BEST OPTION TRADING STRATEGY

OPTION TRADING STRATEGY: Before you begin buying options you must decide how much of your investment portfolio to risk. Losing streaks are a fact of the game, so never put all of your capital into options. Set aside only a portion with which to speculate -- 10% of your portfolio is an ideal beginning maximum for most investors. Your ability to manage your money will be key in your profitable options trading program. Here's why... Every day that passes costs you, and your option could expire worthless. Cheaper options are usually the best plays. They give you the most leverage, the percentage returns are better, and if the market goes against you, you are risking less. More important, you`re able to spread your capital over more positions, increasing your odds of winning. The easiest, safest and potentially most lucrative way to profit with an option is to buy one. You simply pay your money (the premium) and wait to see if the stock does what you think it will: rise if you buy a call option, fall if you buy a put option. If the stock price rises above the strike price specified in your call option, you win your bet. If the stock falls below the price specified in your put option, you win your bet. If the stock does not behave the way you thought it would you lose your bet, as well as the premium you paid for your option. Don’t be dismayed by this. Even the pros only win their bets about 20% to 30% of the time when they buy cheap options. Our Number 1 Rule for buying options is: Only buy underpriced options. Sticking with undervalued options gives you two advantages: First, you are risking less money when you buy a cheap option. It is much easier on the pocketbook to lose 3000 than 10000 if the option expires worthless. Second, if the stock crosses the strike price (putting it "in the money") before your option expires, you not only win your bet but your percentage gains will be more than had you bought a more expensive option. Price is the key to success in the options market. When you pay too much for an option the odds are stacked against you. Finding underpriced options is simple in theory but in the real world it takes an enormous amount of work. We have developed a computer pricing model that does this better than anyone else. How to Maximize Profits As important as selecting the right option to buy and paying the right price is knowing when and how to take profits. Most option buyers lose not because they take the wrong positions, but because they fail to take profits properly. To make the biggest potential profit your first objective is to protect profits, and your second objective is to hit home runs. Most important, when your option begins to profit you must be ready to act. First, be alert to sell your position if the stock pulls back (if you bought a call option), or rises (if you bought a put option) 5%. And if the stock makes a sudden big move in your direction, don`t get greedy. Sell your position and pocket the money. One other consideration: If your option is in the money goes past the strike price) and enters its last week before expiration, take profits. Don`t wait for it to expire. As important as taking profits is cutting losses to a minimum. Losses are part of the game, and if you don`t take them and move on you will soon be out of the game. Cutting losses is easy -- if an option falls in value by 50% after you buy it, sell it and close your position. The harder part is convincing yourself to do it. We can`t stress this enough -- if you do not cut your losses quickly, you will not last as an options player. That, in a nutshell, is our fundamental trading strategy -- follow it and you`ll have your best shot at real success. It is your road map to making colossal profits with low-priced options.