Aspiring option traders long to trade professionally, but many have jobs and responsibilities that keep them from trading full-time. Fortunately, that's often the best way to learn how to trade options weekly, because it's suited to part-time traders versus full-time traders who have to sit glued to a computer screen all day. There's an easy way to approach trading options weekly with trading the S&P 100.
Go to a free price charting website, like FreeStockCharts.com, and click on the "New Chart" button. A pop-up appears with a new price chart. Enter "OEX" for the symbol, which represents the S&P 100.
Go to the indicator button on the price chart, and select the 40-day moving average. This represents the last eight weeks of price action on the S&P 100. For this weekly trade setup, the 40-day moving average has to be sloping upward with price action trading above the moving average.
Select the Slow Stochastic indicator, which should appear at the bottom of the screen, right below the S&P 100's price action. The Slow Stochastic measures oversold and overbought conditions; if the indicator is above 80, it's overbought, if it's below 20, it's oversold. This indicator has two lines: the K% and the D%.
Prepare to buy an S&P 100 call option when the 40-day moving average is sloping upward and price declines, which causes the Slow Stochastic indicator to go into an oversold condition. When the K% line crosses up through the D% line, that's your signal to buy the call option.
Exit the position five days later or when the Slow Stochastic indicator gives off an overbought reading.
A good entry method is to take an option position if price makes a significant low, rallies from that point, and then declines to retest that significant low while registering an oversold reading on the Slow Stochastic indicator. This is the only time you'd allow price action to trade through the upward sloping 40-day moving average and still have a valid trade.
Options are volatile, and no method is foolproof. Exit the position any time you lose more than half the value of the option's purchase price to protect yourself from risk.
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