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WEEKLY OPTIONS STRATEGY

by Amanda Harvey

A weekly options strategy that effectively covers several key aspects is vital in successfully trading weekly options. Some of the important factors which a strong options trading strategy must include are choosing which weekly options to trade, knowing when to enter and exit a trade to ensure the greatest potential profit and how to minimize losses.



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WEEKLY OPTIONS STRATEGY FOR CHOOSING WEEKLY OPTIONS

The most important part of selecting stocks on which to trade weekly options is to be aware of short term events that are likely to significantly impact the prices of stocks on which weekly options are offered. By predicting the direction that the price will move, a trader can take immediate advantage of this movement with weekly options.

These areas of influence include, but are not limited to the following:

Occurrences within the company itself, such as reporting earnings, announcing mergers or acquisitions, changes in top-level management, or the release of a new product, often affect the price of a stock.

Even an event in one company can affect other companies in the same sector either positively or negatively.

Major economic and political news items regarding issues such as interest rate changes, unemployment rates, and international relations often have a notable impact on stock prices.

Being aware of these events and how they are likely to affect the movement of stock prices is a key component of weekly options strategy, and is a huge area of focus for the research involved in our membership services.

WEEKLY OPTIONS STRATEGY FOR ENTERING TRADES

Knowing when to enter a trade is a crucial aspect of weekly options strategy. Our weekly trading membership service suggests the price at which we believe it is desirable to enter a specific trade, and this price is based on the close of the previous day’s trading.

However, the closing price does not always reflect what the opening price will be, so if the price is higher at opening, a trader must use their own judgment in deciding whether or not to enter at the higher price. It is possible that the market will pull back after opening high, so waiting may sometimes give the opportunity to enter the trade at the suggested price, or perhaps even lower, but of course this doesn’t always happen.

Another choice is to enter the trade at market price on the assumption that the price will continue to perform, and that paying a somewhat higher premium will not significantly impact the profit to be made.

A third choice is to wait and see what happens the following trading day. The price may have dropped to the desired entry point, allowing the trader to enter the trade at an opportune moment. If the price is still too high, it may be wise to wait for the next trade, as weekly options are especially time sensitive.

Another possibility is to enter at market price just before the close of trading, and be prepared to watch what happens when the market opens the following morning.

WEEKLY OPTIONS STRATEGY FOR EXITING WINNING TRADES

The next vital step in effectively applying weekly options strategy in your trading is deciding when to exit a trade. Trading weekly options requires a commitment to being hands-on and monitoring your positions. If this is not compatible with your profile as a trader, you could consider trading monthly options for a more relaxed approach to trading.

As a rule of thumb, we suggest a target of 100% profit, and this needs to be adjusted according to your entry price. If the target is attained, it is then up to you to decide whether you will exit the trade, or hold your position longer in anticipation of even higher profit. This decision needs to be based on your risk profile, and how strongly you believe that the upswing will continue. You might not even wish to wait until 100% is attained, but may be happy with 20% or 50%. There is no one right approach that fits all traders and even an individual trader will often vary their approach at times depending on a variety of factors.

One thing that is very important to be aware of is that you don’t have to wait until expiry to exit a weekly options trade. You can exit at any time you choose, prior to expiration.

WEEKLY OPTIONS STRATEGY FOR HANDLING LOSING TRADES

The other side of using weekly options strategy for exiting trades is when the trade is experiencing a loss. As a guideline, you can consider opting out if a trade is down by 60%, but doing this is not necessarily recommended.

It is important to consider the market volatility, and whether or not it is likely that the price movement will change fast enough and significantly enough to make it worth holding on to your position. By holding on, you might be able to break even, or exit with a smaller loss, or in the best case scenario, realize a profit.

Another weekly options strategy that we often apply is to double down on trades that are showing a loss. By purchasing another contract of the same option at a lower price, you are reducing the cost per contract of your investment. This means that even a smaller improvement in the price will allow you to improve your outcome, making it easier to break even or achieve a profit. On the flip-side, it also means that you have a possibility of losing some or all of an increased amount of capital, but frequently doubling down proves to be a worthwhile strategy.

In fact, if the price continues to drop, you may even consider doubling down again!

A FINAL WORD ON WEEKLY OPTIONS STRATEGY

When it comes to choosing the best possible weekly options to trade, deciding how much to pay to enter a trade and the optimum time to do so, and making a healthy profit while minimizing losses, your weekly options strategy needs to be solid. Our Weekly Options Advisory Service Membership does a whole lot of this for you, and gives you the best possible advantages in your weekly options trading.



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