Secret 96RULES OF THE ROAD FOR OPTION BUYING
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To help you in your option buying activities, I have established
a series of guidelines for buying both stock and futures options.
These rules of the road should help you pick out those
winners.
Rules of the Road for
Buying Stock Options
1. Buy only underpriced options.
2. Buy cheap options—options priced under 1 or under 2.5
for Leaps.
3. Buy close-to-the-money options.
4. Buy options with as much time as possible before expiration.
5. Buy options where the underlying stock has the potential
for increased volatility in the future.
6. Put the same number of dollars in each position.
7. Diversify over time (2 years).
8. Buy in quantity to save commissions.
9. Buy an option where the stock price has a good chance
to move across the strike price.
10. Try to buy options where there is at least a 20% chance
of profit.
Rules of the Road for
Buying Commodity Options
1. Buy only underpriced options.
2. Do not pay more than $400 for an option.
3. Buy close-to-the-money options.
4. Buy options with as much time as possible before expiration.
5. Buy options where the underlying commodity has the
potential for increased volatility in the future.
6. Diversify over time (2 years).
7. Buy a commodity option where the underlying commodity
price has a good chance to move across the
strike price.
8. Try to buy options where there is at least a 20% chance
of profit.
To help you in your option buying activities, I have established
a series of guidelines for buying both stock and futures options.
These rules of the road should help you pick out those
winners.
Rules of the Road for
Buying Stock Options
1. Buy only underpriced options.
2. Buy cheap options—options priced under 1 or under 2.5
for Leaps.
3. Buy close-to-the-money options.
4. Buy options with as much time as possible before expiration.
5. Buy options where the underlying stock has the potential
for increased volatility in the future.
6. Put the same number of dollars in each position.
7. Diversify over time (2 years).
8. Buy in quantity to save commissions.
9. Buy an option where the stock price has a good chance
to move across the strike price.
10. Try to buy options where there is at least a 20% chance
of profit.
Rules of the Road for
Buying Commodity Options
1. Buy only underpriced options.
2. Do not pay more than $400 for an option.
3. Buy close-to-the-money options.
4. Buy options with as much time as possible before expiration.
5. Buy options where the underlying commodity has the
potential for increased volatility in the future.
6. Diversify over time (2 years).
7. Buy a commodity option where the underlying commodity
price has a good chance to move across the
strike price.
8. Try to buy options where there is at least a 20% chance
of profit.