Deep in the money fx options
On this page I give the nitty gritty details of how to execute deep-in-the-money option trades. I have relatively recently added this strategy to my option trading portfolio, and I have to say that I am doing pretty well out of it! A deep-in-the-money option strategy is perfect for use on stocks or funds that have relatively low volatility and steady, predictable trends. I have recently added this to my list of option trading strategies, and it is very useful. Trading DITM calls and puts using the method that I will be explaining here is relatively simple, and falls right into my philosophy of swing trading options: This strategy works really well on etfs exchange traded funds such as the QQQQ, SPY, DIA and IWM.
The reason is that these funds represent very broad swathes of the market, and so are a little more steady and predictable in their movements than individual stocks. The advantage of this is that it is fairly easy to identify a trend and trade off it. Trend analysis - using one of the etfs that I mentioned, do a trend analysis. If you are not sure how to do that, follow the link to my page on Trend Analysis , and follow the steps there.
Deep-in-the-Money Option
One final step - look at how long the trend has been going, and look at any potential resistance levels for an upwards trend or support levels for a downwards trend.
If the trend is approaching one of these, trade with caution.
Deep In The Money
Entry - set up an entry order. If the trend is upward, then buy calls, and if it is downwards, buy puts. Here is how to set up the order:.
I often find that I can get between five and eight trades like this a month. Just like selling credit spreads, it is a relatively safe way of making lots of small, quick, profitable trades that quickly add up to make a nice profit. Real Trade example Here is one that I traded recently, where I could see that profit taking was about to set in with a nice long upwards trend:.
My fund has now grown to a point where I am buying 10 contracts at a time, and I will soon be able to increase that! Trading DITM calls and puts is a powerful, steady profit, limited risk strategy that will help any trader do well.
Return from Deep-in-the-Money Option to the Home Page. Please pay it forward. How to trade a Deep-in-the-Money Option Using ETFs. How to trade a Deep-in-the-Money Option: Here is how to set up the order: If it is lower than 70, you will not be getting good enough advantage of a movement in the stock price.
Higher than 90, and your option is too expensive. It is better to take advantage of one of the lower swings during the day, so look at the trading range for the day, and set your order near the lower end of the range not right at the bottom, or you may miss an entry. Review the concept of Swing trading , and finding the "trader's action zone", so that you have a clear idea about finding good entries.
So, if you are trading in early June, then the earliest expiration month you would look at is July. This important - your aim with options trading is to control your losses! I usually set an exit order immediately.
Deep In The Money
However, I like the smaller bite - very often, my exit trade is executed within a day. Monitor the trade over two days. If there is very little movement, then sell to cover your broker commissions. It is really not worth sticking with one of these trades for even as long as five days - a stalled market costs you money in time decay. Cautions be careful of over-analysis, which will keep you from trading.
Keep it simple - do the trend analysis, only trade with strong trends, and watch out for support and resistance.
Only very stupid, irresponsible and soon-to-be-broke traders don't set stop losses. Do not add to it in the hope that it will recover - that is not trading, it is gambling. Real Trade example Here is one that I traded recently, where I could see that profit taking was about to set in with a nice long upwards trend: As soon as the order was filled, I set the profit sell order.
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