Our approach to short-term investing includes:

• analysis of market players’ behavior,
• advanced technical analysis based on econometric models,
• fine-tuned investment vehicles that reduce risk and enhance returns.

It is obvious that short-term movements are easier to predict. It is also true that there is no need anymore to be fully invested in equities all the time. You can put almost all your capital in risk-free bonds and yet greatly enhance the returns by allocating just around 20% of it for options trades.
Indeed, why put all your money under risk? According to recent studies, there are only a few days or even hours a year when a stock moves in a predictable direction, i.e. one can without a substantial risk “jump in and jump out.”

1. Analysis of market players’ behavior

Stock market professionals know that stocks are driven in the short-term by sentiment and not by fundamentals. Sentiment is largely created by big market players: influential big banks and investment funds trading stocks in big volumes. On average, more than 60% of trading volumes are delivered by so-called “program trading” set up by big market players. You should have an idea what are they doing: buying or selling the stock, pushing it up or down, at what level.

Just one example. “Big boys” very often silently accumulate a stock while trying at the same time to keep the price low. After that, they publish the positive comments that push the price higher. You will lose without a clear understanding of what is going on.

2. Advanced technical analysis based on econometric models

The OptionSmart technical analysis models help to identify reliable short-term trends and reversal points. Technical charts cannot lie because they show how investors vote with real money.

There are two ways to analyze charts. The traditional way is to consider it like any other statistical process (physical, for example). We use a different one, a behaviouristic approach that helps to understand what investors are going to do.

3. Fine-tuned Investment Vehicles

After analysis of the markets, we should determine what kind of investment vehicle is most suitable to benefit from an anticipated short-term movement.

Straightforward buying of stocks would be not the best way. There are two reasons for that. Firstly, you put a lot of money under risk. Secondly, these short-term movements account for less than 1-2% of price changes. At the same time, options give you a chance to increase this return by 5-10 times.

The OptionSmart concept of option trading differs from traditional approaches. It is not focused on the concept of fair value. Fair value does not mean much in short-term option plays based on strong technical signals. It is much more important in this case to foresee the stock price direction. Traditional option theories assume that stocks have equal chances to move up or down. However, there are some market situations when technical signals are extremely strong and in the short-term a stock has very high probability of being pushed by the crowd sentiment in a predictable direction. These situations happen very rarely and do not last long but you can benefit a lot by acting immediately on such signals when they are identified by OptionSmart.

One might say that option strategies are too sophisticated. But actually investors do not even need to know all about options pricing theory or be financial engineering professionals to trade options. In the modern world, we can use a state-of-the-art technology without having to know about how it works. OptionSmart offers a “turn-key” solution to the trading of options. The best option picks will be sent to you as alerts via email.

The most common mistake people make on stock markets is to be ruled by their emotions. Hope, fear and greed are popular emotions but by no means should they be allowed to interfere with your strategies. Decisions should never be based on emotions: hopes and greed can make you forget the risk precautions, while fear can trigger hesitation. The ‘big boys’ can easily play upon your emotions by spreading rumors. You get emotional and do exactly what they want you to do. Do you like being manipulated? Probably not. At the same time, emotions paint a simplified picture of the actual market. Complicated situations cannot be resolved with simple intuitive decisions. In this respect, stock options are a unique tool.

Historically, more than 90% of OptionSmart’s picks were successful.

In fact, there is no need to be online awaiting entry/exit alerts from OptionSmart. You can set up auto-trading with the thinkorswim.com or other partner brokerages. They will execute our alerts on your behalf.

Find more about our site on our Q&A page!

You can learn more about option trading right or find selections of books and the lead what and where to read. Open our comparison chart of option strategies.

Reminder

Options involve risk, and are not suitable for all investors. Every investor who uses options should read and understand the publication "Characteristics and Risks of Standardized Options" published by CBOE.

Disclaimer
OptionSmart.com (a division of Stock Markets Institute) obtains information from sources deemed to be reliable. However,OptionSmart.com (Stock Markets Institute)  does not guarantee the accuracy of any of the information or commentary provided. OptionSmart.com makes no warranties, expressed or implied, as to the fitness of the information for any purpose, or to results obtained by individuals using the information. In no event shall OptionSmart.com (Stock Markets Institute) be liable for direct, indirect, or incidental damages resulting from the use of the information. OptionSmart.com (Stock Markets Institute) shall be indemnified and held harmless from any actions, claims, proceedings, or liabilities with respect to the information and its use. 
OptionSmart.com (Stock Markets Institute) does not make specific trading recommendations or provide individualized market advice. The information contained in its products is provided as an information service only.