Finance

Understanding how to trade options in a weekly time frame

Understanding how to trade options in a weekly time frame

A time frame is the period a trader makes a trade. The most common time frames are daily, weekly, and monthly. However, some traders may use other time frames such as hourly or even minute-by-minute. Despite this, weekly time frames are popular, and there are several reasons why a trader might choose to trade on a weekly time frame.

Firstly, trading on a weekly timeframe can reduce the amount of noise in the market. Secondly, it can clarify the overall trend and give the trader more time to decide on their trade.

How to trade options in a weekly time frame in AU

For those looking to trade options in a weekly time frame, you can follow the below guidance. To learn more about options trading, you can check here.

Determine your time frame

The first step is to determine your time frame. A few factors to consider when doing this are how long you want to hold the position and how much time you have to trade. You will also need to consider the volatility of the underlying asset.

If you are looking to hold the position for a more extended period, then a longer time frame would be better suited. It is because it will take longer for the market to move in your favour. However, a shorter time frame would be better if you do not have much time to trade or if the underlying asset is very volatile.

There are two main types of options: call options and put options.

A call option gives the holder the right to buy the underlying asset at a specified price. On the other hand, a put option gives the holder the right to sell the underlying asset at a specified price.

The strike price is the price at which the underlying asset can be bought or sold. The date that the option expires is known as the expiration date.

Choose your strategy

Once you have determined your time frame, you must choose your strategy. You can use many different strategies when trading options. Some common ones include buying calls, buying puts, and writing covered calls.

Each strategy has its risks and rewards. For example, buying calls will give you unlimited upside potential but limited downside protection. On the other hand, buying puts will give you limited upside potential but complete downside protection.

It is important to note that options are derivative instruments, meaning their price is derived from the underlying asset price. As such, you are essentially betting on the underlying asset’s direction when trading options.

Find a broker

Finding a broker who can trade options weekly in AU is crucial. Many different brokers are available, so it is essential to compare them before choosing one.

Some factors to consider are the fees charged, the platform offered, and the level of customer service provided. Additionally, you must ensure that the broker is regulated by the Australian Securities and Investment Commission (ASIC).

Place your trade

Once you have chosen your broker, you can place your trade. To do this, you must log into your account and select the option you want to trade.

You will also need to specify the strike price, expiration date, and the number of contracts you want to trade.

It is important to note that options trading is a risky investment and that you can lose all of your capital. Therefore, it is essential to use stop-loss orders when trading options.

A stop-loss order is placed with a broker to sell an asset when it reaches a specific price. This price is usually under the current market price.

For instance, if you are long a call option with a strike price of $10 and the current market price is $12, you might place a stop-loss order at $11. Your broker will automatically sell the option if the market price falls to $11.

Monitor your trade

After placing your trade, you will need to monitor it because the market can move quickly, and you need to be prepared to take action if the market moves against you.

If the market does move in opposition to your prediction and your position becomes unprofitable, you can either close the trade or wait for it to expire. If you close the trade, you must sell the option back to the market.

On the other hand, if you choose to wait for the trade to expire, you will either lose the entire premium paid or make a profit if the option expires in the money.

In closing

Trading in a weekly time frame can give traders some flexibility while also allowing them to find and seize opportunities in fluctuating markets. They can therefore be quite exciting, and traders who want to take part in listed options trading should do so through a reliable and reputable broker.

To Top