Stocks & Commodities V. 24:10 (44-50): Synthetic Swing Trading by Carley Garner
Trading successfully means being aware of support & resistance levels. Here are some examples to help you understand the world of option trading.
Because markets tend to trade in a defined range, outright long option positions are priced to lose. In fact, typically, most options that are more than two strike prices out-of-themoney, in the direction opposite of the overall trend, and with fewer than 45 days until expiration, expire worthless. As a result, constant awareness of support and resistance levels is crucial.
With that, letís look at the trade we took advantage of in January 2006. This is one example of a trading strategy we have implemented countless times, usually with similar results. The time, strike prices, and underlying
futures contract month may differ, but the approach and strategy never do.
First of all, the March 2006 Dow contract saw a major run up in November and December 2005. We formed the basis for our trade by keeping in mind that the stock market tends to make a run higher from November through March every year, but also that markets often digest big moves.