Option trading Strategy
We usually trade in options based on the breakouts or pattern formation in the charts . Most of the option traders have limited funds and need to manage multiple trades . Basically options are available to hedge your long or short positions in futures . But the investment would be very high in futures . So how best we can handle options trading to make profits . Am listing out some of the points based on my experience of options trading . Probably it would help others in minimising their loss and increasing profits .
1. Whenever a stock gives breakout on the previous day , it would rally to the next level which is available in the chart . But insiders or FIIs or DIISs whoever is the interested party (Based on the info they have ) would not go after the stock the next day or in the coming days immediately .
2. Consolidation would happen , they will sell their calls to take some profits on it . Since they know that the event (probably bonus/split/acquisition/new product launch etc) will happen in the coming days .
3. If the news is very hot and is likely to happen immediately the upward journey in the stock will continue which rarely happens . There would be consolidation more downs before the next upward journey .
4. If we buy options based on the breakout or chart pattern there are very good chances that we will get trapped as it would come down and as time elapses the price would keep coming down .
5. So how best to handle this situation . The best thing to do is buy a put option next day as the stock price moves up . Eventually the price will come down . Wait patiently n the stock will definitely come down .
6. Once the price settles down your put option is in profits . You know that the stock price will go up one or the other day .
7. At certain levels the price will settle down n then you can buy a call option and sell the put option in profits.
8. Now even if the stock price goes down more your losses will be minimal and once the stock price starts moving up which would happen eventually the call option will yield you more profits .
Happy Swing trading in Options .