Saturday, December 15, 2007

Round Trip Options

Well, after a couple of months of trial and error, I am finding that I have the most success with round trip option plays. What this means is that I pick an option play (or two) and execute the buy and the sell both within that trading day. This is definitely not a strategy to try if you are working a full time day job, since it is based on following the momentum of a moving stock, and jumping on and off within the swing.

My mantra has been no fear, no greed in order to get myself to an even playing field on the market. The problem with that combination, is that I am limiting my upside, and not my downside. By not selling within the same day if the stock is not moving the way I thought it would, I end up holding bad option plays, sometimes for weeks and losing an incredible amount of time value.

Another thing to note is that time decay seems to speed up starting the Friday before option expiry, and can be felt even within the day. This holds true for options out a month as well, as I found out yesterday when I played some January puts on a couple of round trips.

My current way of handling my round trips is that I find an in on an option by watching the corresponding stocks level twos. Once my order is filled I immediately put in a sell order for 1.00 gain. I continue to watch the stock, and if I feel for some reason that target is not achievable within the time frame of one day, then I will lower that target appropriately.

My current problem seems to be with minimizing my downside. I put in an alert to sound if the bid on my option reaches a point that is 1.00 less than what I asked, and make the necessary strategic adjustments. This is a kind of feel thing, however, since the market can turn on a dime these days.

Anyway, I started my own board on IHub to see if I can find other people that do this type of trading to share ideas with here.

Roundtrip Options

I have decided to post my weekly round trip results here on the blog, and link the message box to the post for that week for anyone that is interested in following my progress. I have decided to use the dollar gain per share per contract on the posts. I do not always buy the same number of contracts, or spend the same dollar amount in total, so using percentages on their own could be deceiving I think.

Good fortune!

Always perform your own due diligence before making any investment.

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