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WinningOptionsCheatSheet PDF

This document provides a "cheatsheet" of advice for new options traders. It lists 9 tips to help avoid common mistakes. The tips include not trading out-of-the-money or illiquid options, having an exit plan before contracts expire, avoiding doubling down on losses, being aware of early assignment risks for option sellers, and factoring in earnings dates and dividends when trading. The document advises always executing spread trades at the same time and not waiting too long to close out short option positions. The overall message is to use discipline and avoid greed in order to trade options successfully.

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238 views2 pages

WinningOptionsCheatSheet PDF

This document provides a "cheatsheet" of advice for new options traders. It lists 9 tips to help avoid common mistakes. The tips include not trading out-of-the-money or illiquid options, having an exit plan before contracts expire, avoiding doubling down on losses, being aware of early assignment risks for option sellers, and factoring in earnings dates and dividends when trading. The document advises always executing spread trades at the same time and not waiting too long to close out short option positions. The overall message is to use discipline and avoid greed in order to trade options successfully.

Uploaded by

XCORPS
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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WINNING OPTIONS CHEATSHEET

Over  the  past  10  years  I  have  learned  valuable  lessons  I  would  like  to  pass  on  to  new  traders.  

Here  are  my  top  9  bits  of  advice  –  keep  this  CHEATSHEET  handy  as  you  are  learn  the  ropes  of  
trading  options.  

1. Do Not Start Out By Buying Out-Of-The-Money (OTM) Options


This  is  the  number  one  way  to  lose  your  money  fast.    Turning  a  quick,  HUGE  proIit,  might  seem  like  
a  great  idea,  but  this  is  a  trap.  Don’t  do  it!    Just  say  no    These  options  are  CHEAP  for  a  reason.      

2. Do Not Trade Illiquid Options


Liquidity  is  the  beating  heart  of  an  options  trade.    Without  liquidity,  your  trade  
doesn’t  has  little  chance  of  working  out  in  your  favor.      Remember,  stock  traders  are  
trading  one  stock,  but  option  traders  have  so  many  contracts  to  choose  from.    
Illiquid  trades  have  a  tendency  to  start  you  off  on  a  losing  foot.  

3. Do Not Use a One-Market Fits All Strategy


Becoming  an  options  trader  is  great  because  of  all  of  the  new  Ilexibility.    Before  
you  start  trading,  you  should  know  what  strategies  are  more  effective  in  different  
market  environments.  Be  open  to  learning  as  many  strategies  as  you  can.    If  you  
do,  you  will  have  a  full  arsenal  when  the  market  changes.  

4. Do Know Your Exit Plan ‘Before’ Your Contracts Expire


You  need  to  be  prepared  for  what  happens  if  a  trade  works  against  you,  but  also  when  things  end  
working  in  your  favor.    Trading  with  a  plan  will  help  you  sleep  at  night  –  and  who  doesn’t  want  
that!  

5. Do Not Double Down To Make Up For Losses


When  facing  the  possibility  of  a  losing  trade,  you  WILL  be  tempted  to  break  your  own  trading  
rules.      Doubling  down,  is  the  worst  way  to  repair  a  trade.    Close  out  the  trade  and  take  a  loss.    That  
will  keep  you  in  the  game  longer.    The  game  will  always  change  back  into  your  favor.      
6. Do You Know What Happens If You Are Assigned Early
All  ‘sellers’  of  options  will  occasionally  be  assigned  their  shares  early.    It  is  something  new  traders  
don’t  think  about.    It  doesn't  make  it  any  less  real,  and  it  WILL  happen  at  some  point.    Knowing  
that  possibility  exists  before  you  ‘sell’  an  option,  you  should  have  a  PLAN  in  place.    Puts  are  usually  
more  susceptible  to  early  exercises  than  calls,  so  be  AWARE!  

7. Do Factor in Earnings and Dividend Payment Dates


This  one  seems  pretty  straight  forward,  however,  many  new  options  traders  traders  
do  not  factor  it  when  looking  at  the  price  of  the  underlying  stock.    These  factors  are  
predictable,  so  you  should  not  get  caught  with  your  pants  down.  Also  remember  
that    pending  news  can  always  create  volatility.    Make  sure  when  you  reviewing  
your    trades,  you  are  mindful  of  both  of  these  factors.  

8. Do Not Leg Into Spreads


Any  trader  worth  his  salt,  uses  spreads  to  create  income.    When  trading  spreads,  
new  traders  get  sucked  into  trying  to  time  the  second  part  of  the  trade  to  squeeze  
out  a  better  price.    Often  times,  because  the  markets  are  unpredictable,  you  will  lose  
your  ability  to  put  on  the  second  leg.    Always  execute  both  legs  of  a  spread  trade  at  
the  same  time.      

9. Do Not Wait Too Long To Buy Back Short Options


We  can’t  tell  you  how  often  this  happens,  but  trying  to  squeeze  out  a  few  more  %  points  of  proIit  
almost  always  backIires.    Always  be  prepared  to  buy  back  short  options,  because  at  the  end  of  the  
day  remember  this  one  thing:  Bulls  make  money,  bears  make  money  and  PIGS  get  slaughtered.  

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