Futures Options Trading How To Enter a Position
By Ultimate Trading
Knowing When & When Not To Enter A Futures Options Trading Position Can Make All The Difference
Once youve put the time and effort into coming up with a sound
futures options trading plan, and have found a good futures
options trading opportunity, it makes sense to start the trade
right. Finding a good point to enter into a position involves
several issues. Fist, you must know the time frame of your trade.
For a particular trend trade, for example, you might know that you
should enter no earlier than a week before the event creating the
Next, you must examine futures options trading charts to see where
the stock has been and where its support and resistance levels are,
and think about its psychological support and resistance levels as
well. Last, you should wait for a pullback in price if you believe
that the price is temporarily high and that it will drop and create
a better buying opportunity for you.
The way to make sure you enter where you plan to is to use a limit
order. A limit order is an order that can execute only at the stated
price or better. Limit orders sometimes make you wait behind others
who placed their orders at the same price before you did, but in
most situations, placing a reasonable limit order is the only smart
way to enter a futures options trading position.
In certain futures options trading situations, it may make sense to
stagger your entry by buying half the shares you want at a price you
think may be the lowest the stock will reach, and then waiting to
buy the other half either when the price does get better, "averaging
down", or when the stock starts to move, "adding on strength."
The wrong way to enter a futures options trading position is to
chase a moving stock. Chasing stocks is a form of panic, and it
practically guarantees that you'll pay too much for the stock. Why
is it so bad to pay too much? The more you pay for a stock, the
further your risk-to-reward ratio is shifted away from reward and
toward risk. This happens because your upside has decreased due to
the high price of the stock, and because the probability of the run
ending increases as your futures options trading gets more and more
There are two ways to look at the decrease in your upside: First of
all, you'll capture less of the stock's movement, so your percentage
return will be less; second, the more the stock costs per share, the
fewer shares you'll be able to buy. Which means that fewer shares
will multiply any return you get. Remember, it doesn't matter if you
miss a trade or a futures options trading position because the entry
price has gotten too high. Its not the last good futures options
trading opportunity in the market. There will always be more futures
options trading opportunities to make. It's much better to miss a
trade than to chase a stock and end up with a loss.
Morning gaps down present good opportunities for futures options
trading. Buying a gap down is an excellent way to enter a futures
options trading position, since when a stock gaps down, it often
opens near what will turn out to be the low of the day. On the other
hand, buying a gap up is one of the worst futures options trading
mistakes you can make. The gap up generally reflects the top of the
market's level of interest in the stock.
Any good news from overnight has generally been priced in, so the
futures options trading opening price and volatility on a gap up
often establishes the stock's high of the day. Therefore, buying, or
really chasing, the gap up means that you will likely buy the stock
for top dollar. A good trader buys stocks that have an upside that
hasnt been priced into the stock.
Entering a short position on a gap up is a great futures options
trading plan, though shorting a gap down is foolish. The opening
price and volatility on a gap down often establishes the stock's low
of the day, so shorting at the lowest point would be a poor futures
options trading decision to make. However, if you keep these futures
options trading guidelines in mind, you will be able to find a safe
entry point for your trade. One that fits with your
futures options trading plan, and puts you on the path to
consistent futures options trading success.
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