Explore Your Options by Tom Gentile
AND THE MOST IMPORTANT RULE FOR OPTION TRADERS ISÖ
Having just returned from another seminar, I ran across a situation that Iíve encountered before on many occasions: A student who has some type of great short-term system decides he wants to start trading options on it. The problem is one that many of us run into when we get started with options. Imagine this scenario: You spot a great opportunity, put on a low-risk trade, and execute your plan. The stock moves the way you expect it to, but when you get out, either the trade lost money or made very little. You followed all the rules to ensure your trade would work. What happened? Chances are, you were trading illiquid options with a wide spread between the bid & ask.
If youíre not looking at how liquid your options are, even the best-laid plans can fall apart. This is especially true for spread traders. As an example, take a look at the stock of Church & Dwight (CND) in Figure 1.