TechniTrader Beginner "Trading Options Using StockCharts" Education by Martha Stokes CMT



Learn the Modern and Simpler Approach to Options Trading

For many Retail Traders, trading options may seem intimidating. This is because most traders are using the outdated 1990’s style options strategies, indicators, and theories.

The Options Market like the Stock Market, has undergone massive internal structural changes in the past couple of years. The giant Buy Side Institutions in prior years used Hedge Funds for mitigating and hedging the risk of stocks in a downtrend. However that all ended with the 2008 banking debacle, and the massive losses most Mutual and Pension Funds took as the mortgage backed Securities collapsed.

In recent years the Options Markets has had a surge of activity, and huge growth as the Buy Side Institutions with Dark Pool alternative trading systems started using options instead of Hedge Funds. For Retail Traders this is great news. It means that trading options is more liquid, with lowering spreads and reducing risk.

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It also means old style indicators such as "Put to Call Ratios" no longer work. Why? Because the giant Buy Side Institutions are buying puts as insurance against the downside risk, and they expect the puts to expire worthless. Assuming a high Put to Call Ratio means the Options Market thinks stocks are going down is wrong. Most Retail Option Traders do not know this fact. A high Put Ratio only means Institutions are buying insurance policies against higher risk stock trades. They are speculating that the market will continue going up but want to hedge their higher risk.

A huge advantage now available to Retail Traders who are trading Options using StockCharts are the changes to options pricing models.

Recently an exhaustive analysis was done on the Black-Scholes Model which proved empirically that this pricing model was intrinsically flawed, and increased risk for Options Traders who used it as a basis for option prices.

Since then the Professional side of the market has created new pricing models.This has had an unexpected result for the majority of options contracts.The option value now closely follows the stock price, eliminating the problematic variances that were present with older style pricing models.

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For Retail Traders who are trading Options using StockCharts this is a huge benefit. Previously Options Traders struggled with learning the Greeks, Implied Volatility which has also been proven to be seriously flawed, as well as other outdated options indicators. 

Now the modern approach to trading options is simply to find a stock to trade using the stock chart, then applying all the information from that stock chart to selecting the option contract.

This takes 80% of the work out of trading options and dramatically reduces risk. Everything you need to trade the option is in your charts. Using StockCharts for trading options eliminates the guesswork, confusion, frustration, and work thereby making trading options simple and easy.

The chart example below for was a stock TechniTrader Students were studying to learn the best way to take advantage of the slower paced price action out of a bottom.

nvidia corp. chart example with sideways action and a compression pattern - technitrader

A sideways action formed which was a typical Platform. A compression pattern formed on the lower range of this Platform and a High Frequency Trader gap followed as indicated by the red arrow.

Options Traders who were watching this stock had a potential entry at the high of the Platform. Based on the chart, the timeframe for holding the option was 3 months. This was based on the chart information. The strike would normally be set at the high of a Platform, with conditional orders contingent upon the stock action. This insures the option trade does not occur unless the stock moves up.

By using Technical Analysis of the stock, Options Traders would be able to enter earlier and earn higher profits while lowering trade risk. This was a Position Traders Premium Style Options Trade using a simple At-the-Money ATM on a long call. Basic yes, but highly profitable.





Summary

Trading Options does not have to be complicated. In fact the Professionals who make the highest income from trading options use simple one leg strategies, rather than complex multi leg strategies. This is because they use stock charts as their basis for trading the option contract.

Success in trading Options using StockCharts comes from knowing the proper strike price, time duration of the hold, risk factors, and potential profit gains which all come from the StockChart. This is how Professionals trade options in the modern Options Market. With new pricing models being used on the Professional side, the option follows the stock. Therefore your StockCharts are critical to successful options trading.

TechniTrader is "The Gold Standard in Stock Market Education." Go to the TechniTrader.com Learning Center and watch a wide variety of webinars, chart examples in this Learning Center are TC2000.com charts. Experience for yourself the excellence of TechniTrader education.


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Trade Wisely,

Martha Stokes CMT

TechniTrader technical analysis using a StockCharts chart, courtesy of StockCharts.com


Chartered Market Technician
Instructor & Developer of TechniTrader Stock and Option Courses
TechniTrader DVDs with every course.

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Disclaimer: All statements are the opinions of TechniTrader, its instructors and/or employees, and are not to be construed as anything more than an opinion. TechniTrader is not a broker or an investment advisor; it is strictly an educational service. There is risk in trading financial assets and derivatives. Due diligence is required for any investment. It should not be assumed that the methods or techniques presented cannot result in losses. Examples presented are for educational purposes only.