Options for Specialized Trading: Leveraging the Technical Approach

Most people think about options trading as an isolated and separate strategy. Options are used to speculate or to hedge existing stock positions, and, for many traders, that is the full extent and value of options. But options are so flexible and convenient that they can be used in numerous specialized situations as well.

A popular system in use today is swing trading. This is an excellent technical trading method for anyone who wants to become involved in short-term market plays, normally lasting between two and five days.
Swing traders use charting to identify a buy or sell setup and then time their decisions for small but consistent profits.

Options are perfect devices for swing traders, and for one simple reason. If you swing trade using stocks, your potential range of trades is severely limited and involves significant risks, at least on the short side. For example, if you want to swing trade using lots of 100 shares, a $25 stock demands a $2,500 commitment, but an option on the same stock will be available for a small fraction of that cost. An $85 dollar stock requires $8,500 in available cash to place at risk but, again, an option on the same shares will cost far less.

Smart Investor Tip

The leveraging feature of options makes swing trading practical, affordable, and less risky than using stock. This is an example of how options favor short-term traders.

With these important distinctions in mind, the swing-trading strategy is perfectly set up for options in place of stock. Remember these key points:
By Michael C. Thomsett
Michael Thomsett is a British-born American author who has written over 75 books covering investing, business and real estate topics.

Copyrighted 2020. Content published with author's permission.

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