My favourite Option buying set up (Option buying series)

Summary

In this video, the host introduces a new series focused on option buying, contrasting it with their usual emphasis on option selling. Key criteria for successful option buying are outlined: accurate market direction, immediate momentum post-purchase, and low premium at entry. The speaker details a specific breakout setup based on previous day trading patterns, emphasizing market psychology and the significance of stop-loss placements. Real-world chart examples illustrate these strategies, and the speaker encourages viewers to explore their updated trading course for more comprehensive strategies.

Takeaways

• 📈 Option buying requires you to be right about the market direction.
• 🚀 Immediate momentum is crucial after buying an option for profitability.
• 💸 A lower premium is preferable when purchasing options, especially during low volatility.
• 📊 The setup discussed is part of a 25-day trading strategy course.
• 🔍 Previous day's price action should be sideways with a tight range for this strategy to work.
• ⚖️ Entry should occur once the previous day's range (high or low) is broken.
• 🛑 Placing stop-loss orders correctly is key to managing risk effectively.
• 💡 Understanding the psychology of buyers and sellers can enhance trading decisions.
• 📉 Avoid buying options when market volatility is already high.
• 🔗 For further learning, the host provides a link to their updated trading course in the video description.

Q & A

What is the primary focus of the new series introduced in the video?

The series focuses on option buying strategies, contrasting the creator's usual emphasis on option selling.

What are the three key factors to consider when engaging in option buying?

The three key factors are: 1) being correct about the market direction, 2) obtaining immediate momentum after buying, and 3) purchasing options at a lower premium.

Why is immediate momentum important in option buying?

Immediate momentum is crucial because option buying requires the market to move quickly in the anticipated direction; slow movements can lead to losses, especially on expiry days.

What does the creator mean by 'less premium' in the context of option buying?

Less premium refers to purchasing options when their prices are lower, typically occurring when market volatility is low, which often happens during sideways market movements.

What are the criteria for the option buying setup discussed in the video?

The criteria include: 1) the previous day's market must have been sideways with a tight range, 2) the next day's price should open near the previous day's high or low, and 3) entry should occur only after the range is broken.

How should a trader determine where to place their stop-loss in this strategy?

The stop-loss should be placed below the bullish breakout candle or above the bearish breakout candle, depending on the direction of the trade, ensuring it is not too large relative to the candle size.

What is the suggested risk-reward ratio for trades in this strategy?

The suggested risk-reward ratio is 1:2, meaning if the stop-loss is set at 30 points, the target should be 60 points.

What psychological factors are at play during the breakout process described?

The breakout often triggers stop-loss orders of traders who are short, leading to increased buying pressure and significant momentum, as many market participants react to the movement.

Can you provide an example of a valid setup according to the discussed strategy?

An example includes a sideways day followed by a price opening near the previous day's high, then consolidating before breaking out, providing a clear entry point.

What resources does the creator mention for further learning about trading strategies?

The creator references their updated course on day trading strategies, specifically mentioning the option buying strategy as part of the content.