Trying to learn options. Have owned the stock for a couple of years. Fidelity will not approve me for level two options. How best to use level one to build portfolio?
You must HEDGE your risk.
I made money 22 out of 27 options trades. Doesn't matter because the 5 trades that I miscalculated, I suffered catastrophic losses. HAD I HEDGED THOSE TRADES, I would have been at a B/E or at profit.
No such thing as a safe stock. Even solid earners like AGNC, BMY, CQP, ETP have had 10-15% flash crashes.
A 15% drop will mean a 90% drop in your options. No such thing as cutting your losses.
So let's say you want to buy AGNC options (DONT BUY NOW).
You can buy the 32dec calls for 3.30. You can hedge your calls by buying the 32dec puts for .50. So for a 16% additional cost, you can protect your position and make money either way.
Olee, a clarification please. When you gave this example of a hedge, "You can buy the 32dec calls for 3.30. You can hedge your calls by buying the 32dec puts for .50. So for a 16% additional cost, you can protect your position and make money either way". are you buying equal numbers of calls and puts? Thanks for you help.
But the thing about "flash crashes" is that they recover almost instantly. So, there is no catastrophic loss in options play UNLESS you PANIC and sell/buy-to-close your option when the "flash crash" hits. In options play, as with most investments, it pays to keep your cool and be patient.
It is IMPERATIVE that you set a sell/buy mental (but write it down and FOLLOW it) stop loss price BEFORE you execute every options trade. 10% below your entry point is a good limit. In that manner, you stop your losses from becoming HUGE (if you guessed wrong in the price movement) and let your profits run (if you guessed right). (Olee apparently didn't do that or panicked at the sight of a "flash crash".)
Do you hedge every position? I'm very new to this and haven't hedged anything yet.I figured with the dividend stocks there will always be some run up and the worst I could do is BE at ex date.Also I only buy options 3 months or more out to expiration and always ITM calls.I know I'm taking a risk by not hedging but IMO it's a small risk ,I mean the worst thing that happened so far was EPD did an SPO after I bought calls so I saw red for a few weeks but now that turned green again.
Sentiment: Strong Buy
I had no interest in options till I started following this MB.Just asked questions and started small,with encouragement from Doc,Angrad,) Ollie,FN and others,I opened an account with OptionsXpress. By mirroring the trades talked about here(AGNC and BMY) I've doubled my Trading money in less than 6 months.There's no way I could get those results just by trading stocks(options are stocks on steroids).Now I've been buying CQP,EPD and KMP ;hoping for another good runup.I've been tempted to try other non dividend stocks but so far resisted the urge,which is good thing because my track record in the past was not that good.In fact I had given up trading and was just going to buy and hold AGNC for the dividend,but thought after reading this MB if they can do it why can't I make mucho dinero trading options.Reading the warnings about the risks(90% of options traders lose money)almost scared me off but,so far so good.They weren't talking about the traders on this MB.Lots of luck to you!
Sentiment: Strong Buy
Do lots of research, make sure you know how and when to exit the trade and start small until you have some experience. Get a discount broker so the trading fee's don't eat up your profit (keep fidelity for chart analysis, screening, etc, and when you apply for the increased option levels tell them that you have a good amount of total assets (not necessarly what you intend to deposit with the broker) and several years of experience and they should grant you increased options levels. IE 250K assets, 10 years stock trading, 5 years of options should get you above level 1. Also important is your objective or risk tolerance, if you tell them "ie aggressive" investor you are more likely to get a higher option level than if you say "growth" or "conservative". It is just the trading house way of screening applicants and mitigating their own risk.
Tong, here are some strategies for you to research.
Also one question, from a Finance stand point, do you have any debt? And is the debt's interest more than what you have generated on returns on your previous investments? The only reason I ask is because sometimes it is wiser to use your money to wipe out debt, then while debt free accumulate money to invest with.