Every seasoned option trader has several favorite option strategies. They favor these strategies because they know how they work and they almost always return a profit. The specific strategy used is nearly always based on their market bias: bullish—a rallying market, neutral—a sideways market, or bearish—a dropping market. Traders learn how to anticipate rising, neutral, and falling markets by scanning and analyzing price charts, using a handful of chart studies, and checking corresponding buying and selling volumes, something they call volatility. Armed with a rational market bias enhances their odds for success. This information is used to select one of their favorite option strategies that is compatible with their market bias.
And knowing precisely how a strategy works leads to rational trade management, that is, when to close the trade for profit, roll the trade to a later option expiration date, convert a failing strategy into a winning one, or perhaps simply close an unsalvageable trade and try something different.
The flexibility available to option traders is both unique and immense. No other trading venue lets an investor “switch horses in the middle of the stream.” Moreover, being able to determine the mathematical probabilities or “odds” of achieving a profitable outcome is an advantage that’s unavailable to those who just buy and sell stocks, futures, or foreign exchange currency pairs.
If you’re already an option trader, this book delivers a useful synopsis of 78 different option strategies. If you want to learn how to “get in the game” and start earning a steady income, then learn what successful option traders know by reading (and applying the option trading rules) I provide in The Only Options Trading Book You’ll Ever Need available from amazon.com.