STEP BY STEP GUIDE OF THE STRATEGY
Options Trading Strategy
UNDERSTANDING THE CURRENT ENVIRONMENT
So, after you have learned both fundamental analysis and technical analysis and have a watchlist of the best stocks in every sector, and you know how to enter and exit put credit spreads and all that, the first step is to understand what part of the economic cycle we are in. Is the market bullish tech or cyclicals? Do airlines benefit from the time of year you are trading in? Does Amazon and Target and Walmart? What is the Federal reserve doing? Printing money at full blast? What is a reverse repo operation and a repo operation and what does that mean? Are Rates going higher or lower? Is there meet on the bone? You will need to figure this out if you are doing this on your own and not copying me. Again you can just copy me, but you can also learn as much as you want along the way.
REVIEW WATCHLIST AND PERFORM TECHNICAL ANALYSIS
Once you have a watchlist of the best companies in every sector and you know which sector is gonna be good for the next few months, look at the chart and compare that sector to its peers. So for example financials might be good at the time of year they might not be it depends but lets say you determine maybe its time to play financials. Maybe you look at JP Morgan, Bank of America, Wellsfargo, Square, PayPal, MasterCard, Visa, American Express and Discover. Check them out on the 20day 1hr chart. Zoom out look what they have done in the past year. Which ones has room to run? Which one is trading at the bottom of its 20 day range. If you are bullish enter a put credit spread and place the strikes at or just above the price of the stock when theMACD is about to cross from negative to positive, the money flow index shows oversold and the RSI shows oversold. Then set expirations for 3 weeks and once it fills set a closing order for 20 %.
There is risk management to every trade. If the stock starts moving against you weight any recent change in its fundamentals if any, against how much time you have left to be right. Can you just wait? Where you just a day or 2 early? No big deal. But if the stock drops substantially you might want to wait for a small bounce and sell into strength. Also we always manage our position size. Never use more than 1/8th of your account at a given time. And only take 2 positions per day maybe 3 or 4. Take it slow. Always carry buying power overnight. You can also roll the expiration out further in time to give yourself more time to be right if you need it.