Rules of the Road

Having been bit several times now, these are some unwritten rules of the road. Though you might be able to break them, just remember that the fine for getting caught is pretty hefty.

The following rules mainly apply to buying and flipping calls and puts.

10AM Rule. Don't buy a long term (month or more) option with the intention of holding it before 10am ET. Typically the implied volatility is highest in the morning. There is also a lot of momentum from all the pre-market traders that can carry through.

Set a price. Set a buy or sell price and don't chase. A reasonable price will most likely get you in or out. Loosing track of underlying stock RSI can lead to buying at the top and later accepting a loss after the stocks momentum and IV dies. Better reevaluate the original strategy and then decide on the next move.

Don't double down. One way to increase the odds of success is by doubling down or buying as the option price falls. I.e. bought at the top of the option price band and then the option price falls. Thinking it hit bottom, you double down to reduce your buy in price and salvage the trade. Then...the option falls even more. If the option price is falling significantly, cut your losses and wait till it settles. Then reevaluate your strategy to see if getting back in is worth it. Sometimes taking a small loss is better that throwing more money into a black hole.

The list continues....