Are You Considering Options Trading?
A Simple Options Strategy
My options trading strategy is simple, but it requires a bit of research. There are a few factors that I consider in my decision making process when deciding on what options contracts to buy.
I take into account the technical levels for the specific stock I will be buying an option for.
I search for news catalysts or economic data releases that can move price.
I pay attention to options order flow.
I account for the overall macroeconomic environment and the general sentiment in the world's markets.
The biggest factor is the overall trend of the stock I will be investing in.
Before I go over the details of my options trading strategy, there are a few things you must know about options trading.
Options trading is not for the faint of heart. There is a much higher risk associated with options trading when compared to trading ordinary shares. But with greater risk comes greater reward.
That is my favorite thing about options trading. When you find that lucky options contract, then the gains profited from it can make you the happiest person in the world. Then again, when you enter into a bad contract then you will be ripping your face off when you see your investment drop 50% overnight.
This happens often. Options premiums can move drastically in a single trading day, so you will need very tough skin to be an options trader.
If you are new to options then before trading options you must prepare yourself for the emotional roller coaster. The price of options contracts have big swings to the upside and the downside throughout the duration of the contract. So prepare yourself for the anxiety associated with watching your option's gains swing from green to red on a regular occasion.
It would be a very smart idea to paper trade options before throwing your money at any lousy ticker symbol with very low options liquidity. This way you can get a feel for how options premiums move for certain stocks. Some ticker symbols are not good for trading options even though the contracts are available.
Most importantly, with options trading you can not be greedy, and you will need a lot of patience. You will not get rich overnight, so don't get so overcome with greed that you hold your profiting option until it falls into the red. Take profit on occasion.
Sometimes options take time to pay off, so be patient. If you have conviction in your options purchase, then give it time to gain in value. Sometimes I would hold contracts for weeks before they start producing a profit.
Technical Analysis
The first thing I do before I buy an options contract for a specific ticker symbol is check the technical levels on the ticker's chart to find a good buying or selling point. Typically I prefer going long near trending or horizontal support levels, or I will go short near resistance levels. Once a trend has formed, then it can make buying decisions much easier. Moomoo has great charting tools to map out your trends.
You can see in the example below with $Tesla(TSLA.US$. A trending channel formed on Tesla's chart and it provided an amazing buying opportunity once the price came down to the support level of the channel. This is where options premiums for long positions are at their cheapest.
News Catalyst
News events and economic data releases can often cause big swings in the prices of certain stocks in the market. For example, price upgrades, earnings reports, FDA announcements, or even economic data releases. Occasionally news events like these are perfect moments for an options trader.
The faster the move in price of a stock then the bigger the move in options premiums. You can see an example of NVDA's share price soaring over 29% after its release of an earnings report. Moomoo has a news tab for every stock that provides up to the minute news on earnings or any other price moving event.
Another very important fact is that oftentimes a major news event or economic data release can cause a change in the trend of a stocks price action. If you enter into an options contract at the peak or trough of the price action, then you can catch the cheapest premiums and the largest gains.
Order Flow
Options order flow can tell you a lot about wheather options traders are long or short on certain stocks. Moomoo has great tools to analyze options order flow. One tool I use is the "Unusual Options Activity Screener." This screener scans the options market for options contracts that are experiencing large block order transactions. These are very big transactions that can be considered smart money transactions. The screener allows you to follow the smart money in the options market.
There is a lot of noise in the Unusual Options Activity Screener, but occasionally you will find a block transaction that stands out and looks very promising as a potential investment.
Another simple tool to help you analyze options order flow is the intraday quotes chart for the options contract. On Moomoo you can see every single transaction for any options contract at any strike price or expiration. You can see the buying or selling of calls and puts in real time. Some trading platforms charge exuberant amounts of money for this information alone. This is extremely valuable information for an options trader. Especially if you day-trade options.
One thing that would make the Unusual Options Activity Screener better is if there was a filter added that could narrow the options screener down to just a few stocks or all of the stocks on a specific watchlist. This would filter out all of the noise so a trader can focus on only the stocks that they like trading.
Market Sentiment
Having general knowledge of the macroeconomic environment and market sentiment can help greatly in options trading.
For instance, in 2022 market sentiment was very bearish, and the macroeconomic environment was not very accommodative for most equities in the market. From soaring inflation and rapidly rising interest rates to a war in Ukraine. Everything looked bad for most equities in the market. This led to massive bearish sentiment in equity markets.
Pro options traders know in times like this you should only be looking for short positions based on the macroeconomic environment and broader market sentiment.
On the other hand, during this time the energy and commodity related equities were in a strong bull market. Pro traders would have been looking for long positions in a bull market like this.
A Trend is Your Friend
The upmost important thing to do when deciding what options contract to buy is to just follow the trend.
Sometimes price action will seem like it is going in the wrong direction. Like when a market rally is defying the hawkish macroeconomic environment. Don't fight the trend. When the trend is bullish, then look for long positions. When the trend is bearish, then look for short positions.
For example, right now the broader market is entering into a bull market. As an options trader it would be wise to search for long positions in a strong uptrend like we are experiencing in the current bull market.
But you must pick the right sector or industry. Last year energy and commodities were experiencing the strong bullish trend in price action while the rest of the market was falling off of a cliff. This year oil and commodities have been mostly trending downward, and tech has been trending upwards. So, in theory, an options trader might want to find long positions in tech or short positions in some oil and commodity stocks.
Conclusion
These are all of the variables I consider when I decide whether I should go long or short on an options contract. Sometimes I make my decision based on one or a few of these variables. This strategy is not always 100% correct all of the time but when all of these variables come together then sometimes an easy trade will just jump out at you and you will have the confidence to withstand the anxiety of the ups and downs so you can ride the wave of profit.
As always, this is not investment advice. Good luck trading. Be careful and be patient. Give your investments time. Don't be greedy. Don't invest in anything you don't understand. Don't put all of your eggs in one basket. Don't listen to the hype. Don't fomo or panic into or out of trades. And just follow the trends. A trend is your friend.
$Invesco QQQ Trust(QQQ.US$ $iShares Russell 2000 ETF(IWM.US$ $VIX Index Future Main(SEP2)(VXmain.US$ $SPDR S&P 500 ETF(SPY.US$ $SPDR Dow Jones Industrial Average Trust(DIA.US$ $Gold Future Main(DEC2)(GCmain.US$ $E-mini Dow Futures Main(MAR3)(YMmain.US$ $E-mini S&P 500 Futures Main(MAR3)(ESmain.US$ $E-mini NASDAQ 100 Futures Main(MAR3)(NQmain.US$ $E-mini S&P MidCap 400 Futures Main(MAR3)(EMDmain.US$ $E-mini Russell 2000 Index Futures Main(MAR3)(RTYmain.US$ $CBOE Volatility S&P 500 Index(.VIX.US$ $VIX Index Futures Main(FEB3)(VXmain.US$
$USD(USDindex.FX$ $Powershares Exchange Traded Fd Tst Db Us Dollar Index Bullish Fund Etf(UUP.US$ $SPDR Gold ETF(GLD.US$ $iShares Silver Trust(SLV.US$ $Ishares Iboxx $ High Yield Corporate Bond Etf(HYG.US$ $Ishares Iboxx $ Investment Grade Corporate Bond Etf(LQD.US$ $iShares 20+ Year Treasury Bond ETF(TLT.US$ $Crude Oil Future Main(OCT2)(CLmain.US$ $VanEck Gold Miners ETF(GDX.US$ $VanEck Vectors Junior Gold Miners ETF(GDXJ.US$
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$Chevron(CVX.US$ $Phillips 66(PSX.US$ $Valero Energy(VLO.US$ $Devon Energy(DVN.US$ $Occidental Petroleum(OXY.US$ $W&T Offshore(WTI.US$ $United States Oil Fund LP(USO.US$ $United Sts Brent Oil Fd Lp Unit(BNO.US$ $Imperial Petroleum(IMPP.US$ $Houston American Energy(HUSA.US$ $Indonesia Energy(INDO.US$ $BP PLC(BP.US$ $Exxon Mobil(XOM.US$
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$Communication Services Select Sector Index(.SIXC.US$ $Technology Select Sector Index(.SIXT.US$ $Energy Select Sector Index(.SIXE.US$ $Consumer Discretionary Select Sector Index(.SIXY.US$ $Materials Select Sector Index(.SIXB.US$ $Health Select Sector Index(.SIXV.US$ $Real Estate Select Sector Index(.SIXRE.US$ $Financial Select Sector Index(.SIXM.US$ $Consumer Staples Select Sector Index(.SIXR.US$ $Utilities Select Sector Index(.SIXU.US$ $Industrials Select Sector Index(.SIXI.US$
$Direxion Daily CSI China Internet Index Bull 2x Shares ETF(CWEB.US$ $China Alphadex First Trust(FCA.US$ $Wisdomtree China Ex-State-Owned Enterprises Fund(CXSE.US$ $S&P Asia 50 Index Ishares(AIA.US$ $KRANESHARES SSE STAR MARKET 50 INDEX ETF(KSTR.US$ $RAYLIANT QUANTAMENTAL CHINA EQUITY ETF(RAYC.US$ $iShares China Large-Cap ETF(FXI.US$ $Xtrackers Harvest CSI 300 China A-Shares ETF(ASHR.US$ $Franklin Templeton Etf Tr Ftse China Etf(FLCH.US$ $db X-trackers Harvest CSI 500 China A-Shares Small Cap Fund(ASHS.US$ $iShares MSCI China ETF(MCHI.US$ $KraneShares CSI China Internet ETF(KWEB.US$ $KRANESHARES CICC CHINA 5G AND SEMICONDUCTOR INDEX ETF(KFVG.US$ $Global X Funds Global X Msci China Consumer Staples Etf(CHIS.US$ $Global X FinTech Thematic ETF(FINX.US$ $Global X Fds Msci China Industrials Etf(CHII.US$ $Global X Fds Msci China Energy Etf(CHIE.US$
$UK FTSE100 Index(.FTSE.GB$ $German DAX30 Index(.GDAXI.DE$ $Italy MIB Index(.FTMIB.IT$ $Belgium BEL20 Index(.BEL20.BE$ $Netherlands AEX Index(.AEX.NL$ $Portugal PSI20 Index(.PSI20.PT$ $Nasdaq Composite Index(.IXIC.US$ $Dow Jones U.S. Index(.DJUS.US$ $Dow Jones Industrial Average(.DJI.US$ $S&P 500 index(.SPX.US$ $NASDAQ 100 Index(.NDX.US$
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Trade the trends via technical, fundamental, and macro analysis. Day Trades, swing trades, and long-term investments.
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TeslaSmurf : My trading portfolio is up 134,33% mostly on TSLL (50%) and a handful of stocks and ETFs (50%). Last year it was positive too, though the long term portfolio suffered (but it’s quite ok now). I know I could make A LOT more money trading options too, but they scare me to death
Any suggestion ?
SpyderCallOP TeslaSmurf: start off small and only trade what you can lose without breaking the bank. My best advice for options trading is to find the cheap premiums. basically you have to call the dip before it bounces. Catch the reversal before it happens and give it some time to turn around. this is how you get the cheapest options contracts. It is risky because you are going against the trend but the options contracts are dirt cheap this way and it is a lot less scary to hold cheaper contracts.
TeslaSmurf SpyderCallOP: Thank you
You make it simple but it is not, you have to be very skilled and get prudently through the NECESSARY learning curve, not to end among the 90%+ retail traders who lose money.
since it looks quite more simple than considering all the possible variations in the options field. 
…Thinking it better I’d rather use my actual skills trying with a new leveraged account with maybe with just 10K and see how it goes… That doesn’t scare me
I will never pass this mental-block, I’m afraid, but I suppose it’s ok until I keep making good money.
Thank you anyway.
Silverbat : Great for beginners.
SpyderCallOP TeslaSmurf: when I started trading options most of the money that I lost was due to panic selling or fomo buying. that is how +90% of options traders lose money. once I got the hang of options it is all that I trade now.
RAY Chia : Very useful. I haven't traded option before.
SpyderCallOP RAY Chia: practice with paper trading options.
Asphen : I've been an active options trader past 3yrs. target of 1% per month, be it bull or bear market. that's the upside of options. we trade both ways.
warmhearted Puppy_93 : A Google %% . I am just working on the calls and Puts before I can share a TON of Great ride's. Great Post
u.