Stock Option Trading Strategy
Short of having a crystal ball, picking winners when stock option trading is
not as hard as many people would have you believe. In the first place, when
considering purchasing or selling stock options, you need to conduct
extensive research on the underlying stock yourself, or rely on someone else
to do it for you – someone you trust. Many factors must be considered.
Among these are:
1. The stock’s past history and movement.
2. Expected earnings reports of the stock’s parent company.
3. Volatility and volume of shares traded daily.
4. Any current news concerning the company’s growth or profitability.
5. The price of the option with respect to how you think the stock will
perform. If you do not feel the stock’s movement will handily offset the
cost of the option, plus the trading fees, then buying or selling the option
would be fruitless.
6. Supply and demand of the underlying stock. (Industry group market
action.)
Once you have decided upon which stock to pick, you next need to decide
whether you believe the stock’s price is likely to rise or fall. (With
stock options you can make money in either direction.) (more…)