When to Trade Options?

#OptionTrading #SmallAccounts #OptionsExplained
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First off, you should always have a defined budget before you open any option contract. When I first started trading options I only had $2,500 in my account. I personally never try to risk more than 10% of my account on a single trade, this would mean I only had a budget of $250 for a single option trade. Your budget amount will dictate or limit which strategies you can use and which stocks you can use them on.

For instance with $250 you can generally buy options on stocks trading at or below $50 or you could buy or sell option spreads on stocks trading at or below $500. The higher your budget the more strategies you can utilize.

Use your budget to narrow down the list of stocks to trade options on. Don’t just pick a stock because it has cheap options. Since Option contracts control 100 shares of stock, It is important that you are comfortable owning the stock, if you aren't, don't trade options on that stock.

Once you have a defined budget and a stock it is time to do some type of analysis. This doesn't have to be some absurd amount of research, rather it can be a gut feeling on the company's direction or simply looking at a few indicators. Some of the indicators I commonly use are the Average True Range, Bollinger Bands, Displaced Moving Average, and the Relative Strength Index. I commonly use the ThinkOrSwim or Webull apps for my analysis.

Now that you have a budget, you picked a stock, and you have an idea of the stock's future movement it's time to pick a strategy. Strategy choice is heavily dependent on budget, risk tolerance, movement, and time.
If you think the stock is going up, you can buy a call or debit call spread or sell a put or credit put spread.
If you think the stock is going down you can buy a put or debit put spread, or sell a call or credit call spread.
If you think the stock is going to trade sideways you can sell a single option or option spread.

These 4 factors are what I commonly use to help make an informed decision on my option trades.

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