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Veteran Option Traders

If you’re a Veteran Option Trader, you’re a market participant with intermediate skills. Veterans trade from three to five times per month and have been doing so for a few years. As an options veteran, you understand the importance of implied volatility and the Greeks, and you grasp the varying impact they have on in-the-money, out-of-the-money, and at-the-money options. Although these analytics provide forecasts for option price behavior, you take them with a grain of salt since they may not always be reliable. As a veteran, you’re confident enough to actively decide whether or not to use news for trade opportunities. Veterans have matured from selling covered calls to two-legged spreads with different strikes or expiration terms, weighing the pros and cons of using these strategies. Veterans like you know that an option strategy’s risk, reward, and its probability of success are all inextricably linked, but you may not understand these interrelationships well enough to make trading decisions based on this interplay. Veteran positions often last 7 - 45 days if going well, shorter if not, especially around news events. Veteran Options Traders generally understand the purpose of their trades and how they make and lose money. However, you may still get caught up in greed sometimes and not manage your positions as effectively as you’d like.

As a Veteran Option Trader, here are the concepts you should master:

  • Why and how to estimate changes in implied volatility during the course of the trade, along with watching its effect on option pricing in the marketplace.
  • The Greeks for both individual options and on a net position basis
  • How probability of success impacts risk and reward
  • What it means to go through exercise or assignment
  • The risks of early assignment on short options
  • The risks of running options with multiple legs or multiple expiration dates
  • How to roll options
  • How to simulate changing market conditions with TradeKing’s Profit + Loss Calculator

Veteran Option Traders can improve their skills by:

  • Reviewing option strategies geared towards the Veteran skill level
  • Continuing to use TradeKing’s Options Scanner from iVolatility.com
  • Finding potential option strategies with TradeKing’s Options Strategy Scanner from iVolatility.com
  • Anticipating and planning for all possible outcomes for your investments, not just the positive scenarios
  • Engaging members of the Trader Network to work through trading ideas
  • Inquiring members of the Trader Network to explain their trading analysis
  • Challenging members of the Trader Network with an alternative point of view
  • Journaling your trades with Trade Notes to record your trading thought process
  • Attending or watching TradeKing’s free educational webinars, geared to the Veteran skill level

Veteran Option Traders should steer clear of the following:

  • Resist the urge to buy low-priced options because they “seem cheap”
  • Do not be cavalier if holding an options position within one week of the underlying company’s earnings announcement, or other planned news event
  • Resist the temptation to hold positions through expiration week
  • Do not trade strategies labeled for more advanced traders
  • Do not short naked options – this could expose you to unlimited risk
Option strategies entail risk and are not appropriate for everyone. Before trading options, you should review Characteristics and Risks of Standardized Options. Some option strategies involve multiple positions simultaneously. These multi-leg strategies incur additional commissions and may invoke special treatment when preparing your taxes. If you are unsure about how a particular strategy may impact your financial picture, please consult a tax professional before trading.

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