10 OPTIONS TRADING RULES AND FUNDAMENTALS

10 Options Trading Rules/Fundamentals:

A set of trading fundamentals must be followed to successfully run an options-based portfolio. Specifically, position sizing, sector diversity, maximizing the number of trade occurrences and risk-defined strategies are some notable areas that traders need to heed for long-term successful options trading not only in small accounts but in accounts of all sizes. 

In order to effectively and successfully run an options-based portfolio over the long-term, the following option trading fundamentals must be exercised in each and every trade. Violating any of these fundamentals will jeopardize this strategy and possibly negate the effectiveness of this approach on a whole. Below are 10 option trading rules for small accounts and accounts of all sizes but specifically small accounts as it pertains to risk-defined strategies when capital is limited.

  1. Be an option seller to collect premium income while taking advantage of time decay

  2. Set the probability of success (delta) in your favor (70%, 85%, etc.) to ensure a statistical edge

  3. Manage winning trades by closing the trade and realizing profits early in the option lifecycle

  4. Sell options in high IV Rank environments to extract rich premiums

  5. Sell options on tickers that are liquid in the options market

  6. Maximize the number of trades to allow the expected probabilities to play out

  7. Appropriate position sizing / portfolio allocation to manage risk exposure

  8. Sell options across tickers with ample sector diversity

  9. Keeping an adequate amount of cash on hand (~25% - 40%)

  10. Risk-defined trades (put spreads, call spreads and iron condors)    

Daily trade notification service removes the guess work of selecting tickers to trade

Perfect for those seeking to remove the guesswork in options trading

Noah Kiedrowski 
Founder of Stock Options Dad LLC
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