With all the sites and seminars devoted to how to trade stock options, the need for advisory services is increasing all the time.  There are countless of option advisory services that are run on a subscription basis.  If the service is a good one they will enable you to trade options at a significant increase in your returns.  Unfortunately, there are a lot of services whose main goal is to take your money and leave you with nothing but bad advice.  Ultimately if you give your business to one of these services, you will likely end up losing money on your returns.  But with scams abounding and good companies falling under the radar, how can you possibly tell the difference?  There are a few signs of a questionable advisory services to trade options.  If you see any of these things in the company you are considering, look a little deeper just to be sure.

If the company sounds just too good to be true.  It is true that you can make a lot of money when you learn how to trade stock options.  However, because options are leveraged capital then you can lose a lot of money too.  Some companies will offer you gigantic sized returns for very little investment.  This is just not the case.  When you trade option, if you want the gigantic returns you’ll either have to take huge risks or be incredibly lucky.  Be immediately suspicious of any service that implies or suggests you’ll be taking early retirement for very little cost.  Legally they can’t come right out and make such a claim, but you’ll know the implication when you see it.

If the company references secrets strategies to trade options that only they, or the professionals, know about be very wary.  It would be a lovely idea that there was one secret weapon to trade options that will consistently let you make easy money.  But this is the real world, and those secret strategies just do not exist.  Professional traders do use a lot of very advanced techniques and strategies, but they are hardly a secret.  Anyone can learn these techniques and use them, although usually only the professionals do.  If an option advisory service tells you this line of nonsense is hoping that you are new to options trading and that you haven’t figured out how to Google it yet.

When an option advisory service only offers you a list of call options or only a list of put options, you need to escape immediately.  Simply buying a list of recommended options is a game for people who really want to lose their capital.  This is the equivalent of spending your entire paycheck on lottery tickets; it just isn’t going to make you any money at all.  Or, another example, a company offers you $2000 for every homerun you can hit and there’s no limit to the number of pitches you can swing at.  This sounds like a great deal.  But, the part they don’t tell you up front is that you have to pay $100 for every missed pitch.  Suddenly it doesn’t sound like a good deal anymore.  And this is the options way of doing just that.

While there is absolutely nothing wrong with a company touting their successes, you should be wary of a company that chooses one or two trades to show you what you “could have had”, if you signed on the dotted line.  Obviously this would not represent all of the company’s trade options and would be very misleading.  Read any promotional material with the utmost care.  If the company uses this strategy there is probably a lot they are not telling you.  Also along these lines is a company who does not tell you anything about their results or offerings or their process.  Demand to see their track record.  Demand to see their overall results.  Demand to see something that can establish the required trust that you need to make a decision when subscribing.  If they won’t so that, then you shouldn’t be giving them your business.

When you are first learn how to trade options it is incredibly important that you don’t lose your shirt.  Or your coat or hat or car either.  While working to trade options is certainly no beginner’s task, there’s a new things that you can do to ensure that you have some time to learn the business.  As with anything there is a learning curve, and unfortunately if you don’t get this one quickly you can lose a lot of money.

First you need to make a spread.  Basically a spread is where you purchase calls and puts.  So if the market is consistently moving in one way then purchasing only calls or puts (depending on how the market is swinging) is a great way to make money.  If you are unsure which direction the market will turn next but you still feel it will make a jump one way or the other, a spread might be a good idea.  You also don’t have to spread your money evenly between the two.  How you spread your money is entirely up to you so go with your gut feeling.  If you just feel that the market is headed one way but aren’t totally sure, put more money in that area and spread it out on the other side just in case.  For example, if you feel there’s a better chance of the options going up then purchase more calls than puts.  But even it out so that you don’t lose everything.

When you learn to trade options try to buy options that don’t expire right away.  Many people can work out which way a stock will go with just a little practice, but it is almost impossible to know when it will move that way.  Even the most experience traders would have difficulty in predicting that one.  So when you buy options that don’t expire very quickly, you will have time to observe how your stock is moving.  If it suddenly makes a big jump then make a move on your options then.  If it doesn’t move for a while then you’ve wisely given yourself time to wait for the big jump.  Unless a stock has a habit of moving very rapidly then try to get an extended option or it won’t be worth your money.

When you are learning anything its important to study the subject as a whole, this is true when you learn to trade options.  It would be unwise to research only the stocks that you are interested in buying options in.  It is imperative that you research the market as a whole.  Many factors influence what happens in the stock market every day from earnings, policies, and unemployment.   So even if your stock is doing fantastic something could happen to the market in general which creates a dramatic shift before the end of the day.  Make sure that you have researched everything with the market before making your move.

Also important with how to trade options successfully is tracking your earnings and losses.  So you should create a spreadsheet.  Make a chart of which of your options were successful and which were not.  Indicate which of these were puts and which were calls.  While you learn to trade options this is an important tool to let you track your successes.  This will let you see the areas you are a strong trader and the areas that you need to work on a bit more.  This way you can learn from your mistakes and avoid making them again.  Of course you will never have a 100% success rate; that is virtually impossible.  But you can make a decent living with practice and persistence.