In any area of life, there are multiple approaches to solving problems. Every approach involves some mixture of intuition on the one hand and analysis on the other.
Intuitive approaches lend themselves to certain kinds of problems (What does my spouse mean by that?). Analysis is more successful with other types of problems (Why won’t my car start?).
Everyone has some degree of talent for both analysis and intuition but each person’s mind inclines in a different degree toward one side or the other. If you are primarily an intuitive type, you just instinctively grasped what I meant by that. If you are more analytical, you thought about it and decided whether you agree. See what I mean?
People who are more intuitive by nature gravitate toward occupations where their particular talents serve them well. The best artists, actors, salespeople and teachers have strongly developed intuitive sides.
Those who lean more toward the analytical are drawn to careers where their strong suit pays off. These include programming, finance, systems analysis and engineering.
Some rare people are gifted in both realms and can pretty much do anything.
If you tend toward the analytical, like an engineer does, then you may well find options to be the most satisfying trading vehicle.
Of the many things that an engineer is routinely concerned with, some of the most important are the sources and applications of energy; and materials and structures. These elements are directly represented in put and call trading. The sources of energy for an option are stock price movement and volatility. An option’s structure is clearly defined by the terms of the option contract, and that structure governs how it responds to these energy inputs.
The tools that an option trader uses are also familiar and comfortable to an analyst/engineer type. Probability calculators and P/L graphs are an every day occurrence.
A typical trading opportunity might go like this:
A stock’s price action indicates that it is likely to _____ in price from the current level, (drop or rise). This bit of analysis is done using the Online Trading Academy Core Strategy, with specific criteria applied.
The stock’s recent volatility indicates the selection of a particular option strategy (some strategies work best when volatility is high, others when it is low).
Best and worst-case outcomes are computed and reward:risk calculated and assessed.
A plan is made to manage the trade.
The trade is initiated.
The trade is concluded based on the plan.
This sequence is not very much different from that for any kind of trade, but there are extra layers involving volatility assessment and strategy selection. This requires multi-dimensional thinking and application of mathematically-based tools in a structured way. All of these are skills that an engineer or programmer uses every day.
This content is intended to provide educational information only. This information should not be construed as individual or customized legal, tax, financial or investment services. As each individual's situation is unique, a qualified professional should be consulted before making legal, tax, financial and investment decisions. The educational information provided in this article does not comprise any course or a part of any course that may be used as an educational credit for any certification purpose and will not prepare any User to be accredited for any licenses in any industry and will not prepare any User to get a job. Reproduced by permission from OTAcademy.com click here for Terms of Use: https://www.otacademy.com/about/terms
Editors’ Picks
EUR/USD flirts with daily tops near 1.0730
The continuation of the selling pressure in the Greenback now lends further oxygen to the risk complex, encouraging EUR/USD to revisit the area of daily highs near 1.0730.
USD/JPY looks stable around 156.50 as suspicious intervention lingers
USD/JPY remains well on the defensive in the mid-156.00s albeit off daily lows, as market participants continue to digest the still-unconfirmed FX intervention by the Japanese MoF earlier in the Asian session.
Gold holds steady above $2,330 to start the week
Gold fluctuates in a relatively tight channel above $2,330 on Monday. The benchmark 10-year US Treasury bond yield corrects lower and helps XAU/USD limit its losses ahead of this week's key Fed policy meeting.
Week Ahead: Bitcoin could surprise investors this week Premium
Two main macroeconomic events this week could attempt to sway the crypto markets. Bitcoin (BTC), which showed strength last week, has slipped into a short-term consolidation.
Five Fundamentals for the week: Fed fears, Nonfarm Payrolls, Middle East promise an explosive week Premium
Higher inflation is set to push Fed Chair Powell and his colleagues to a hawkish decision. Nonfarm Payrolls are set to rock markets, but the ISM Services PMI released immediately afterward could steal the show.
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