good judgment, the winning rate from gambling will definitely not be high. Position management Currently, my options holdings will not exceed twenty percent. Risk management is always the first rule of investment. With a green hill left, there is no fear of running out of firewood.
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I think it is most important to pay attention to buying options.
Time value Your options' time value will slowly be eroded as the expiration date approaches. Exercise price I previously bought deep out-of-the-money options when the market was good, which is also a common mistake many beginners make (setting the target price too high). Timing of purchase Buy calls when chasing an uptrend or buy puts when chasing a downtrend. Generally, options prices have a significant premium over the actual value (meaning the options you buy are overpriced). Profit taking and stop loss If you have bought calls when chasing an uptrend or puts when chasing a downtrend, it is best to sell the options when the market aligns with your predicted direction and you have a profit. Making money is always right no matter when you exit. When the market starts to turn in the opposite direction, learn to stop loss and not hold on. Stop the loss in time. Although the stock price may eventually move towards your set target, you must pay attention to the time value of options. Direction Whether to buy calls or puts requires a clear judgment on the stock price and the trend of the large cap. Many beginners like to gamble, but even if they get it right the first time, they may lose everything in the next round. Without a good judgment, the winning rate from gambling will definitely not be high. Position management Currently, my options holdings will not exceed twenty percent. Risk management is always the first rule of investment. With a green hill left, there is no fear of running out of firewood.
If you find this useful, please help by giving it a like.
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