5 Advanced Secrets Every Options Trader Should Know
- shaggadm
- Feb 7, 2021
- 4 min read
The insights listed below can save readers millions of dollars.
Looking for diversified & profitable options trades? We have you covered. Check this out.
Introduction:
Chances are, you've lost money in options trading.
In fact, Barrons.com reports, 90% of options traders are failures.
If you are a student of probability, it means you're likely to be one of the 90% of failures.
Only through time, loss and regret do we truly learn and become profitable as an options trader.
My dear readers, I'm here to tell you it is possible to make long term profits in options trading but you have a lot to learn.
Here are 5 Advanced Tips All Options Traders Should Know.
1. Never Buy Puts or Short the Market in Anyway.
This is a secret that took me a lot of money and regret to learn.
Since the year 1825, the US stock market has been going up by 8.25% year over year blended.
According to 200 years of historical data, there is no reason to believe that the market wont continue to produce similar gains in the next 200 years.
When you buy puts or short the market, you are betting against 200 years of past data.
On average, the markets are up-trending 85% of the time and downtrending 15% of the time.
It is much safer to go long in the markets, prices rise over time.
A long term mindset produces profits for long term.
2. Buy Contracts With 0.40 Delta and Above Only.
For every $1 movement in stock price, the option value goes up by the delta.
A .40 delta would mean the option contracts go up in value by $0.40 for every $1 increase in stock price.
Delta increases as an option contract becomes closer to becoming near or in the money.
Since delta increases as the contracts become closer and deeper at/in the money, you can also think of delta as the % chance an option contract has of expiring in the money at expiration.
A 0.40 delta means the option is priced as having a 40% chance of expiring in the money.
Options trades at the money usually have a .5 delta, or a 50% chance of expiring in the money.
The lower the delta, the less likely the contracts will end up being profitable.
By buying contracts with .40 or even a .50 and above, we give ourselves a higher chance of the trade ending in profits.
3. Money Comes Into The Markets in Intervals.
There is a lot of money in the sidelines- there always has been and always will.
Big funds like pension, mutual, hedge, exchange-traded, et. al., have a lot of capital ready.
They can not buy their whole cash balance into the markets without pushing prices super high super fast and giving them a terrible final price fill.
Instead, what they do is set automated buying rules.
They buy into the markets automatically in set intervals.
The beginning of the year, the end of the year, beginning of the month are very popular times for funds to have automated buying enabled.
This is one of the reasons why we see activity in the markets around those times.
As an options trader, we can use these time intervals to buy in before the funds buy in.
Knowing that money is set to come in at intervals from the big funds can help us by knowing when prices are more likely to go up.
Most funds are net long in the markets meaning mostly they are set to buy the asset not short.
4. Having a Tiered Buy In.
Most traders will go into a position right away with their full amount at the market price.
The issue with this method is that prices can easily drop quickly after buy in- scaring the trader out of the trade and inducing an early loss.
A better method is to only add to a position after its in profits already.
Taking an initial position gets your feet wet in terms of how the value of that option moves.
If you see your initial position is in nice profits, you can add to it to get a higher volume profit even though it will increase your buy in price.
Usually, if an option contract stays profitable for a while, it means you chose the right direction!
You can safely add to your position as the price movement plays out, usually in the direction that our initial starter trade helped us confirm and figure out.
5. Use options flow data to identify possible movements in a stock.
You probably didn't know this but you can view all the options trades that happens in the markets from the other market participants.
Options flow data lets you view options trades that are being executed.
When someone puts $1M+ into an options trade, they know something.
By having the options flow data, we can see what big options traders are trading and copy-trade them into profits.
If someone puts $10M into a random stock option, they definitely know something, and now we can track trades like these.
Before 2015, options flow data was not available to retail traders.
The big funds used the options flow data to identify big trades happening in the markets and profit from them.
With companies like SmartOptions® Ai you can now get the same data big funds have been using for years to profit.