"The rhetoric on both ends of the spectrum either scares people from exploring options trading or entices them to rush into using a product they don’t fully understand. Neither is good, and as more retail investors enter the market, it’s more important than ever that investors understand options are among the most effective financial tools for managing risk, generating income and enhancing portfolio diversification". I tell people this...And I get shouted down on these boards!! Too old to battle...So I just trade and post on my journal.
As a retail swing trader it's taken yeeeaaaars for me to learn how to trade stocks effectively, to the stage now I have a pretty good grasp on when a trend has begun or ended. But it's still not fully sunk in, as after, what, nigh on 40 years, I still discover new trading stuff. Frequently I will discover some new 'edge', but it can be even years later that particular discovery, I hadn't fully understood it - there was even yet more to it. Take for example volume. (simple example) Many traders don't understand the nuances of volume, it looks deceiving but like a tiger hiding in grass, most can't see there is something hidden away there from plain site. Volume is not simple or straight forward, it's not something which is black and white or can be interpreted the same way bar by bar. What am I attempting to say in a short version of this rant.....? I've never fully attempted to explore Options and there is nooooo waaaay in this lifetime I'd even get to understand Options. My plate was and still is full on just getting my head around trading stocks, I know how difficult and time consuming that has been and..... Options - not even gunna go down that rabbit hole. Ps: I trade full time occupation, fully engrossed, past 8 years, wife trades as well.
Here is one way I trade using volume. I look for industry leaders who have a bad quarter. I evaluate them to see if this is a "one off". Is it a real problem, or is it something like differed maintenance or downsizing. A manageable problem is what I look for. At the same time of the off earnings, the pension funds, mutual funds, and the market is unloading the stock. They don't want to look like idiots... Of course volume is rising...I am fine with that. Say the stock drops 20%...I will buy it (maybe 100 to 200 shares). Here is an example of what I will do. Buy something like B of A (BAC) at $34. I'll then maybe do a leap at $35. I will gain the dollar profit from the stock...A dividend of say 2-4%, and option money of say 5-7%. I can see an overall profit of over 10% (if called away...Usually about 12% is more to my liking), I will run with it. If it falls apart I will still hold, if I like the company. If it drops say 20%, I will buy back the option and dump the stock. It will depend on the company... So for me, it is earnings (opportunity)...But volume does come into play also.