When you’re looking to begin day trading options, the most important thing to understand is the strategies you have at hand. By understanding these strategies, you will be better equipped to make profitable decisions.
Our experts at Capitalist Exploits have put together this quick guide to explain day trading options strategies and put together some tips that could help you be more successful in your ventures. So without further ado, let’s take a look at some strategies for day trading options with the best chance for success.
Is Day Trading Options Challenging?
Any type of investment when you are utilizing your hard-earned money is going to offer some challenges. Day trading, though, takes a lot of learning and practice to ensure that you are getting the most out of your day. Because of this, there are a lot of different things that can make the process challenging.
As a day trader, you will be investing against people that have done this for years as their full-time career. These professional traders often use the newest technology and have already developed a network of connections within whatever industries they are opting to trade in. This could be challenging for you to get your foot in the door.
Along with this, you’ll have to factor in the fact that the government will want its piece of the pie no matter how few profits you earn. There are taxes to be paid on short-term investments, which might make day trading options less profitable.
On a personal level, because you are an individual investor, you might find that you are more inclined to react due to your emotions. Those who have done this for a while have learned to eliminate that and simply use their trading strategies and knowledge to make educated decisions. This, of course, can be challenging at first, but with practice, you will be able to find your way.
Making Decisions: What to Buy, When to Buy & When to Sell?
When you are opting to become a day trader, no matter if it’s with options or other assets, you’re looking to maximize your profitability by utilizing small strike price movements in the market.
This means that you also need to leverage capital and pay attention to select view metrics when you’re deciding what to buy and when to buy it. Understanding marketing insights like this can help you really create a trading style that works for you.
Some of the metrics you should pay attention to are liquidity, volatility, and trading volume. When you are well versed in monitoring these metrics, you’ll be able to find the best entry point into the stock. On the other end of the spectrum, when you’re looking to sell, you need to look at an exit plan.
These exit plans should include trailing stops and profit targets. Of course, there are several different strategies, such as scalping or daily pivots. In the end, you need to look at each of them and decide what is the best fit for your trading style.
Basic Trading Strategies
Since we’ve been talking so much about trading strategies, let’s look at some of the basic ones. These strategies are best suited to be accompanied by in-depth research into market insights. There are plenty of other options when it comes to day trading strategies for options or any other assets, but these four or maybe the most popular.
Trends are a vital part of understanding the process of day trading options. Like with any other type of asset, you want to buy when prices are rising and then short-sell when they fall. But this can only be done successfully if you understand the trends. That means really watching the market and doing your research while biding your time to ensure you are able to capitalize on the rises and falls.
There are some types of day traders that utilize the contrarian investing strategy. This is when you predict that the prices will drop quickly and opt to use the opposite of following the trend method. Basically, as a day trader, you are saying that the trend will change and are banking on that.
If you’re a speculator type of trader, then this is the strategy you might utilize. This is when you take small price gaps and utilize them for your benefit after they’ve been created by the bid-ask spread. This is a quick turnaround as most people that use this buy and sell within minutes of each other.
News & Events
If you’re someone that is always keeping up to date on all the latest news of the market that you’re looking to invest in, you might decide to trade according to the news. This means that you buy when it is good and then sell when it is bad. Though this is a little more volatile than other options, it can lead to a bigger profit gain.
Tips for Day Trading Options
Having the strategies is great and understanding the metrics that you should use to analyze the validity of your investment is important, but there are several things that you can do to enhance your results even further.
Here are some tips that we suggest you really include in your options day trading strategies.
You have to be ever-learning. Not only do you need to understand the basics of day trading, but you need to keep up to date on the market and events.
In order to be successful, you have to have money to make money. This means setting aside money beforehand, as while you are trading, it is important to keep your account where it needs to be.
Day trading is something that is fast-paced and requires a lot of time. Not only just keeping up with the markets but also the process itself. So make sure you set aside time to dedicate to it.
When you’re first starting out, you want to start small. Don’t jump in headfirst and then expect to be profitable. Baby steps are essential until you get the lay of the land. So start with buying one or two options in a particular industry and then see how that goes. If you are successful, you can build from there.
No Penny Stocks
A lot of beginners try to find stocks that have a low price of entry. But most of these are illiquid, which means there will be less profitability. It’s better to look at stocks that are a little more pricey in order to reap the benefit.
Understanding the ins and outs of options day trading is a must before starting. It can be a very profitable option as long as you stay dedicated and understand that it will be ever-changing and you will need to go with the flow.
The best thing you can do is make sure you have a wealth of resources at your hand. There are websites and blogs that you can check out as well as newsletters like ours, Insider Weekly, that can be very helpful in ensuring that you are ready to make your day trading of options profitable.