Legendary options trader, Gus Vera recently announced his 3 simple rules to options trading. Focusing on making money is always a primary goal when trading, but properly managing risk is a critical part of a successful, long-term strategy. Gus released these rules to help options traders protect their downside losses.
While many investors focus on stock investing, options trading provides an alternative way to make money in the market. No matter if the market is trending up, down, or sideways there are always strategies options traders can implement to make a profit. Whether investors are experienced or just starting out, options trading can help enhance a portfolio and limit the downside.
Options are contracts to buy or sell 100 shares of a stock (or index) at a predetermined price for a future date. Options allow traders to speculate on which direction they think the stock will go. With stocks, an investor owns the asset outright, but with options, the investor is buying a contract that allows them to participate in the price movement without the full obligation of owning equity. Buying or selling options is attractive since the capital requirements are much lower than purchasing a stock, leverage their positions, and allows traders to more effectively manage their risk.
When discussing his strategies, Gus Vera said: “these are principles that can be used by anyone who wants to trade options and reduce their risk.” Gus continued, “having a positive attitude and a desire to win coupled with proper discipline makes for a great options trader.”
While options trading isn’t necessarily for everyone, establishing and maintaining discipline and knowing when to stop are critical points for any investor. By controlling the number of trades and stopping at advantageous points traders can counter a loss or losing streak. Self-control and taking the emotion out of trading will establish you as a successful options trader over time.
Options trading should be thought of like a business, so it is important to plan ahead. By setting and following these rules, options traders can position themselves to have more winning trades than they lose. Here are the 3 simple rules to minimize risk within options trading from Gus Vera:
- Two wins, then move onto the next day.
After two successful winning trades, stop trading for the day and wait for tomorrow.
- Two wins, one loss then move onto the next day.
After two successful trades and one loss on a trade, stop trading and wait for tomorrow.
- Two losses, then move onto the next day.
After two subsequent losses on options trades, stop trading for the day and wait for tomorrow.
For options traders who want additional information and resources, Gus Vera is available for private consultations and also offers guides and step by step instructions on how to implement his proprietary methods of options trading. For more details and how to minimize your risk while options trading, contact Gus Vera here or visit his website at course.optionsonwallst.com.