Quick post to share my lessons trading $SPY options (these are just the rules that work for me, and are subject to change ... Also these rules are general and apply to trading most securities)
I'll be discussing calls here, however same can be applied to puts (in reverse, naturally)
- Buy calls only on dips, not in anticipation of a breakout nor after a big run and consolidation;
Best setup is to buy calls after a quick flush followed by higher lows:
- Always best to wait for a big drop followed by higher lows, this way you have a set risk (prior low) and great risk/reward.
- Always trade options expiring the end of the following week, not the current week (this way you avoid most of the time-value decay)
- If (like me) you pay per contract, choose the pricier options (priced $1 and over)
- Respect your stops
- Never step away from an open position
- Stay Disciplined!!!
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