Use Stock Chart Analysis
Options Trading requires that you know more than just options chains, puts and calls, and other basics. Options Trading for beginners is often confusing, overwhelming, and can result in a significant loss of your capital base unless you learn right from the get-go that trading options successfully starts with THE RIGHT STOCK PICK.
Stock Chart Analysis for Trading Options:
The stock chart example below shows potential for an option trade. Within the chart, you can calculate which option contract is the correct one to use whether Out of the Money OTM, In the Money ITM, or At the Money ATM is the better choice. In addition to which contract to use, option traders must also consider the risk of the trade versus the point gain potential, possible given risk, resistance, and which Stock Market Participant Group is controlling the stock chart price.
Using Worden Bros. Balance of Power and Time Segmented Volume along with stock Volume and other stock indicators, will help you choose the best stocks for options trading. Not every stock chart is ideal for options trading. You also need to consider whether you are going to Swing Premium Trade, Position Premium Trade, Hedge, Mitigate, or use as a means of leveraging into the stock. All these decisions are part of the stock chart analysis.
The WORST WAY to trade options is to use a Social Media feed, recommended stocks, broker recommendations or suggestions, retail chat rooms, and other services that tell you which stock to option trade. Why? Because there are predatory systems out there that track every retail news feed, every retail social media, retail chat rooms, etc. to determine which stocks are most in favor with the retail option trader.
Then it is easy for these predatory systems to jump in ahead of your options orders and drive price up or down before your order is executed.
To trade options successfully, you must choose your own stocks and this is far easier than you may think. Actually, the stock chart tells you everything you need to know to put on the option trade.
Martha Stokes CMT
TechniTrader technical analysis using a TC2000 chart, courtesy of Worden Bros.
Chartered Market Technician
Instructor & Developer of TechniTrader Stock & Option Courses
Copyright ©2017–2021 Decisions Unlimited, Inc. dba TechniTrader. All rights reserved.
TechniTrader is also a registered trademark of Decisions Unlimited, Inc.