Published : 29 May 2023
The trader must choose the stocks or indices in which he will engage in trading. He should make sure the market is liquid enough for his entry and exit to have a minimal impact.
The list of possible strategies is reduced when one has an understanding of the market's general direction.
The list is further reduced by considering how market volatility is anticipated to develop in the future. The trader should be aware of the implied volatility in the present in relation to the implied volatility in the past.
Volatility tends to rise as anxiety levels rise prior to events. Trading before elections, the budget, changes to the credit policy, or the earnings season can be risky because the market can move quickly in any direction.
The trader can choose the option trading strategies based on all the parameters and his level of risk tolerance.
The trader can limit his choices to a few options strategies.
When choosing the right strike and expiry to trade that offers the best risk-reward trade, there is room for optimization.