Basic Options Trading Tools

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www.Options-Trading-Education.com

BasicOptions TradingTools

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A beginning options trader needs to obtain and develop tools and skills necessary for options trading.


Today online options trading allows a trader to access markets from his own trade station, using sophisticated software, a fast computer, and a high band width internet connection.

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In order to make money trading options, traders need to study the fundamentals of the stocks, commodities, or currency pairs that underlie the options contracts that they trade.


Then they need to keep abreast of market sentiment using technical analysis tools.


The basic options trading tools that we are concerned about in this writing are the fundamental and technical analysis tools that allow an options trader to make sense of the market.


These are the basic options trading tools that can routinely lead to profits in buying and selling puts and calls on stocks, commodity futures, and currency pairs.


The Basics of Making Money Trading Options


What are the basic options trading tools for finding and executing a profitable option trade?

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Discipline and hard work will always serve the options trader well. A smart trader develops an options trading plan, sticks to it when he is making money, and modifies it when he needs to.


He avoids acting like a gambler but rather approaches the business of trading options as, a business.


He looks for opportunity in volatile markets, carefully analyzes fundamentals in search of information that the general market has missed, and buys cheap options that come into the money with time.


A smart options trader seeks to make more money in good trades than he loses in bad trades.


He avoids the psychological pit falls of greed and panic and learns to trade with equanimity even when markets are in chaos.


Using these basic options trading tools he will buy calls to lock in opportunity and use puts to preserve stock gains.

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http://www.options-trading-education.com/6558/use-puts-to-preserve-stock-gains/

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Analyzing Equities


Long ago, after the stock market crash that ushered in the Great Depression of the 1930’s, investors learned to use the concept of intrinsic value in assessing investment opportunity.


This concept, originally applied to stocks, is useful in assessing the prospects of both investing in and trading in other markets.


The basis of intrinsic value analysis is to compare the likely return on investment in equities with the return on a secure interest bearing investment such as a US Treasury bill.


Thus one of the basic options trading tools for stocks is to look for underpriced stocks.


In the case of routine options trading the stock in question should be one that is likely to go up in price within the term of an options contract.


This is a case in which a trader will buy a call on the stock and/or sell a put.


If fundamental analysis indicates that a stock is overpriced and will fall in value within the term of the options contract, a trader buys a put on the stock and/or sells a call.


If fundamental analysis tells the trader that the market is very volatile he may buy both puts and calls with the belief that one or the other will be profitable.

Basic Options Trading Tools

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