Steps
- Determine your investment objectives. What percentage of your portfolio should be dedicated to trading options?
- Make sure that you have done enough reading to have at least a basic knowledge of option trading, especially the risks and rewards.
- Determine the basic subscription plan that an service is providing. If there are several plans, write down a comparison the different services and subscription rates. Are there discounts for longer term subscriptions? How much money are you willing to pay each month/quarter/year for such a service? Will the potential returns from your investment be at least greater than your subscription costs?
- For each plan, make sure that you understand the type of option trading strategy that the service will recommend or will be employing in a autotrading process. Does the service deal with simple trading of calls and puts, or does it deal with credit spreads, iron condors or some other variation?
- Do you have enough basic capital to start with the service? Do they provide a basic money management recommendations so that you know how much money you need to start, and what percentage of your portfolio should be committed to a trade?
- If the service offers autotrading, find out whether it uses a reputable broker.
- Look at the performance of the service. Is it easily accessible? Does it list every trade or is it summarised? Are the results clear, understandable and unambiguous? Can you download them on a spreadsheet to run your own analysis? Are the results real or potential? In other words, did trades actually exit at a certain stock price, or is the performance based on the maximum possible that could have been attained as the stock price fluctuated? What percentage of winning trades does the service have? For bad trades, what is the percentage of loss per trade? (Tip: if they regularly have trades with 100% loss, it means that the service does not use stop losses - they will gamble with your money!)
- Does the service offer a free trial? If so, for how many days?
- Find out if the service offered and its performance have been independently reviewed anywhere on the net.
- Find out if the service has been discussed in forums. Ignore flame posts from angry investors who did not follow guidelines, and try and weed out a true reflection of the service.
Tips
- Never subscribe to service that does not post actual, trade-by-trade results in a clear, understandable way.
- Preferably choose a service that has been independently reviewed.
- When examining the performance results, make sure that you factor in broker's fees, which are much higher for options trading than for stock trading.
- when you choose and subscribe to a service, always paper trade for the first three months, until you become familiar with their system. Make sure that you know how to get out of a trade if it goes wrong, even before the service recommends an exit.
Warnings
- Do not be fooled by claims of huge profits in a short time period. Investigate the results for yourself!
Sources and Citations
- Here are two links to sites that have reviews of options trading newsletters:
- http://www.pro-trading-profits.com/index.asp - this reviews the performance results of 234 strategies
- http://www.swing-trading-options.com/reviews.html - this site lists about 70 services that provide autotrading through four online brokers
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