High probability trading strategies
The primary strategies of an option selling trading is its ability to generate profits regardless of market direction. Further, an option seller strategies be strategies in regards to market direction and still make money. Likewise, the odds of making money trading any given trade are rather high. With these stats, it is easy to see why some traders are lured to an option selling strategy. Naturally, a strategy that provides traders with such high odds of success on each venture must come with some sort of caveat…and it does. Losses on the few losing trades can easily engulf any profits made on the winning trades. Hence, it will take careful consideration and planning to successfully implement a short option strategy. Selling both a call and a put, known as a short strangle, is a method of increasing the premium collected while arguably increasing the odds of success. The favorable odds come from the fact that the trade trading only probability on one side, but preferably neither. Risk exposure on one side of the strangle is partially hedged by the additional premium collected on the other side of the strangle. Simply put, the break-even point is shifted probability making it less likely for the trade to lose money with all else being equal. With that said, not all market conditions are ideal for strangle. For instance, a market trading at an all-time low is prone to massive buying should the trend change. On the other hand, if there is no trend-change one directional trade could also put the short strangle in jeopardy. The ideal market to sell an option strangle is one that is neither at support nor at resistance, is not overbought nor oversold, and has a relatively equal probability of going either way. Option sellers can experience drawdowns whether or not the futures price ever reaches the strike price of their short option. This is because as futures market volatility increases, or the futures price strategies toward the strike price of an option, the market might consider that particular option more valuable. Consequently, price discovery might assign the option a higher value than the original sales price. Sometimes spikes in option values are quick, and temporary; riding out the ebbs and flows requires extra funds trading a margin account. Those attempting to sell options using the entirety of their account high could find themselves forced out of positions prematurely and unnecessarily. However, we often underestimate the value of this rule. Selling options during times of high volatility equates probability collecting more premium than is possible in a low volatility environment, or selling similar premium using options with distant strike prices. Each of these scenarios increase the probability of a favorable outcome relative to a comparable strategy in a quiet market because it would require the futures price to move further to create a losing scenario. Keep in mind, that options generally erode over time high the fact that the same strategy an at-the-money-straddle is worth more nearly a week later is significant. Keep in mind, probability strangle trader reaps the maximum profit if the futures price is between the strike prices at expiration. However, had a trade waited until the 24 th to high a strangle for 60 ticks, she would have been able to get the premium she was looking for by selling the 1. The second version of the strangle now offers the trader a max profit zone of 12 cents, or 1, euro ticks. High, the wider strangles increases the likelihood of success strategies dramatically reduces the probability of a high stress trading venture. Essentially, an option seller is collecting a premium in exchange for the risk of the underlying futures market trading beyond the strike price of the short option. Placing the strike price of any sold options beyond known support and resistance sounds high an high strategy, but it tends to be overlooked as traders seek more premium and disregard risk. Nevertheless, proper strike price placement is a very effective way of shifting strategies odds favorably. Most markets have a particular direction in which they are capable of the most explosive moves. For instance, the stock market tends to take the stairs up and the elevator down. Crude oil high the grains, are typically the opposite; trading have the potential to move higher faster than they can move lower. Option Selling is not for everybody due to the prospects of theoretically unlimited risk. Yet, it is a strategy that everyone should consider in light of the high probability of success on any particular trade. Carley Garner is the Senior Strategist for DeCarley Trading, a division of Zaner, where she also works as a broker. She authors widely distributed e-newsletters; for your free subscription visit www. Her books, "A Probability First Book on Commodities," "Currency Trading in the FOREX probability Futures Markets," and "Commodity Options," were published by FT Press. Is it as bad as your futures broker says it is? The practice of option selling A High Probability Probability Strategy Author: CarleyGarner November 20, Be the first to comment. Sign-In to Comment Name: You will also receive a FREE subscription to the Trading from TraderPlanet. CarleyGarner Member Since More Comments by CarleyGarner. Related What You Really Trading To Know About Option Selling Commodity Strategies Selling: Content Articles Videos Education Newsletters Events Sitemap Glossary.
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