Maximize Your Options Gains with These Six Trading Secrets
At first glance, it may seem like speculating with options is a risky business. After all, price swings of 30% in an hour are far from comfortable for most investors. But with risk comes reward — and when you can manage that risk successfully, the rewards far outweigh the risks over time. That's where these six trading secrets come in...
They're the tools I've turned to for decades to maximize my gains as an options investor while keeping my risks tolerable. My Options Hotline readers have used these rules to maximize their options gains over the years too, and now, I'm passing them on to you...
Speculators get a bad rap. The very word conjures up pictures of some carefree playboy throwing money into any crazy investment — not really caring if they win or lose.
It's not a flattering picture. And that's why conservative investors shy away from anything "speculative" — lest they be called speculators, too.
Well, I'm here to tell you "speculating" isn't a dirty word. You can be a conservative investor and still enjoy that chance at phenomenal profits that speculating can bring.
I learned that lesson from my father, Paul Sarnoff. He was one of the first people to offer an options course — introducing novice investors to the concept of Superleverage (more on that on Friday). But he also had a strong conservative streak. In fact, he was an avid fan of precious metals, advocating that they should be at the core of every solid investment portfolio. He even wrote books on gold and silver investing.
My father proved that even cautious investors can benefit from speculating. But as he always stressed — and as I still stress today — the key to being successful was to have a complete plan of action. You never, ever throw your money around casually... even if it is money you can afford to lose. And you must take steps to make sure you never get in over your head.
Of course, that's easier said than done. That's why my father developed six simple strategies for keeping a level head when speculating. They may sound common sense, but I've spent enough time in the markets to know that common sense isn't that common when money is involved.
So, if you're thinking of dipping your toe into the speculative markets, here are a few proven ideas to keep in mind:
Create a sound money-management strategy.
This one flies in the face of the conventional image of a speculator. But believe me, all consistently successful speculators start with a plan. It doesn't have to be anything too involved — just make sure you're clear on your objectives, and set some guidelines for yourself. Figure out your entry and exit strategy for each play, starting with how much to invest, how many open positions you plan to have, how you will monitor positions, what kind of stop-losses you will use to preserve capital, etc.
A sound money management strategy is the most important factor in successful speculation and it allows you to stay in the game.
Know your broker and monitor your investment.
When choosing a broker make sure to ask as many questions as necessary and that you get the appropriate answers before simply giving over your money. If you are a beginner, find out about the broker's history and references, and speak to them frequently to establish a relationship. Make sure that either you or your broker will be constantly monitoring your investment — today's markets are very volatile and with options the price can shoot up 30% or more in just a few hours... so it is necessary that your broker is able to see the option is performing and be able to execute an order in a timely manner, to ensure that your capital is protected.
With so many discount Internet brokers out there, it seems like more and more people aren't doing their homework before opening an account. It's OK to try and go it alone... unless you don't know what you're doing. In that case, it's well worth the time and money to explore more experienced flesh-and-blood brokers.And if you want a hand in selecting a broker, make sure you check out the Penny Sleuth's Discount Broker Guide...
No comments:
Post a Comment