Notes

Option Pool Post Money
One of the easiest ways to diversify your portfolio is through an option pool. An option pool is simply a pool of investment options. In the simplest terms, when you purchase an option you are buying a right or privilege to purchase a certain stock or group of stocks within a specified time. The right that you purchase is referred to as the option. You have the right but not the obligation to sell that option within a set amount of time or at a pre-determined price.

If you purchase more options, your portfolio becomes more attractive and more volatile. As an option trader, you can increase or decrease the risk level of your portfolio by choosing specific options with a large strike price. However, there are some things to consider when choosing which options are right for your portfolio. Here are some tips for finding the best option deals in the option pool:

Know your risk tolerance. The most obvious reason to use an option pool is to diversify your portfolio. With more investments, you become exposed to more risk. Therefore, you need to weigh how important it is to you to increase your exposure to risk-bearing investments. Do startup need the additional income that would come from selling an option? Do you want to guarantee the payout of your first option, so you can increase your portfolio's chances of earning more money?

Research the market. If you're new to options, the best way to learn is to research the options available to you and how they affect your portfolio. Go over a range of options with a candlestick chart. If the options prices and patterns don't look familiar, you'll know right away that you aren't familiar enough with the market. Option trading is all about knowledge, so if you don't know what you're doing, don't trade.

Research the expiration dates. There are different expiration dates for each option contract, depending on the product. If you're trading one or more options with a long expiration date, you should be prepared for a large amount of option money to leave your position, in case you choose the wrong option. Most investors who set up an option pool to increase their options profits opt for long expiration dates. On the other hand, short expiration dates usually result in less money left in the option pool, unless you're a very experienced trader.

Understand price action. Effective option trading involves having an understanding of the way that options prices and markets move. Trading with startup may give you a good idea of possible future price changes, but it won't help you to determine which options are the best ones to buy and sell. For this reason, many traders now use a combination of technical and fundamental analysis techniques to determine which option trading strategy will be the most effective.

Never use option pool funds to finance options trades. The option pools are intended for providing you with protection if you lose the underlying securities underlying the option, not as a source of additional option money. If you decide to add funds to your option pool, do so in small amounts, or else you could end up with a large loss. If you've already placed an option with a large price tag on it, adding additional fund would just cost you more money.

As you can see from the advice above, there are some things you should always consider when trading with an option pool. Before you start trading with these funds, have a good idea of how much risk you're willing to take. Decide whether you want to place all your option trading funds with one broker, or whether you prefer to spread your risk between several brokers. Lastly, keep in mind how you intend to use your option money. Placing all your post money with one broker may protect you from the risk of selling all your option positions at the same time, while spreading the amount of risk means that you'll likely make less money in the long run if your option trading and option pool investment moves in different directions.
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