When you enter into online options trading, there are a lot of things you are required to study. One of the most fundamental is stock option valuation. Why do you need to become familiar with option valuation? Because the usefulness of a stock option will influence your investment decisions when trading options and help you to maximize your potential profits.
The final factor is the volatility of a stock’s price. Volatility refers to a stock price’s movement over time: it can be both high or low. The higher a stock’s volatility, the more pricier the premium will be. If a stock you hold an option on abruptly becomes volatile after a prolonged period of stability, the price of the option will probably go up in addition, you can take advantage by trading it.
I also look for pullbacks in stocks that have strong fundamental and technical factors that suggest they’re going to get a rapid turn to the upside or downside. I’ll watch for stocks that are above their 200 day simple moving average that have a Relative Strength rating of 90 or higher, for upward moves. I also watch to determine if they have found in a flat based trading range for two months or so. If they make a move to an all time high out of a two month price base I’ll watch the stock’s price action compared to its 10 day and 20 day simple moving average and wait for a pullback. If the stock’s price begins to pull back evenly to its 10 day simple moving average without violating its 20 day simple moving average (which serves as a stop for a job once entered) I wait for price to trade over the high of the last day’s price high to enter. This allows me to play momentum stocks at the start of a possible big run with options while always controlling my risk with a dynamic stop in place (the 20 day simple moving average).
Another valid point on the topic of trading options picks
Familiarity with option valuation will make your online options trading more profitable and help you keep away from costly errors.