After laying out the reasons for using options in your swing trading program, the next five articles discuss:. Start out by thinking about the basic strategies and then think about the expansion into even more. Options just make good sense as the vehicle of choice for swing trading. When you swing trade using stock, there are several problems:. In summary, just the basic strategy of long calls at the bottom and long puts at the top, makes swing trading flexible, affordable and low-risk.
It is also one of the few strategies where soon-to-expire options make the most sense. Swing traders move in and out of positions in a 3- to 5-session time frame. Options at or slightly in the money that expire in a month or less have very little time value and are most likely to respond to the underlying price movement. This is one of many low-risk trading ideas every options trader can use. To find more similar low-risk ideas and make it quick and easy to dramatically improve your trading outcomes, go to low-risk strategies -- remember, the great advantage to options for swing trading is not only in the profit potential, but also in the way this reduces your market risks.
Option-based swing trading can be accomplished in a very low-cost environment. For example, setting up synthetic long stock positions at the bottom of the swing, and synthetic short stock positions at the top is a great way to create no-cost or no-cost swing trading positions. While both synthetics require one side to be short, the risk is likely to be manageable if you also rely on strong reversal signals and their confirmation.
Benzinga does not provide investment advice. Membership is Free What are you waiting for? Free Account Login Click here to access your premium account. Contribute Login Sign up. Benzinga - Feed Your Mind.
Michael Thomsett , Michael Thomsett. March 06, This article is the first of six on the topic of using options to swing trade. After laying out the reasons for using options in your swing trading program, the next five articles discuss: When you swing trade using stock, there are several problems: You are limited by your cash and margin maximum, whereas options are cheaper and for a small fraction of the cost, allow you to control price movement in shares.
Thus, you have great leverage but risks remain low. The combination of option diversification and leverage cannot be matched, especially when you realize that these features do not increase risk. Most forms of leverage like margin borrowing increase your risks, but not so with an options-based strategy. Options are less risky because you can never lose more than the premium paid for a long position.
You can play both sides of the swing. Stock-based swing trading demands shorting stock at the top of the swing, which is expensive and high-risk. With options, the long put is a much safer and easier bearish play. Please look for the remaining articles in this series, to follow over coming weeks: View the discussion thread.
Subscribe to our free newsletters:. Market in 5 Minutes. If you have any questions as it relates to either of the three newsletters, please feel free to contact us at ZING. Mortgage Calculator by MoneyGeek. Benzinga's Top Upgrades, Downg Benzinga is a fast-growing, dynamic and innovative financial media outlet that empowers investors with high-quality, unique content. Benzinga - Feed Your Mind try pro. Jim Strugger's Bullish Micron Trade.More...