Options Trading Checklist

Options Trading Checklist

In order for it to be even remotely possible to make an income through trading options, you have to address the “Options Trading Checklist.” Here is one we have created for you.  Please feel free to build from this list of options trading tips to meet your personal goals.

1. Do the numbers add up to a profit? For example, if the probability of your trade is 7 of 10 and it makes 5% on average and loses 10% on average, then what will be the total profit after 100 trades?

70 x 5% = 350% for your winners.

30 x -10% = -300% for your losers.

This system should make 50% after 100 trades if you can achieve your averages.  How long will it take you to execute 100 trades?  Spend time number crunching before you begin to trade or test out your system.

2. After you design a system with profitable numbers, do you have a plan to execute this system?  Develop and practice this trading system in a paper account to see if you can match the statistics of your trading rules.

3. If you have access to back testing software, then back test your system for many years to get these averages you need.

4. Test your system on strikes with high open interest. This will help create a realistic trading system that you can execute.

5. Factor in commission costs and order execution losses into your calculations. Is your system still profitable after you factor in these costs?

6. Can your broker process your orders needed for your system to work? Compare brokers and find the one that matches up best for you. Consider software and commission structure too.  A trader with a larger account could benefit from a broker that offers .35 per contract and a minimum order while the small account holder might benefit more from no ticket charge and .75 per contract.

7.  Stress test your system over worse case scenarios because they will happen.  What is your maximum loss if the market falls 10% in a few minutes?  Is your account safe in every situation imaginable?

That’s a good start.  Build on this list or create yourself a new one.  Design yourself an options trading checklist to meet your personal needs.  What is your goal?  Would you be happy with a 10% yearly return and very little risk or are you willing to risk more to make more?  First, determine what your needs are, and then design your trades the best you can by following your options trading checklist.

I hope you enjoyed these options trading tips!  Good luck with your trading.

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