By exploiting the high Delta of an option contract, you can effectively trade stocks for only half the risk that you would incur with normal swing trading.
If you can buy the rights for the same amount of shares for half the price, but still the same profit, the return on the investment to double.
This a great strategy for those who are still a bit scared of buying options, but love the challenge of swing trading stocks, and want to gain some leverage on a trade as well as reducing overall risk and cost of investment.
The reason is that such a strategy is worthwhile, that not only doubled the lever on an exchange, but the effect of time decay of the value of the option will be minimized.
Swing trades usually have a duration of three to ten days, and if you trade a DITM option for this short period, time decay will not significantly affect the price of the option.
How do you trade options Ditmar? First choose your stocks.
You can either use one of your favourite stocks, or you can run a scan for "ready-to-roll" stocks that are perfect for DITM options.
I find that Stockfetcher the best free resource for the search for these stocks, some scans and I\ve created for this purpose.
Second: Technical Analysis.
You must do the following to do a good job that is suitable for a swing trade Ditmar option, see: Trend Analysis.
Establish the trend of both the Market and your stock.
Do not try and buy calls in a falling market! Swing Analysis.
Find stocks that have dipped to the bottom of the trend band.
These are stocks that are trading between 10 mA and 30ema.
Swing Confirmation.
Confirm your swing pattern Candlestick.
Check the RSI and VIX to make sure that a swing reversal is not imminent.
Third: Choose your option and buy it! Drag a chart of the options Delta option.
Your broker software should have this feature.
Either use that or a computer, the options for which you need to know the volatility of options.
Pick an option that has a DELTA that is at or close to 100.
Value Option.
Don't buy overvalued options! You will watch your trade value bleed away.
You must use the software for this - I recommend Volcon Pro Analyser for this (not just the tip of this method is free!).
Fourth: Set your Stop Loss and Profit Target IMMEDIATELY!
Remember, this is not gambling! Your swing analysis, and confirmed by a look at support and resistance levels, will help you do this.
Stop Loss - If you usually use stop-loss of 4% for your bag, then place a stop loss of about 8-10% of your choice.
Profit Target - set a profit target based on the swing of the underlying stock.
In both cases, just add the dollar value of the expected profit for the price of the option or use the calculator to work out possible.
Or use a trailing stop - whatever is your favourite method.
Do you sell the option when you press your profit target - do not wait until the deadline, otherwise you will lose 100% of your investment! Plan on the market within 10 days or so left - if not moved since then, the momentum swing analysis would change, your company at risk.
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1 Responses: As trade options and equities Ditmar buy at half price.
Thank you for such an informational article! I have to make a paper work about trade optionsand your post helped me to get some nice ideas! Thank you!
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