Online Options Trading - 3 Rules For Option Trading Success

I’ve gotten a lot of questions about how I trade options lately. Many of those questions are really roundabout ways of asking if I have any hard and fast rules for trading options. I don’t have many rules that I consider “hard and fast,” but I do have three. So I thought I’d share them with you here.

1. Don’t hold any near-term option contracts.
2. Don’t buy option contracts that are out of the money.
3. Never hold an option until its expiration date.

The way these are written, it sounds like a list of what NOT to do. And it is. But these three rules can also be rephrased in a positive way…

1. Always buy options that don’t expire for a long time.
2. Only buy deep in the money option contracts.
3. Always dump option contracts before they reach expiration.

The truth is, I have a number of additional “rules” to help me trade options. But these rules can’t be applied in all situations.