Blog Posts

Can you manage risks while trading options?

“Harami” means “pregnant” in Japanese, an accurate description of the appearance of this two-session candlestick signal. This pattern is the opposite of the engulfing pattern, in which a small session is surpassed, or engulfed, by the one that follows. In the harami, a long session is followed by a much smaller session of opposite color. This is the pregnant part, the protrusion that signals a reversal.

A highly reliable two-session candlestick indicator is called the engulfing pattern -- the second session is longer on both sides, “engulfing” its opposite-colored predecessor. Two attributes are needed to make it a true engulfing pattern. First, the real body of the second session is extended higher and lower than the previous day and has the opposite color. Second, both upper and lower shadows should also be longer both above and below the previous day.

Three candlestick signals consist of single sessions, but unlike most candlesticks, the color of the real body does not matter. What does matter is where these indicators are found within the current trend. So the three -- the spinning top, hanging man, and hammer --- are valuable reversal flags, expansions on what day traders and swing traders like to call “narrow range days.”

Three candlestick signals consist of single sessions, but unlike most candlesticks, the color of the real body does not matter. What does matter is where these indicators are found within the current trend. So the three -- the spinning top, hanging man, and hammer --- are valuable reversal flags, expansions on what day traders and swing traders like to call “narrow range days.”

The Japanese word doji means mistake. Can a mistake point to a strong charting signal? The doji candlestick occurs often and is a very valuable signal. Even though it contains only a single session, it is a meaningful red flag.

Over the last few weeks I have received several mass e-mails with similar messages:

“In the spirit of the month of Elul – when we ask for forgiveness and prepare for repentance during the coming Holy Days - if I have in any way harmed or offended you, please forgive me.”

Candlesticks are very revealing, especially as confirmation signals or as early warning of a coming reversal. Among the most revealing is the Marubozu, with means “bald.” It is so called because the stick has little or no upper or lower shadows.

The spread describes trades with two or more options having different strike prices.  There are eight types of spreads and, among these, several additional variations.

Are you an investor or a trader? This is a question some of us don’t ask ourselves, but the answers define how and when you get in or out of positions. The dilemma for many would-be investors is that end up trading when they intend to invest for the long term. Using options to manage your portfolio solves some of these problems.

The put option is easily overlooked as a strategic advantage. Because markets move in both directions, the optimistic American trader can easily forget that markets go down at times, and not always up. This is where the put is easily overlooked or taken for granted.

Jargon. It is the chronic problem with options trading. The minute you try to explain how it all works to someone new, it turns them off. It demands a methodical, gradual, careful teaching method and willing newcomers. Otherwise, the special terminology will always be a stumbling block.