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Trade Approach

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Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

For today’s segment, Tom and Tony discuss the things we should consider while setting up a trade. It is important we have proper strike selection for efficient probabilities when trading options.

Things to consider:Use Probabilities
  • Using delta to approximate probabilities
  • More occurrences get us closer to the expectations
Avoid Illiquid Underlyings
  • Slippage
  • Larger price fluctuations on low volume
  • Inability to close trades due to wide markets
Use Caution When Legging in and Out of Trades
  • Best scenario-- we get a slightly better price
  • Worse scenario-- we start legging, and stock moves away
Consider Sizing
  • Understand notional value
  • Size appropriate for portfolio
  • Stay consistent when sizing positions.

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