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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... More
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Michael C. Thomsett, author
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Thomsett Options
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Getting Started in Stock Investing and Trading
  • The Holding Period For Stocks And How It Has Changed 0 comments
    Mar 28, 2014 9:53 AM

    In the 1940s the average holding period for stocks was as high as 10 years. This is unheard of today. Now the average is down below one year and many active traders (day traders, swing traders) are looking at being in open positions for a matter of days, not even weeks or months.

    With this new "normal" (created in part by access through the Internet, very cheap trading costs, and markets characterized by high volatility), do options play a role?

    In fact, they can. Options are flexible, much cheaper than stock, and can be used to manage and reduce risks. For example, a bearish trader may short stock but that is a complex, expensive and high-risk strategy. As an alternative a long put gives the trader control over 100 shares for a much smaller market risk. The typical at-the-money or out-of-the-money option with less than a month to expiration is going to cost less than 5% of 100 shares of stock.

    Do active traders benefit by using soon-to-expire options to actively trade? Yes. Considering that the typical holding period is extremely short, options expiring in less than one month are very cheap because most of the time value has already disappeared. So options provide leverage and diversification, not to mention much lower risks.

    Many have already figured this out. Take a look at the CBOE stats on option trading. In 1979, when puts were publicly traded for the first time, over 39 million contracts were traded (up from only 1.1 million in calls four years earlier). By 2009, 3.6 billion contracts traded, and each year's growth rises to record levels. Clearly, options are going to play an ever larger role in the future.

    To gain more perspective on insights to trading observations and specific strategies, I hope you will join me at ThomsettOptions.com 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 ThomsettOptions.com to learn more. You can take part in discussions among members on the site at the Members Forum.

    I also offer a 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 Newsletter - I look forward to having you as a subscriber. Please also check out my other site, ThomsettStocks.com

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