Anyone who pays attention to our trading here at Top Gun Options can see that we use a handful of strategies again and again. This may seem repetitive. What is, in fact, repetitive is that we repeatedly profit from using these strategies. For example, we use a lot of credit spreads. It is not that we don’t know any more strategies. Rather these approaches to trading options work to create profits again and again. They hedge risk, which we do on every single trade. Options strategies never get old or wear out. You can use a few of them again and again to profit from trading options.
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How Many Options Strategies Do You Need?
We wrote recently about how many strategies a beginner in options trading needs. The answer was they do not need a whole lot to begin with. However, this applies to advanced options traders as well. Many complex strategies are duplicates of simple strategies and do not add a lot of value while at the same time being more expensive because they involve more and more trades and therefore more fees, and commissions. Markets head in three directions. They go up. They go down. They trade sideways. Having strategies for each possibility is necessary. Using a dozen for each possibility is excessive.
Accurate Market Predictions Lead to Profits
Trading strategies are one set of tools that a successful options traders uses. Technical analysis tools like moving averages are another. Paying attention to the wider world has served us well at Top Gun Options over the years. A prime example was when we called the Covid crash to the day and another was when we only missed the Covid market recovery by a couple of days. We were paying attention to reports of a viral infection spreading through China.
The S&P 500 was at all time highs. Although we had been warning of a correction of this overpriced market, traders and stary-eyed investors were still bidding prices higher and higher. Meanwhile, the Chinese were locking down cities of millions of people and there were reports of people dropping dead in the streets. We realized two things. This plague was probably already outside of China due to how interconnected the world has become. And we were looking at something that would drive the global economy to a standstill as shutdowns spread across the world, trade ceased, and the global economy tanked.
At Top Gun Options We Virtually Printed Money as the Marker Fell and Rose Again
We virtually printed money over the following month as the bottom fell out of the market. Then the Fed stepped in to flood the economy with money and credit. Congress also started handing out cash. We knew the old market adage that you cannot fight the Fed. So, we turned on a dime, and traded for a rising instead of a falling market. We continued to virtually print money for the following year and more as the market rose.
The point is that accurate prediction of the market leads to profits and accurate predictions come from paying attention to the broader picture as well as the daily and weekly ups and downs. To make profits a trader needs strategies that work for up, down, and sideways-trading markets. They need strategies that hedge risk. They do not needs hundreds of strategies or even dozens. A handful that are applied appropriately will generally work very well.
Know Which Strategies to Use in Which Situations
Markets can be confusing. By trading with an experienced squadron of traders like at Top Gun Options a trader learns which options trading strategies to apply to which market situations. A trader does not need another Covid crash to make money trading options. But they do need to know which of a basic handful of strategies they need for today’s market, whatever that market is doing. They will learn this at Top Gun Options.
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Originally published at https://topgunoptions.com on August 24, 2023.
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