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Questions and Answers
Which strategy involves matching prior support or resistance levels in trading?
Which strategy involves matching prior support or resistance levels in trading?
- Breakout trading
- Matching previous low/high and acting (correct)
- Cost averaging
- Price action trading
What does not typically occur when there is a mismatch between supply and price in options trading?
What does not typically occur when there is a mismatch between supply and price in options trading?
- Price goes down rapidly
- Call options consistently increase in value
- Price increases but the put doesn't (correct)
- High volatility in options prices
What is suggested to do with contracts to manage costs effectively?
What is suggested to do with contracts to manage costs effectively?
- Buy more contracts than necessary
- Letting it ride with cost-effective contracts (correct)
- Always hedge against losses
- Trade frequently for small profits
Which scenario describes a potential need for risk-free gut calls in options trading?
Which scenario describes a potential need for risk-free gut calls in options trading?
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In options trading, what typically happens to a put option when the price rises?
In options trading, what typically happens to a put option when the price rises?
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Study Notes
Option Trading Strategies
- Recognize and analyze market patterns by observing historical price levels, matching previous lows and highs to make informed trading decisions.
- Understand the concept of supply and demand in options; price increases may not always correspond with call option performance, indicating market inefficiencies.
- Consider the risk-reward profile when selecting cost-effective contracts that allow for greater potential return while managing risk effectively.
- Engage in risk-free strategies through gut calls, particularly during critical market conditions, to capitalize on spontaneous market movements.
- Acknowledge the pursuit of supplemental income through trading options, highlighting the need for a disciplined approach to mitigate financial stress.
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