Trend Trading with Options

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TREND TRADING WITH OPTIONS: Before initiating an option trade, check the current trend of your stock as well as the overall trend in the market. Because option trades are time-limited, make sure the trend is working with you.

In other words – the trend is your friend!

It’s usually not wise to take an option position that attempts to capture a bottom or a top in the stock price.  Wait for some confirmation of the move you want to capture.  You can afford to be patient about entering a trade, because with the leverage of options you do not need to catch much of a move in the stock to make a profit – that’s the advantage of trend trading with options.

If the stock you like has pulled back, look for a clear indication it’s resumed its uptrend before buying a call.  If the overall market has been in a bearish mode, be careful about initiating a bullish option trade until a reversal seems evident.