Options Trading: The Importance of Entry Timing

By Jason Ng

Entry timing is an important stock trading art made critical in options trading. If timing your entry is critical for stocks which you can hold perpetually, all the more it is critical for options with a finite lifespan.Entry timing means finding the correct time to enter a position even though you have shortlisted it as a trading candidate. Your research tells you what to trade and your entry timing tells you when to take action. Perfect entry timing would have you enter a position a day before or even a minute before the underlying stock performs the predicted move, maximizing return on investment and capital usage.

Good entry timing would prevent capital from being unproductive due to having to sit in positions that have yet to perform as predicted. It is especially important in outright call option

 

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s and put options buying due to the fact that options decline in value as the days go by due to a phenomena known as "Time Decay". The longer the options are held, the lower their value becomes as you eagerly wait for the underlying to perform as predicted.Sadly, entry timing is what most beginners to options trading fail to give serious research and attention to.

This is true even for those with previous stock trading experience as stocks are a lot more forgiving of entry mistakes since the trader could choose to hold the position for as long as it takes for the position to play out its prediction.Consequently, many beginners find themselves in a panic when expiration draws near with their options lined up for expiring worthless out of the money. Indeed, options don't last forever and most of the options traded expire within three months of purchase. This is exactly why it is so important in options day trading and options swing trading. In fact, no options trading methodology or system would be complete without entry criteria and procedure.There are many ways to set up rules for it and all professional options traders have their own criteria in what are known as personal "play books". Entry timing rules and criteria must be designed for the specific trading methodology it is developed for.

There are no one size fits all solutions. Beginners must choose to use or learn options trading systems that include entry timing criteria such as my Star Trading System.Examples of entry timing includes watching the price action of the underlying for a period of time prior to placing the trade in order to ascertain entry sentiments or even looking at intraday moving averages or candlesticks to determine the exact best entry point. No matter what method is used, there must be objective rules governing such observations so that the process may not be clouded by emotions.Entry timing is critical to your long term success in options trading and is definitely an area you need to look into as an options trader if you haven't.To learn more about how you can profit with options trading under all market conditions, visit our Option Trading website at Optiontradingpedia.com.




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Jason Ng is the Founder and Chief Option Strategist of Masters 'O' Equity Asset Management and author of Optiontradingpedia.com and Futurestradingpedia.com. Learn more about Option Trading and Futures Trading.