Swing Trading Options – How to Get Started – UPDATED
So you’re interested in swing trading options, are you?
Well, my friend, if that’s the case then you’ve come to the right place.
This is what we specialize in here.
And when it comes to our members, my team and I inside of “The Empirical Collective” we focus exclusively on swing trading.
Now, that isn’t to say that we don’t think day trading is a bad idea, in fact, my mentor Samuel Goldman (who collaborates and gives us great insight into the trade alerts we give our members) literally wrote the book on day trading. (Which you can see here.)
But for our purposes – and for the vast majority of our members – we feel that swing trading is a better fit.
It allows people to be able to live their life and still trade according to their schedule, without having to be on their computer all day long throughout the trading day.
In addition to that – specifically when it comes to swing trading options – by taking this approach, it allows people to trade smaller account sizes as they can pick and choose the trades from our weekly alerts that they want to trade.
So they don’t feel pressured to over-trade as they might if they were day trading.
Swing Trading Options – The Basics
In case you don’t already know, the difference between day trading and swing trading is the time frame.
When day trading, all trades need to be closed before the end of the trading day – nothing is EVER held overnight.
But when you’re swing trading, trades are held for days or even months at a time.
Now, just because you don’t have to close out your trades before the end of the day doesn’t mean that you can get lazy when it comes to trading.
You still need to define a trade exit date or an exit depending on different trading parameters – whether you exit the trade based on hitting a profit target, closing a trade with a small loss if a trade moves against you or if you exit because an external news event or scenario didn’t happen like you thought it might.
Even though the time frame is a bit less rigid than with day trading, you’ve still got to use proper money and account management practices.
For our trades inside “The Empirical Collective” we typically choose options with a longer expiry date as it tends to give us a little longer time frame for our trades to work out, as opposed to if we ended up short dating them.
That said, the majority of our trades are opened and closed within 2 weeks (and in a lot of cases much sooner), enabling us to achieve a great average return of over 24% per trade.
Remember – especially if you’re buying options – the trade has to be in the money before the option expiry date or it will expire worthless and you’ll lose all your money.
So if you’re just starting out, you may want to trade options that are dated a little further out.
If this all seems very confusing, then I recommend you get a copy of Samuel Goldman’s book, “How to Make Big Money Fast Trading Options” as it’s a great primer to help you understand exactly what options trading really is. The book is available on Amazon here if you want to read it.
Here is a list of the steps you should take when you’re looking to swing trade options:
- Choose a stock. This is one of the most important things that you can do. You need to check the overall trend of the sector (the direction the industry is headed) as well as the stock itself. Look for any potential catalysts that may influence it such as earnings reports, any big news or things happening in their particular industry.
- Choose your trade. Once you’ve chosen your stock, you need to decide whether you’re bullish or bearish. If you think the stock will go up, you should buy calls. If you think the stock will drop, you should buy puts.
- Choose your strike. Choosing the correct strike is a fine balance between cost and just how much you feel the stock will move. Typically you’ll choose an out of the money strike where you feel the stock expire above. This is the case when trading calls. If you’re trading puts, you’d choose a point the stock would remain below.
- Choose your expiration date. Typically if you’re swing trading you want to choose an expiration of at least one month away. You can go further, but most traders choose about a month as an easy to select time frame
- Choose your entry. You don’t want to try and chase the trend. So if a stock is in an upward trend, wait for a pullback before you buy it. It’s similar for the opposite trade. If it’s in a downward trend wait for the stock to increase in value before buying your puts. By doing this, it gives you a simple way of entering a trade
So there are five basic things for you to follow that will help you get started.
Obviously there are more things to do and keep in mind, but it’s a start for swing trading options 🙂
Regardless of what you do, if you’re going to trade options on your own you can’t take any shortcuts.
You have to take the time to educate yourself and practice your trading. (You can get a practice account from my favorite broker here if you don’t have one already.)
A big part of your education will be reading and researching how to go about trading stocks. Of course, you’ll also have to watch and learn from the markets.
The only shortcut that is available is if you “outsource” your trading. You can do this by following the trades given in a trade alerts membership.
Then you’re able to trade alongside someone who has more experience trading. And this is a great way to leverage their experience.
By doing this you’re able to “earn while you learn.” In some cases you’ll be able to get trading in minutes.