Thomsett's  Instablog

Send Message
Michael C. Thomsett is a widely published options author. His "Getting Started in Options" (Wiley, 9th edition) has sold over 300,000 copies. He also is author of "Options Trading for the Conservative Investor" and "The Options Trading Body of Knowledge" (both FT Press); and "Options for... More
My company:
Michael c. thomsett, author
My blog:
Thomsett Options
My book:
Getting Started in Stock Investing and Trading
  • Options In A Swing Trading Program – Lower Risks, Better Leverage 0 comments
    Jun 28, 2013 12:22 PM

    Swing trading is a description of strategies designed to move in and out of open positions as quickly as possible (usually 2 to 5 trading days), take small profits, and move to the next one. Most traders use stock for swing trading; but options just make good sense as the vehicle of choice for swing trading. When you swing trade using stock, there are several problems:

    1. You are limited by your cash and margin maximum, whereas options are cheaper and for a small fraction of the cost, allow you to control price movement in 100 shares. Thus, you have great leverage but risks remain low.

    2. The combination of option diversification and leverage cannot be matched, especially when you realize that these features do not increase risk. Most forms of leverage (like margin borrowing) increase your risks, but not so with an options-based strategy.

    3. Options are less risky because you can never lose more than the premium paid for a long position.

    4. You cannot play both sides of the swing without high risks. Stock-based swing trading demands shorting stock at the top of the swing, which is expensive and high-risk. With options, the long put is a much safer and easier bearish play.

    In summary, just the basic strategy of opening long calls at the bottom and long puts at the top, makes swing trading flexible, affordable and low-risk. It is also one of the few strategies where using soon-to-expire, at the money or slightly in the money options make the most sense. Swing traders move in and out of positions in a 3- to 5-session time frame. Options at or slightly in the money that expire in a month or less have very little time value and are most likely to respond to the underlying price movement.

    This is one of many low-risk trading ideas every options trader can use. The great advantage to options for swing trading is not only in the profit potential, but also in the way this reduces your market risks.

    Option-based swing trading can be accomplished in a very low-cost environment. For example, setting up synthetic long stock positions at the bottom of the swing, and synthetic short stock positions at the top is a great way to create no-cost or no-cost swing trading positions. While both synthetics require one side to be short, the risk is likely to be manageable if you also rely on strong reversal signals and their confirmation.

    I have written a book on this topic being published by Palgrave Macmillan, called Options for Swing Trading Release date is September 3, 2013 and I hope you will keep an eye out for it. In this book, I considered all of the possible combinations of long and short options with a keen focus on risks and potential profits. Following is the complete table of contents:

    Introduction: Problems of Risk in Most Trading Systems

    Chapter 1 - Options: Trading Basics

    Chapter 2 - Swing Trading: The Basics

    Chapter 3 - Dangerous Waters: Risk Inherent in Comprehensive Swing-Based Strategies

    Chapter 4 - Marginal Potential: Leverage Limitations in Swing Trading with Stock

    Chapter 5 - Elegant Solutions: Options to Address the Risk and Leverage Issues

    Chapter 6 - In and Out: Entry and Exit Criteria for Swing Trading

    Chapter 7 - Powerful Timing Tools: Expanding Swing Signals with Candlestick Reversals

    Chapter 8 - Flexing Your Muscle: The Power of Options Close to Expiration

    Chapter 9 - Swings Maximized: Timing the Swing with Ex-dividend Date

    Chapter 10 - Strategy # 1: Long Option Approach, a Basic Solution

    Chapter 11 - Strategy # 2: Long/Short Call Strategy, Uncovered Short Side

    Chapter 12 - Strategy # 3: Long/Short Call Strategy, Covered Short Side

    Chapter 13 - Strategy # 4: Long/Short Call Strategy, Ratio Writing on the Short Side

    Chapter 14 - Strategy # 5: Long/Short Put Strategy

    Chapter 15 - Strategy # 6: Short Option Strategy

    Chapter 16 - Strategy # 7: Synthetic Option Positions Strategy

    Chapter 17 - Strategy # 8: Multiple Contracts and Weighting with Ratio Calendar Spreads

    Chapter 18 - Strategy # 9: Expanded Iron Butterfly Swing Trading

    Epilogue - The Big Picture: Swing Trading and Your Portfolio

    End Notes



    To gain more perspective on insights to trading observations and specific strategies, I hope you will join me at where I publish many additional articles. I also enter a regular series of daily trades and updates. For new trades, I usually include a stock chart marked up with reversal and confirmation, and provide detailed explanations of my rationale. Link to the site at to learn more.

    I also offer a twice-monthly newsletter subscription if you are interested in a periodic update of news and information and a summary of performance in the virtual portfolio that I manage. Join at Weekly Newsletter I look forward to having you as a subscriber.

Back To Thomsett's Instablog HomePage »

Instablogs are blogs which are instantly set up and networked within the Seeking Alpha community. Instablog posts are not selected, edited or screened by Seeking Alpha editors, in contrast to contributors' articles.

Comments (0)
Track new comments
Be the first to comment
Full index of posts »
Latest Followers


More »

Latest Comments

Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.