If you’ve been keeping an eye on the market in search of a good swing trade to make, chances are you’re not having too much fun. Most of what traders and investors have been treated to is chop, and for traders, especially swing traders, this is about the worst thing that could happen to this longer-term strategy.
Chop eats away at your options contract value if the implied move doesn’t come as expiration approaches. Experienced traders know this effect as time decay, or Theta. What Is Theta? The term “theta” refers to the rate of decline in the value of an option due to the passage of time. This means an option loses value as time moves closer to its maturity, as long as everything is held constant.
With chop, this is exactly what happens and why it’s a traders worst nightmare. You may have done all your homework, found a great setup, and applied a reasonable trade, but if the stock doesn’t make a meaningful move toward your strike price, you’d be better off cutting your loses and waiting for a break out of the range the market is in.
Watch the full video at WEALTHPOP.com
