Here are a few tips for option buyers especially if they are beginners:
1. Do not buy deep Out of The Money (OTM) options. They almost always expire worthless.
2. Do not buy deep In The Money (ITM) options. They behave like futures. Losses will be more than the profits. If you are a deep In The Money (ITM) option buyer – trade futures instead.
3. Keep the target and stop loss in the system as soon as you buy the option. With a system target and stop loss, you need not monitor the trade once it’s live – the system will take care of that. If the target is hit, the stop loss order will automatically get cancelled. If the stop loss order is hit, the target order will automatically get cancelled. This type of order is called the GTT (OCO) order.
The full form of the GTT (OCO) order is Good Till Triggered (One Cancels the Other). If your broker doesn’t allow this feature, you can open an account here. This broker allows this kind of order for free. Plus, the account opening is online and free. Stock buying and selling are also free. Click here to open an account with them.
4. If you are not experienced do not start trading with multiple lots. Practise with one lot initially then if you are getting profits increase the lots one by one – slowly. Increase one lot every month but do it up to five lots max.
5. Make an Excel sheet and record all the trades.
6. If you are making losses for more than 3 months consecutively then stop buying options. Then practise selling options with hedge. If you want to learn option strategies with hedge you can do my course.
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