Making Money With Option Strategies

15 The Final Twist: Proximity

In the overall analysis of options as hedges, the biggest question of all involves when and where the trade should be entered. In Chapter 5, the discussion of timing for options trades was based on the study of Western and Eastern reversal signals. However, there is one final point to study: the proximity of signals.

Key Point

Hedges are most effective when they are timed to coincide with price proximity to resistance and support, where the greatest uncertainty enters the picture.

The “proximity” of the signal to the trading range determines more than anything else when a specific trade is likely to be profitable. This is a reference to the location of price in comparison to two important lines: resistance and ...