Swing Trading Options for Beginners

  • August 30, 2018

Swing trading options are very popular. Watch our video on how to swing trade options.

Swing Trading Options: Strategies on How to Swing Trade Options

  1. When swing trading options, it's important to determine the overall trend of the stock
  2. Map out support and resistance levels
  3. Look for candlestick break out and break down patterns
  4. Look for news catalysts
  5. Swing trade options that are highly liquid with high open interest
  6. Choose strike prices with a tight bid/ask spread
  7. Give yourself enough time until expiration. Spreads are safest to trade
  8. If the setup looks good then look for a good intraday entry
  9. Have your entries and exits mapped out prior to taking a trade
  10. Keep your losses small and let your runners run

Swing trading options is one of the most popular trading strategies. The video above gives an overview on how to swing trade options. If you'd really like to learn how to trade options then make sure to take our options course and join our community. Our trade rooms are a great place to learn how to trade options. We also have advanced options tutorials under the "members only" section of our website. 

Swing trading options is a fantastic way to make money in the stock market. It’s such a great way to trade when you don’t have the freedom to day trade. Swing trading is a method where you trade a stock or option in the short term.

1. Intraday Trading

Day trading is when you hold for less than a day whereas with swing trading you usually hold the option from 2 to as many days as it takes to hit your resistance zone (profit zone).

Sometimes it takes a little longer than you want and you must sell before option decay sets in. You lose too much time value. Swing trading options is a great way to trade if you’re stuck with the PDT rule as well.

The PDT (pattern day trader) rule is lets you buy and sell a stock in the same day only 3 times in 5 business days. You have to have an account of $25,000 or more to not fall under this rule.

If you’re subject to the PDT rule then swing trading options is going to be incredibly helpful in getting around that. Read about the PDT rule here from Investopedia).

2. Right But Not Obligation

Options gives you the right but not the obligation to buy or sell an asset at an agreed on price in a certain amount of time. Swing trading options is a short term strategy. Need more stock training? Take our free online trading courses.

You’re not going to go long on it because you expect to profit within 3 to 5 days of purchasing the option. Swing trading usually plays on the short term price action. It can be affected by earnings, news and rumors. The longer you are in the riskier, in most cases, it gets. Plan your entry accordingly.

The nice thing about swing trading options is it lets you make a trade with less risk and more leverage. You're holding the premium for the right to buy 100 shares instead of paying the price for 100 shares.

Buying options with an expiration date that is a couple weeks out and slightly in the money is one of the more beneficial ways to make money because of the absence of time value.

Investors are usually willing to pay a higher premium price for an expiration that is further out.

This allows time to reach your profit zone. But with swing trading, buying an option that isn’t 6 months to a year out and is only a couple weeks out is more beneficial. To learn more about options take our options course.

swing trading options

Here we see an hourly candle chart of $FB call options. Notice the low, the high and the channel that $FB is trading in. These call options almost doubled in price in only a few days before hitting resistance! This chart is showing ichimoku technical indicators, check out our blog post on ichimoku here.

3. It’s Less Risky

One "call" options contract gives you control of 100 shares at price that is far lower than purchasing the actual shares. For example, if a stock is trading at $246 and you choose an option with an expiration date that’s a week out, the strike price would be about $4.15. So $4.15 x 100 would be $415 dollars that you’d be risking.

Whereas purchasing 100 shares of a stock at $246 would be $24,600. So you can see how you’d be risking less capital by swing trading weekly options.

You’ll never lose more than the cost of purchasing the option but you can lose it. So while there is never a 100% risk free way to trade, swing trading options is a way to define your risk and limit it.

Because you’re risking $415 as opposed to $24,600 you’ll have more money to make more trades. You’ll be able to diversify which, in turn, also allows for less risk. Managing risk is one of the most important aspects of investing and trading. Make sure you watch our video on risk management here.

What Is the Safest Option Strategy?

  • Credit spreads are the safest options strategy. Options sellers have much better win rates than options buyers. If you're looking to be an options buyer then debit spreads are a safer option strategy than buying naked calls and puts.

1. Swing Trading Options & Technicals

You probably hear people say "know your technicals"  often when you’re getting into trading. People saying this may sound like a broken record. If you want to know the most profitable option trading strategy then knowing the technical indicators would be the best place to start.

You need to get a good entry and exit. Getting a good entry allows you to stomach the pull back as a stock travels along in its trend. A good entry is going to determine the profits you make.

Knowing support and resistance is incredibly important. The indicators are going to help you find that. That is going to be the difference between profit and loss. Swing trading options is a great way to make money once you know the direction that a stock is potentially going to move.

If you believe a stock is going to go up and you buy a call without looking for support and resistance, you could be buying that call at resistance. If you do that and it can’t break that resistance and falls, you’re going to lose.

2. Buy Low Sell High

Buy low and sell high. That is why support and resistance are so important. If you buy a stock at support and it starts to go, make sure you know where the resistance is. That could be the difference between a $500 profit or a $1,000 profit.

If it hits the resistance and falls, and you didn’t know where that was, you’ll be giving profits back. If you want want to learn more about technical analysis take our swing trading course. We teach about swing trading and options live in our trade rooms. Check out our trading service to learn more.

Can You Trade Options With a Small Account?

  • Credits spreads are one of the best and safest ways to trade options and grow a small account. The gains will be smaller, however, it takes patience and proper risk management to grow a small account trading options. Day trading options limits you to the PDT rule and requires $25,000 to allow unlimited trading.

swing trading options

Trading and investing - do your homework!

1. Don’t Be Greedy

When you’re swing trading options and you sign in to see your gains, it’s always great to see green. When you see that number rising you just want to let it run.

You always want to cut your losses quickly and let your runners run. But you need to make sure you’re paying attention to what the technicals are telling you instead of what your emotions are. Play the trend and follow the trend lines. Make sure to practice paper trading options.

When you get greedy and don’t take that profit you can watch your gains go from green to red in a jiffy. You never go broke taking a profit. 

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