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Options for the Beginner and Beyond: Unlock the Opportunities and Minimize the Risks by W. Edward Olmstead - Professor of Applied Mathematics McCormick School of Engineering and Applied Sciences Northwestern University

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Trading with the Trend

Before initiating an option trade, check the current trend of your stock as well as the overall trend in the market. Because option trades are time limited, make sure that the trend is working with you.

It is usually not wise to take an option position that attempts to capture a bottom or a top in the stock price. Wait for some confirmation of the move you want to capture. You can afford to be patient about entering a trade, because, with the leverage of options, you do not need to catch much of a move in the stock to make a nice profit.

If the stock you like has pulled back, look for a clear indication that it has resumed its uptrend before buying a call. If the overall market has been in a bearish mode, be careful about ...

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