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hollister france Options Investing Strategies
PostPosted: Sat 18:21, 07 Sep 2013
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It is very important to understand how to invest in options before starting to trade them. Many options traders loose a big portion [url=http://www.getconversational.com]hollister france[/url] of their portfolio when they start to trade [url=http://www.gotprintsigns.com/uggpascher/]bottes ugg pas cher[/url] options simply because of the wrong "selected money management strategy". Money management strategies dictate how much to invest (and reinvest) in each trade. We have compiled three of the most popular investment strategies below with explanations of how these strategies are applied in the options trading.
Strategy 1: Invest a fixed percentage of the portfolio
One [url=http://www.rtnagel.com/airjordan.php]nike air jordan pas cher[/url] of the most popular trading strategies is to invest a fixed percentage of the portfolio on each trade. In a simple example, when a trader dedicates 20% of a [url=http://www.achbanker.com/home.php]hollister[/url] portfolio in each trade, and assuming a $10,000 portfolio value, the trader would thus invest $2,000 in the first trade. If a first trade [url=http://www.seattlesoycandles.com]hollister[/url] results in a 50% profit, the portfolio then would [url=http://www.mansmanifesto.com]doudoune moncler homme[/url] grow to $11,000 and in the next trade $2,200 (20% of $11,000) will be invested. This approach to options trading is considered conservative [url=http://www.orlando-apts.com/nfljerseys/]nfl jerseys[/url] and is very often used by professional options traders.
Strategy 2: Invest a fixed amount
Another investment strategy is to invest a fixed amount per trade. Similar to the first example [url=http://www.achbanker.com/home.php]hollister france[/url] a trader would initially allocate $2,000 in each trade. Even after the portfolio grows to $11,000 only $2,000 would be invested in the second trade. This trading strategy is less profitable than the first investment strategy discussed above; however, it allows a trader to recover more quickly from a losing trade. In some cases this trading strategy can be used in [url=http://www.1855sacramento.com/woolrich.php]woolrich bologna[/url] combination with strategy #1 by options traders. For instance, in order to increase profits, some traders may prefer to use strategy #1 after each winning trade, and in [url=http://www.gotprintsigns.com/jordanpascher/]jordan pas cher[/url] order to recover faster from a lost trade the #2 strategy might be used after each lost trade until the portfolio is restored.
Strategy 3: Reinvest both the principal and the accrued profits
The last popular trading strategy involves the reinvestment of both the principal and the profits after each trade. If a trader invests $2,000 on a first trade and then takes a 50% profit, then $3,000 would be invested in the second trade (the principal of $2,000 plus the $1,000 profit). By using this strategy, a trader would benefit from compounding and many investment institutions use this strategy, however, trading options this way is aggressive and very risky and may quickly result in wiping [url=http://www.gotprintsigns.com/monclerpascher/]doudoune moncler pas cher[/url] out an entire portfolio. None of the professional options traders use this strategy in options trading.
In summary: is a very risky type of trading and using the strategy #3 could be equivalent to financial suicide. Sooner or later a [url=http://www.vivid-host.com/barbour.htm]barbour uk[/url] trader using this strategy will result in loosing the whole portfolio unless a 100% successful is used. On the other hand the options trading strategies #1 and #2 are used most of the time. Strategy #1 is used in autotrading by many online brokers and very often this is the only choice a trader has in the options autotrading account.
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