ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel

Options Strategy and Considerations

Updated on April 3, 2010

Options Strategy

One of the most challenging aspects of trading options and one of the core elements of options strategy is learning the art of self-discipline. You have to get to a place where you establish rules and certain trading standards that you will not transgress. You will have to learn how and when to open and close your position, how you’re going to decrease your risk exposure, and what potential targets for profits you will set. Without these measures in place, your chances of profiting are drastically reduced.

Discipline is a required fact of trading successfully. If you master the art of being able to trade your positions in line with rules that you have already defined, you will decrease your risk of being tempted to trade emotionally and by the “seat of the pants”, so to speak. Because the options market is so fast-paced and always changing, plus the fact that options have limited time frames (they expire after a certain time), you will need to learn how to put time on your side in order to trade properly. This requires you knowing the whole purpose of and use of options, and also knowing when to exit your trade.

You must establish your trading plan before you even press the “Place Order” button on your trading screen. What is the purpose of your option position? Is it to profit from the option itself, or is it to leverage your stock holdings for profit? Are you going to purchase (go long) options or write (go short) options? If you sell options short (or in other words, write them), you will need to know the implied volatility of that option so that you can know if selling is worth your while. You can also use options as a strategy to protect your stocks from eroding in losses.

Image Credit: Microsoft Office Clip Art
Image Credit: Microsoft Office Clip Art

Options Strategy and Considerations

Once you define your plan of entry, you must immediately make a plan for exit. You must know when you are going to get out of your trade, and what will be the triggers that will indicate to you that you should exit the market. Will it be a certain percentage of loss to your account? Also, defining profit points is just as vital. Will you exit the trade when you increase to 20% or 40% profit, or will you use a trailing stop to maximize the trend? Maybe doubling your money will be a good rule of thumb for option trading profit targets.

Knowing your risk is vital to trading options. If you are trading “naked” options, you should automatically know that your risk is much higher than if you were using cash secured options. Should you liquidate your option position at a certain point of loss, or should you take the risk to let it expire? You must think of all these kinds of things before placing your trade. Otherwise, you will be trading blind and possibly falling into a ditch, to use a metaphor.

An important lesson to learn is that options and stocks should be viewed as one whole unit, not a separate entities. You must think of your overall options strategy and plan accordingly to avoid frustration and financial loss. Without sticking to your plan, your failure will be inevitable, you just may not have knowledge of it yet. Do not allow yourself to have exceptions to your trading rules. Be firm with yourself, because your real hard-earn money is on the line.


    0 of 8192 characters used
    Post Comment

    No comments yet.


    This website uses cookies

    As a user in the EEA, your approval is needed on a few things. To provide a better website experience, uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

    For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at:

    Show Details
    HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
    LoginThis is necessary to sign in to the HubPages Service.
    Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
    AkismetThis is used to detect comment spam. (Privacy Policy)
    HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
    HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
    Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
    CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
    Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the or domains, for performance and efficiency reasons. (Privacy Policy)
    Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
    Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
    Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
    Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
    Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
    VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
    PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
    Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
    MavenThis supports the Maven widget and search functionality. (Privacy Policy)
    Google AdSenseThis is an ad network. (Privacy Policy)
    Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
    Index ExchangeThis is an ad network. (Privacy Policy)
    SovrnThis is an ad network. (Privacy Policy)
    Facebook AdsThis is an ad network. (Privacy Policy)
    Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
    AppNexusThis is an ad network. (Privacy Policy)
    OpenxThis is an ad network. (Privacy Policy)
    Rubicon ProjectThis is an ad network. (Privacy Policy)
    TripleLiftThis is an ad network. (Privacy Policy)
    Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
    Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
    Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
    Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
    ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
    Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)