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Options: What Every Elliott Wave Trader Should Know
Upcoming May 28 webinar teaches you what it takes these days to win in options trading.
"In 1984, Bob Prechter won the United States trading championship, setting a new all-time profit record of 444.4% in a monitored real money options account in four months. ...The second highest reported gain in the options division was just 84%, and 83% of the contestants lost money. In the average 4-month contest, over 75% of contestants, most of whom are professionals paying $200 to prove their abilities, fail to report profits." -- Elliott Wave Theorist, November 1986, "What a Trader Really Needs to be Successful."
Clearly, EWI's founder and president Bob Prechter understands options market. Before winning that 1984 U.S. trading championship, here's what he told subscribers in the October 1983 Elliott Wave Theorist about what not to do:
Joe Granville used to say that he could tell the option traders because their hands would shake when they asked him what the market was going to do tomorrow. In that regard, I was willing to bet that the subscriber who called up and chewed out one of my secretaries because the Telephone Update message was twenty minutes late once last month is an owner of out-of-the-money options.
Out-of-the-money options make you angry. They make you angry because if you're wrong you lost money, and 9 times out of 10, if you were 'right,' you still lose money. And what's worse, you usually lose 100% of it! Like gambling, these vehicles offer the prospect of a huge return, but only at tremendous odds. I've heard all sorts of excuses, but the bottom line is that if your option expires worthless, you weren't right, even if the stock or index upon which you bought your call is 5% higher. If the underlying stock or index doesn't cross the strike price by a sufficient margin by the expiration date, your decision to buy was wrong.
Out-of-the-money options can be huge moneymakers about once a year. If you can buy them just before the onset of a powerful third wave (not four weeks early) and sell them right at the top of that third wave at maximum momentum (not four weeks late), you'll reap huge rewards. But playing them as a matter of continuing preference is a one-way road to disaster. If you speculate with deep in-the-money options, which carry almost no premium, you will win every time you're right, and lose much less when you're wrong, and lose almost nothing when you're 'right' but early. If you're caught in the out-of-the-money option rut, just think about the mathematics, and you'll see why you keep watching them expire worthless. The time to change your tactics is now.
These days, says the Head of EWI's Trading Education Team Wayne Gorman, single out-of-the-money-options are still not a viable instrument to use, even if you are an Elliott wave trader.
Fortunately, there are specific options strategies that fit “like a glove” certain market situations when viewed from an Elliott wave perspective. What are they and how do they work?
Here's your chance to find out. At 9 PM on May 28, Wayne Gorman is hosting a live webinar titled "5 Options Strategies Every Elliott Wave Trader Should Know." Learn more and register here.