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Ken Trester, Managing Editor
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Our Number 1 Rule for Buying Options
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 $50 than $500 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.
For more rock solid stock options trading information please
click here
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