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Tackle Today: Swing trading options

October 14, 2020

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Do you use this product in your trading?


This week we are featuring the hour-long webinar segments from our recent YouTube marathon.  Yesterday, we posted the Swing Trading Stocks replay from Coach Noah, and today the video of the day is on Swing Trading Options from Coach Cody Maki.

When you are swing trading, you can choose to use a variety of products including stock and options.  Traders who use options to swing trade do so for a few different reasons.  First, you can enter your position controlling the rights to 100 shares at a lower cost than purchasing 100 shares outright.  Trading option contracts allows you to control your risk based on how much you spend, and still get leverage in your position which can lead to faster and larger gains AND losses.

Essentially, swing trading options will accelerate your percentage returns and losses on a position.  It is a popular tactic, but one that you must understand at a deeper level than simply swing trading stocks.  Stocks are simpler, options are more complex.

If you are using the STEP System principles, swing trading options can be used at your entry point as the product of choice. When you enter, how many contracts will you trade?  How much capital as a percentage of your trading account will you spend?  How much will you risk?  You need to answer these questions yourself, but in general, the answers should be much smaller than in stock positions. 

Many traders will simply spend 1 or 2 percent of their account on an option swing trade, to reduce the theoretical risk down to what they are comfortable with.  If your rule is 4 percent, you are willing to take more risk per trade as a percentage of your account.  

If you are going to swing trade options, make sure you learn the nuances.  Spend some time today studying the options market and see if this product fits your trading personality.


Chart of the Day

Long Call Risk Graph

When buying a long call option, a trader owns the right to purchase an underlying security (100 shares) at a specific price (strike price) at or before a specific date (expiration date). 

Video of the day

Swing Trading Options

When buying a long call option, a trader owns the right to purchase an underlying security (100 shares) at a specific price (strike price) at or before a specific date (expiration date). 

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