Rules Of Stock Option Trading by Larry Savage Jr.
Options are conditional derivative contracts that allow the buyers of option holders to buy or sell any security at a defined price. The buyers of the options are charged an amount better known as a premium by the sellers. These options are divided into call and put options. In the call option, the buyer of the contract purchases the right to buy the underlying asset in the future at a predetermined price known as a strike price whereas in the put option, the buyer acquires the right to sell an underlying asset in the future at a predetermined price.
Everyone makes mistakes whether in life or at times of investing or trading stock. Always be ready to accept and learn from your mistakes. The best traders always embrace their mistakes and consider them as an investment in trading education which helps them make better decisions while becoming more profitable traders. Larry Savage Jr has learned a lot in stock options and shares the rules to making trading a fruitful decision.
Rule #1: Do not purchase calls on stocks that you are not ready to sell. Be sure to sell if you buy calls on stock and avoid buying if you have any doubt in selling. This will save you from a later regret if your call options are assigned and you lose your equity position and premium. Another way to conceptualize is to use covered calls on positions that you are ready to sell or on stock that is purchased for a call strategy.
Rule #2: Follow your own guidelines, rules or system. If you are following your own guidelines then trust them. Develop a system or process to evaluate each trading strategy and then apply it to your trades. Do not mix trading with gambling and if such thoughts come to your mind then reassess what you are doing and give yourself a fresh start. Trading should not be looked at as a gamble, but an occupation.
Rule #3: Consider each trade as if the position is starting today. Larry Savage Birmingham understands that it can be very hard to let go the things psychologically when you are in a negative state. Everyone wants to be a winner, and you can be if you focus on not worrying about what happened yesterday. Each day you should reset. You do not want to be caught trying to make up for yesterday’s loses, but you also do not want to be caught relaxing from yesterday’s gains.
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