Track 'n Trade Futures End of Day Options
In this Track 'n Trade Pro Options trading training video, I want to talk to you about Options Term Insurance. The way this works, is we buy cheap out of the money options and anticipate of a major market reversal. We call it term insurance because you purchase cheap, out of the money Call options, if the underlying market is going down, or cheap out of the money Put options, if the underlying market is heading up.
Here's how Option term insurance works. Watch for a market that's in an extreme low or high. At least 10 years, and looks to be continuing in that trend. For markets that are going down, begin looking for under price, out of the money Call options. The options premium will be less than fair value. Again, ask you broker if you need help.
If you can't find any under priced options, don't worry! Just pick a Call option that is one or two strikes out of the money. If the market is going up, we would do just the opposite. Using under price, out of the money Put options. I will give you a tip here. Markets seem to be susceptible to gravity. They have a tendency to fall much faster than they rise. Keep this in mind, not just for this strategy, but throughout your trading career.
Now, each month start adding one or more of these cheap options to your portfolio. With about a 3, maybe 6, 8, or even 12 month time frame before expiration. Depending on what you feel like you can afford.
Remember: this is insurance against an anticipated reversal in the market. After 6 months of collecting these cheap options, you'll have a nice little insurance policy collected. When that market reverses, and it will, all those cheap options will turn into valuable contracts. All you'll have to do, is decide when to liquidate, and when to take profits.
Don't worry if some of your older options start to expire worthless and stop off. Remember: this is insurance, you make a car insurance payment each month, or you make house insurance payment each month.