Knowing that you can make a lot of money from trading options can be very exciting. Many have the experience of jumping the gun and discovered painfully that they have lost all the money simply due to ignorance. The answer is patience and the discipline to follow through a simple trading plan.

My objective here is to share some thoughts with you so that you will not fall into some of the options trading traps in becoming a successful options trader and be financially well.

Before you begin trading options it’s critical to have a clear idea of what you want to accomplish. Options can play a variety of roles in different portfolios.

It is not about what you trade but rather how you trade. By just selecting the appropriate strategies isn’t good enough, what you need is a system that can produce consistent profit month after month. It requires discipline to follow your trading plan and your trading objectives.

You must be able to differentiate between trading and gambling. Many will get carried with one strike of chance and take away a big prize money or being misled by others who post their winnings in some forum. They get excited and blow up their trading account. If you feel excited when you are trading options, you are gambling.

Look into “Earnings” under “Categories” in this blog, you will find that there are many examples of earning play. To me playing earnings announcements is gambling, extremely high uncalculated risk and predictions are involved.

Many novices don’t even read charts or relay on any technical indicators at all when buying the options. What they have in mind is the amount of money they can make if the stock gap up the next day. This is greed; too much is going to kill you. Be very careful as not to turn your computer screen into an online casino.

Some may disagree with me; it is only my personal point of view. Those who have suffered heavy losses playing earnings will definite agreed to what I have just said. Last word of advice “Be smart and be a better trader”. I’ll leave you with this quote.

“If investing is entertaining, if you’re having fun, you’re probably not making any money. Good investing is boring” – George Soros

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McKesson Corporation (MCK) was the third bearish reversal trade I did together with ACOR and ABT. It is the most profitable one indeed; I managed to pocket a profit of 117% in 10 trading days. Spotted a “Dark Cloud Cover” bearish reversal candlestick formation on my screener on 15 Jan 08 which has gapped up in the stock price three months ago and was making higher highs since then.

Reasons for entry

There was a strong negative divergence shown on the MACD Histogram, the strongest amount the three (ACOR, ABT and MCK) and the possibility of closing the gap.

MACD Histogram, the SMA 1 (green line) is about to cross the SMA 5 (pink line), again signaling a bearish reversal.

William %R is high in the over bought region, giving plenty of room to fall.

The stock price was at all time high at $68.50 acting as resistance, forming a possible double top.

The reversal candlestick was spotted on 15 Jan 08 before the market opens.

Entry Signal set at, stock price fall $0.20 below $66.70, the low of the bearish candlestick.

As usual, after the first trading hour I bought Mar 65 Put @ $2.30, stop loss set at $1.20, 50% of options value.

On the 28 Jan, Monday, after the stock has dropped $6.50, a “Doji” was seen in the chart. A “Doji” represents uncertainty, signaling a possible turn around. William %R is touching the floor sending me a second exit signal.

Exit Plan is to get out immediately when the price is above Monday’s high.

The stock rally on yesterday’s open and hit the exit signal at about 50 mins after opens and I managed to get out at $5.00 making a profit of $2.70 or 117%.

The problem with many traders is too much greed, always wanted more and not decisive when getting out. Discipline and following your trading plan is crucial in achieving consistence profits.

“The fact that people will be full of greed, fear or folly is predictable. The sequence is not predictable” – Warren Buffett

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Here is another great tool that I have found to be very useful in marketing a product, services or even a topic that you want to blog about. It is called “Google Trends” (www.google.com/trends).

Just by typing the search word, it shows you the prevailing trend of the people by regions and cities using the search word in google search. For “Options Trading”, here is the result.

By region, Singapore is No.1, followed by Malaysia and by cities Singapore also comes out first, Chicago is second. This is the reason why there are so many seminars and workshops going on in this two countries.

In business sense this is a wise thing to do because it has the highest demand in the world. You wouldn’t want to do business in a place where there is no or very little demand. This is business and businesses need to make money.

So personally, if you want to start a blog and you have interest in options trading, this is a very good topic for blogging. If you can drive the traffic to come to your blog, the options exchanges and the options related services will be delighted to place ads in your blog. Start blogging and let’s make some money.

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