I came across an article today about how the average mutual fund investor isn't making any money in the stock market (according to a recent study by the Center for Retirement Research). What's worse is that they're actually losing money – despite record highs.
The author concluded by making one point: "you simply can't time the markets."
But he couldn't be more wrong. In fact, he's wrong on multiple levels.
Not only can you time the markets – you can cash in on any stock move without even looking at your computer or calling your broker.
And it all boils down to these four little orders…
When Trading Options, These are the Best Four Orders You Can Use to Set Your Trades and Go
Last Friday, we talked about the lies Wall Street's been feeding you about options trading. As you'll recall, it's not that options are too risky or too complicated… it's that they're so lucrative and so easy use that the billionaires can't stand even the thought of an "average investor" sharing the profits.
Now I already showed you how to get started. And now, I'm going to take you through the only five orders you need to set your trades – and wait for profits.
But before we get to that, I want to take a minute to talk about how you open and close a trade. After all, the type of order you'll need to place depends on whether you're opening or closing a trade…
Buying-to-Open and Selling-to-Open Calls and Puts
When you open a call option trade (also called "taking a position"), you're purchasing the right to buy a stock at a specific price on or before a certain date. When you open a put option trade, you're purchasing the right to sell a stock at a specific price on or before a certain date.
Whether you're buying-to-open a call or put trade, your position stays open until either the option expires or you sell-to-close your trade. With what's called American style options, this can be done prior to expiration. European style options can only be exercised at expiration.
You can track open option contracts by looking at open interest (OI), which you can find on your brokers trading platform.
Buying-to-Close and Selling-to-Close Calls and Puts
When you close a call option or put option trade, it means you're relinquishing your right to either buy or sell the stock. You can do this prior to expiration, which means that you're accepting either a profit or loss on the trade at that time. But the most important thing is understanding your online trading platform and selecting the proper order execution. There have been too many instance when novice options traders inadvertently sell-to-open an option instead of selling-to-close it. This mistake leaves them with an open naked option (we'll talk about that later) – which is an ultimate-risk situation to be in.
With that, let's talk about the four order t…
About the Author
Tom Gentile is one of the world's foremost authorities on stock, futures and options trading.
With more than 25 years' experience trading stocks, futures, and options, Tom's style of trading systems and strategies are designed to help individual investors propel themselves past 99 percent of the trading crowd.