Best Time To Buy Stock Options
Stock options can be very profitable on the stock market as long as you use them properly. Whenever you are buying an option, you should take some time to consider why you are buying it. Here are some tips for finding out when the best time to buy an option is.
1. When Stocks Give You Technical Signals
Getting down to basics, you need a reason to buy the option to get started. If you just bought options and hoped the stock would suddenly have a big step up in your direction, you’ll be disappointed when it doesn’t.
Apart from that, you will also want to have some consistency in your trading approach. If you buy an option on breakouts stick with it and study it well before you move to other forms of trading.
2. When you have a good risk to reward ratio
You don’t want to risk 100% of your options contract to make a 20% return. When trading options you really need to look at the risk to reward ratio. Most professional traders use a risk ratio to reward 2 to 1 which means you have a reward that is probably $ 2 for every $ 1 you risk.
3. When you trade with trends
This one factor increases your chances of being right so much that don’t ignore it. Trends can last for a while so trading with them and not against them is the smart thing to do.
4. When it won’t kill you
You only want to buy options when you can afford to lose money. If you won’t be able to pay the rent if you lose it, don’t put it in the options trade. All the money you put into trading shouldn’t be a large number of your trading account to start with.