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by: A.J.Brown
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I get a lot of questions from option traders. Lately, my readers have been asking me about how I trade. What they really want are "black and white" rules they can use. Unfortunately, there aren't many rules like this. I do have three though -- and I'll share them with you here.

Caveat emptor: There aren't any guarantees. By following these rules, you might make some money; you might lose some. I offer these rules to give you some insight into how I trade. Obviously, you will need an overarching trading strategy to get the best results.

Now that we've gotten that out of the way, here are my three "hard and fast" rules...

1. Don't buy any options that expire in the near term. 2. Don't buy options that are out of the money. 3. Don't hold an option contract through its expiration.

This is clearly a list of what NOT to do. But this list can be rewritten in the positive sense like this...

1. Always buy options that have plenty of time before expiration. 2. Only buy options that are already "in the money." 3. Always sell off your options before expiration.

These are the only "hard and fast" rules I follow when trading options. From there, it depends on the underlying stock set-up. And there aren't any black and white rules that address the dynamic forces in the market.

Put another way, I do have additional "rules" I depend on. But they're contingent upon a number of variables and factors that require close scrutiny and analysis.

Perhaps my three option trading rules have given you a new angle to look at trading. After all, much of the popular advice involves trading the news -- something I don't advise. News is only one factor you should consider in your trading. You should never base trades on news and news alone.

About the Author

Arnold "A.J." Brown is an investment writer and option trading coach. He has been trading for nearly 10 years, and has taught hundreds of people how to trade options. Go to his blog to read more free articles about trading stock options.

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