Where to start? This is often the question many beginners of option trading ask. I’ve listed here five tips that will set you on the correct path to profitable option trading. Understand how options work and move. There are many free online resources that you can use to learn about options and how they work. It is fundamental that you understand that options are derivatives of another product and that the product price movement affects the movement of the options that you have bought or sold. A solid understanding of the exponential benefits and dangers of trading options is key. Volatility. Understanding how volatility works and how it affects the pricing of your options is very important. Volatility is really the main driver of option pricing besides the options in the money premium and time premium. Entering and exiting a trade as well as choosing what strategy to use revolves around your understanding of volatility. Know your underlying product. Whether you’re buying or selling options on an index or a stock, it is imperative that you understand the underlying, how it moves, and what news may be coming to affect the price movement. Trading the stock or index for news […]