00:00We've talked a lot about trading stocks, commodities, currencies, cryptocurrencies, but we haven't covered options yet.
00:07Well, now is the time.
00:11Hi, this is Tim from TradingStrategyGuides.com. Welcome back to our channel.
00:16This video is a simple step-by-step guide on how to buy, put, and call options.
00:21While this strategy is focused on the stock market, it can easily be applied to other asset classes like forex currencies and commodities as well.
00:30For the purposes of this video and in the interest of simplicity, we'll be focusing only on buying, put, and call options.
00:38Selling options is a totally different animal, and it requires much more experience to properly understand the inherited risk associated with this type of options trading.
00:47Why? Because when selling options, you can't control the downside risk, so we're only going to talk about buying puts and calls, which does allow us to control the risk.
00:57This is one of the most successful option strategies, not because it doesn't have losses, all trades have losses, but because it's very consistent in providing you with profitable trade signals.
01:0715 minutes is the preferred time frame for our options trading strategy.
01:12Let's start by talking briefly about options.
01:14There are two types of options.
01:17A call option gives you the right to purchase the stock at a specified price, called the strike price, and on a predetermined date, called the expiration date.
01:26A call option is typically used when you expect the underlying stock to go up in price.
01:31A put option has the opposite effect of a call option, as it gives you the right to sell the stock at a specified price, again called the strike price, and on a predetermined date, again called the expiration date.
01:43A put option is typically used when you expect the underlying stock to go down in price.
01:48Now the only indicator you'll need for this strategy is the relative strength index, or RSI indicator.
01:54Since options trading is constrained by the expiration date factor, it's important to select a technical indicator that is suitable for options trading.
02:03The RSI indicator is a momentum indicator, which makes it the perfect candidate for options trading because of its ability to detect overbought and oversold conditions in the market.
02:13You should be able to find the RSI indicator on most all trading platforms.
02:18The RSI uses a simple mathematical formula to calculate the oscillator.
02:23That's the extent of the mathy stuff on the RSI.
02:26In fact, you don't even need to remember this.
02:28That was just for the math geeks out there in our viewership.
02:31All you need to know is how to interpret the RSI indicator.
02:34Basically, an RSI reading equal to or below 30 indicates the market is in an oversold condition, while an RSI reading equal to or above 70 indicates an overbought condition.
02:47At the same time, a reading above 50 is considered bullish, while a reading below 50 is considered bearish.
02:54We'll use the default RSI indicator settings, which is typically a 14-period length.
02:59Okay, let's go over the strategy rules.
03:02Step number one is to wait for the first 15 minutes after the stock market opens to establish your market bias.
03:09Our option strategy does not focus only on the price, but it also makes use of the time element.
03:14The stock market opening price is usually the most important price.
03:18Typically, during the first minutes after the stock opening bell, we'll note a lot of trading activity, because that's the time when major investors are establishing their positions in the stock market.
03:29If you've been on this channel for a minute, you know I'm a firm believer in smart trading.
03:34And to do that, we have to track the smart money action in the market.
03:38You know, the big guys, the big bank and big hedge fund traders.
03:41You will also know that I don't like to stare at charts all day, so our trading strategy will attempt to limit our screen time.
03:49The New York Stock Exchange opens at 9.30 Eastern Standard Time, or New York Time, which is the same as 1.30 p.m. GMT for those trading from Europe.
03:59This brings us to step number two.
04:02Make sure the 15-minute candle after the opening bell is bullish.
04:06As we established earlier, we only want to trade in the direction the big guys are going.
04:11If we're looking for call option buying opportunities, we want to make sure the smart money is buying right at the open.
04:17Of course, if we're looking to buy put options, we want to see sellers appear right after the opening bell.
04:23Also take note, if we have an opening gap up in the price, it means the buying power is even stronger, and we should put more emphasis on this trade setup.
04:32Step number three, check if the RSI is above the 50 level, because this is a bullish momentum signal.
04:39We use the RSI indicator for confirmation purposes only.
04:43We want to make sure that once we have identified the bullish price action, the momentum behind the move is confirmed by the RSI indicator.
04:50We're not concerned with overbought and oversold conditions, because the market can stay in those conditions longer than we can stay solvent.
04:58In this chart, note that the RSI is well above 50 during the first 15 minutes of trading.
05:04The price action is confirmed by the RSI momentum reading.
05:08Now that the first three steps have been met, step number four, buy a call option right at the opening of the second 15-minute candle after the opening bell.
05:17Now that we have confirmation that smart money is buying, we don't want to lose any more time, and we want to buy a call option right at the opening of the next 15-minute candle after the opening bell.
05:28As easy as it sounds, this strategy only requires you to put in 15 minutes of your time each day.
05:33You'll either get a signal or not, but in order to take advantage of this trading strategy, you will need to exercise discipline and not take any trades if you don't have a signal.
05:43So at this point, our trade is running and in profit, but we still need to define when to exercise our call option and take profit.
05:52Step number five, choose the nearest expiration cycle.
05:56For day trading, choose the weekly cycle.
05:58When you buy a call option, you also have to settle an expiration date as part of that contract.
06:04So how do you choose the right expiration cycle?
06:07Well, because we're most likely going to sell our call option the same day as we purchased it, it's most appropriate to choose the weekly cycle.
06:15And now, the most important step, step number six, take profit and sell the call option as soon as you have two consecutive 15-minute bearish candles.
06:25Knowing when to take profit is at least as important as knowing when to enter a trade, probably more so.
06:31We want to get out of our position as soon as we see the seller stepping in.
06:35We measure this by counting two consecutive bearish candles as a sign of bearish sentiment entering the market.
06:42You don't want to exercise your long call option because you don't want to own those share stocks.
06:47You just want to make a quick profit.
06:48Now, the above was an example of buying a call option using the options trading strategy.
06:53Use the exact same rules, but in the opposite direction for buying a put option.
06:58Here you can see an actual buy put option example using the options trading strategy.
07:03We've applied the same steps one through four to help us establish our trading bias and identify the buy put option trade and followed steps five and six to identify when to sell the put option.
07:16This is one of the best option strategies because when trading stocks, it's important to have a good understanding of the market sentiment and how the big players are positioned in the market.
07:26Another important reason why this is one of the best options trading strategies is because you're not required to be glued to the screen all day.
07:35And, you know, I like that one the best.
07:37That's it for today's video.
07:39I mentioned earlier that I would tell you about the ComCash Alerts app.
07:42With this app, I can share all of my trade setups and my trade tracking and even chat with you guys and answer questions.
07:48The trade setups from the Trade Picks videos are available on the app, plus the other trades I personally take every week.
07:53Here's a screenshot of the live trades as of Tuesday afternoon.
07:58This Apple trade has been great.
07:59It hit our first target a couple of days after entry.
08:02We took half off for profit and moved the stop to break even on the remainder.
08:06Currently, we've got our trailing stop locked in more than double that amount on the second half.
08:13The ComCash Alerts app is available for iPhone, Android, and desktop browser.
08:17Click the link in the description below for more information.
08:21And come back for my videos on Monday, Wednesday, and Friday at 3 p.m. New York time.
08:26Don't hesitate to ask any questions you may have.
08:28Remember, the only stupid question is the unasked one.
08:31If this video helped you, smash that like below.
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08:37Have a great Wednesday, and I'll see you on Friday.
08:47Have a great Wednesday, and I'll see you on Friday.
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