Preparation

Posted by Scriptaty | 12:40 AM

Of course, you cannot simply pull up your trading screen five minutes before an event and expect to obtain a reasonable price on an exotic option. At that point volatility is likely to have increased to such an extent that most trades will be unattractive from reward/risk point of view. However, traders who do their analysis and plan trades a week in advance of an event will be in a much better position to find favorable opportunities.

The operative word here is plan. Planning may be the greatest benefit of option trading. By sifting through possible scenarios and analyzing the probabilities of each trade strategy, the option trader engages in a far more rigorous intellectual process than the reactive spot trader. And we all know impulse trades often generate the worst losses. “Have a hunch – bet a bunch” may be fine for a few harmless dollars on lottery tickets, but it is not a good strategy for trading success.

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