What Is the Advantage of “End-of-Day” Options Trading?

In the trading world, there is a bit of jargon for just about everything, so is it any wonder that there would be a term for making trades in your pajamas. It is called end-of-day trading, and it might just be the single best thing you can do for your portfolio.

What is it?

End-of-day trading simply means trading near or after the close of the New York markets. Basically, it is trading in the evening instead of in the middle of the day.

And the benefits are many.

Better Data

Suppose you have pegged a company for decline, so you plan to buy a put option taking advantage of anticipated lower value. Then, that afternoon you see the stock jump nearly half a point on rumors that the CEO will step down in favor of his Pomeranian. Do you change your plans?

This is the problem with tracking the market too intensely. Unless you are a day trader, you will make your money based on longer term trends in the stock market. That means that short term fluctuations in a stock price can often distract you from the fundamentals.

End-of-day trading lets you look at the market without the jitters that happen over the course of the day. Once the rumors and overreactions have settled, the odds are you have closer to true value and better data.

And do not kid yourself. When it comes to trading, data is key.

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More Thoughtful Trades

Related to the above, end of day trading means you will likely make a lot fewer trades.

Following the market in real time can lead a trader to taking positions based on instant reactions to emerging data. The result is a high volume of trading that, for the average portfolio, is simply unprofitable. Indeed, numerous studies have shown that most people do much better with fewer, more thoughtful trades than anything else.

End-of-day trading helps you avoid twitch trading, and makes it more likely that you can take your time and make better decisions.

More Likely to Beat Premiums

There are many advantages to trading options, but one disadvantage is your need to beat the margin on any contract. Unlike a stock trader, it is not good enough to shave off a bit of profit, then move on to the next deal. Your results need to make money after paying premiums.

Intra-day trading (investing during the day rather than after it) is less likely to meet those goals. Absent major events, most stocks will not move that much in a single day. It usually takes more time to meet strike prices worth setting. As a result, you are simply better off waiting until after the end of the day and avoiding the risk of small-value intra-day trades.

Better Trading Habits

Remember how high you jumped the last time your boss saw Facebook up on your computer? Or how quickly you tried to scan the newsfeed before clicking away?

Now imagine that the kids’ college fund is on the line.

Most people trade options in their spare time, using it to boost their personal portfolios. For them, intra-day trading means fitting in the market around a day job, and that is not just stressful… it is dangerous.

When you check the market “real quick”, you are signing up to miss important details, and trading decisions based on incomplete information can lead to lower profits or even hefty losses. Do not let that happen to you. Do not squeeze in trading between meetings and a quick game of Candy Crush.

Take the time to do it right.

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