HELP FOR AUSTRALIAN OPTION TRADERS

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Successful option trading in Australia is challenging due to high commissions , escalating clearing house fees , low liquidity, relaxed market maker obligations and high bid/ask spreads. The brokerage expense alone for regular traders can be tens of thousands of dollars over 5-10 years of trading. It may seem the odds are just not in our favour. 

If it’s so hard, why trade options? Why not use another of the derivatives available to Australian traders such CFD’s, ASX mini’s or barrier warrants? The answer is in the adaptability of the many option strategies. Options are important hedging, income producing and speculating tools for institutions, professional & retail traders and SMSF trustees.

Successful investors need reliable price, volatility and risk measures to be able to manage risk profiles and achieve trading objectives. Importantly, always trade with the volatility skew.

The keys to being successful with option trading are:

  • Spend time and money on learning with some quality books, get a good understanding of delta, gamma, theta vega and rho and the concept of implied volatility;
  • Spend plenty of time practising through paper trading;
  • Develop a process to find trade ideas – a trade ranking service or scanner is a great tool;
  • Evaluate your trade candidates in terms of the effect of the the underlying price, time and volatility on  profit or loss – use tools such as the free Hoadley Option Strategy Evaluation Model or if you are handy with Excel, your own spreadsheet. Be persistent, many traders reject 80 percent of trade ideas when they evaluate them properly;
  • Plan your trade, entry, trade adjustment and exit;
  • Understand your risk tolerance and stick to it;
  • Consider your margin exposure if the trade goes bad;

  You will get a major edge to your option trading with access to good quality trading data and information. It is suggested that  option traders consider how an option data service can improve their trading results.

 

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