The Most Important Thing to Focus On as An Option Trader

I am writing this educational piece for everyone who has experience with investing and or trading stock. Actually, I am focusing my attention on those of you who trade stock, not the investor who is buying stock to hold for the long haul to maybe collect dividends forever from it.

Actually, I am focusing my attention with this education on those of you who have traded stock but are interested in learning how to trade ‘Options’ on stock.

You may have seen and heard that with options you can make a lot of money with a lot less money at risk.

Though that is true, there is much to learn about the world of options trading that without that knowledge will make things VERY difficult for you in your quest to making a lot of money in options trading.

My Basic Intention with Stock Options

Options are wonderful as I can attest to as a professional option trader.

A stock option gives the owner/buyer of them the right, but not the obligation, to buy or sell a stock at a specific price within a certain period.

The first thing I want those of you reading and studying me and my style is to know I do not buy an option with the intent to exercise my right to later on buy the stock.

Instead, my intent with options counter to that is I buy an option with the intent to later sell that same option at a higher price than what I paid for it.

Components of a Stock Option

Here is a quick list of things that one must know about a stock option and the components that are involved with trading them.

1. Underlying Asset: The stock that the option is based on.
2. Option Type: Only two types – A Call option (right to buy) or a Put option (right to sell).
3. Exercise Style: American (can be exercised any time before expiration) or European (can only be exercised on the expiration date). * Note I only deal in American Style options.
4. Strike Price: The price at which you can buy (call option) or sell (put option) the stock.
5. Expiration Date: The date by which you must exercise the option.
6. Premium: The cost of purchasing or the price one can sell the option.

I can and will bring more education your way over the coming weeks this year, but for right now it is best if I tell you my opinion on what the most important thing to focus your attention on  out of all these listed items.

It’s the Underlying Asset.

Options are a Derivative of the Underlying Stock Itself

That means the pricing of the option derives it’s price from the stock price itself.

The value or premium of these options is closely tied to the price movements of the underlying stock.

Should the stock price rise significantly above the strike price of a call option, the call option becomes more valuable. Conversely, if the stock price falls significantly below the strike price of a put option, the put option becomes more valuable.

To emphasize this point when you go long or buy to open a Call option you want the stock to go up in price and when you go long or buy to open a put option you prefer the stock to go down in price.

The Most Important Component of a Stock Option is the Underlying Asset Itself

And when I write in the word asset, in this case and with this education you are reading I am talking about the stock. In other cases, the underlying asset could be an ETF or other securities.

Because the type of option you buy is dependent on the stock to move in the direction needed for that type of option, the call or the put, to become profitable you MUST be able to pick direction of stocks well.

I will educate you in future lessons another component of an option, which is its Implied Volatility (IV), and I’ll teach you why it’s important to assess if an option is cheap/inexpensive or expensive and why that’s important to the success of trading options, but for now primarily focus on getting good at assessing future price direction of the stock.

Focus on Stock Selection

Back to my original comments on those of you who have heard one can make a lot of money with stock options, my assessment and what I tell people ALL the time, and I have been telling people for a long time whether it is in a live seminar I have taught or online is this.

If you want to trade options because they are cheaper, but you are losing money with stocks, trading options isn’t going to save you. If that’s the case the only thing options are going to do is help you lose money ‘slower.’ 

Special Offer

Join Mastery On-Demand!

Have you ever wanted to join the Mastery Program but couldn’t make the live events? Well this year I wanted to change it up and offer you the ability to learn on your time with our brand new Mastery On-Demand offering.

Choose from a wealth of Mastery Programs including our System Mastery, Hedge Fund Mastery, and Trend Mastery — or choose to get access to all of them with the All Access pass.

Join Today!

App: Toms Option Tools

Toms Option Tools scan the markets for bullish and bearish trade opportunities using our proprietary scans and strategy algorithms. TTR Darknet finds bullish entries based on triple stack channel collisions. Money Calendar identifies seasonal patterns with at least 90% accuracy looking back 10 years. Weekly Cash Clock finds short term opportunities that last a week on average. Microcurrency Trader applies Darknet technology and moving averages to cryptocurrencies. Velocity Trader utilizes volume spike and Velocity indicators on custom stock lists. Quantum Scripts scans the markets for momentum acceleration signals and employs Quantum noise filters. Optimal Trader finds directional pre-earnings opportunities that are optimized for entry date, stock movement, and volatility surge. My Trades tracks the profit/loss of your trades, displays stock charts and risk graphs, creates new trades, and edits existing trades. Morning Report provides top 10 option rankings in 6 categories each day.

Disclaimers

Stock and options trading has large potential rewards, but also large potential risk.

You must be aware of the risks and be willing to accept them in order to invest in the stock and options market. Do not trade with money you cannot afford to lose.

This is neither an offer to buy/sell/ or recommend a particular stock or option.

Hypothetical or simulated performance results have certain inherent limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not been actually executed, the results may have under or overcompensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with hindsight.

No representation is being made that any account will or is likely to achieve profits or losses similar to those shown.

Disclaimer of Warranties and Liabilities Tom Gentile and TomsTradingRoom, LLC including employees, consultants, and editors (“Publisher”) cannot and do not warrant the completeness or accuracy of the content found in our areas, or its usefulness for any particular purpose.

Tom Gentile and TomsTradingRoom, LLC also make no promises that our content or the service itself will be delivered to you uninterrupted, timely, secure, or error-free. Under no circumstances will Tom Gentile and TomsTradingRoom, LLC be liable for direct, indirect, incidental, or any other type of damages resulting from your use or downloading of any content on our site.

This includes, but is in no way limited to, loss or injury caused in whole or in part by our negligence or by anything beyond our control in creating or delivering any portion of Tom Gentile and TomsTradingRoom, LLC.

You are agreeing that you bear responsibility for your own investment research and investment decisions. You also agree that Tom Gentile and TomsTradingRoom, LLC will not be liable for any I, investment decision made, or action taken by you, or others based upon reliance on news, information, or any other material published by Tom Gentile and TomsTradingRoom, LLC.

Tom Gentile and TomsTradingRoom, LLC relies on various sources of information that we believe to be accurate and reliable. However, we make no claims or representations as to the accuracy, completeness, or truth of any material contained on our site.

Tom Gentile and TomsTradingRoom, LLC are educational portals, providing content for educational and informational purposes only. Neither Tom Gentile nor TomsTradingRoom, LLC are a broker/dealer. Investors need a broker to trade stocks and options and must meet certain requirements. All securities, futures, and investments data and ideas are offered to self-directed investors. All prices in USD unless noted otherwise.

A full disclaimer can be found here:  http://www.tomgentile.com/legal_disclaimers.html.