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A Guide to Trading Pit Buying and Selling Lingo, and Choosing the Best Options

by | May 29, 2024

In the fast-paced world of day and swing trading, clarity and precision in communication are paramount. 

Here in the Trading Pit, we adhere to a straightforward and strategic approach to ensure everyone from beginners to seasoned traders can follow along and make quick, informed decisions.

Understanding Trade Alerts

First, let’s define our terms clearly… 

  • Going “long” in our context means buying shares outright, and/or buying call options. 
  • Conversely, going “short” means selling shares short, and/or buying put options. 

These are the foundational actions we focus on here in the Trading Pit.

Occasionally, if a stock is particularly expensive, I might offset this with a spread trade. This involves buying a more expensive call and selling a cheaper one, or vice versa with puts. 

This strategy helps manage the cost by offsetting a more expensive option with a cheaper one, making it a more practical approach for pricey stocks.

Official Alerts Versus General Guidance

It’s crucial to know what constitutes an “official alert,” and what is merely general guidance, analysis or stating my interest in a stock. Official alerts — such as “go long NVDA” or “go short SHOP” — come with that specific entry and exit language. 


They are actionable and precise.

For exits, I generally say “take profits on AMD” or “exit AMD,” and often follow up with entry and exit prices for the underlying shares. 

On the other hand, if I mention that I’m adding a stock to my hitlist, hot list or watchlist, or say I’m interested in it, that does not equate to an official alert. These mentions are just a heads-up on the stocks that I’m currently watching that could soon deliver a signal to enter. 

I advise everyone to pick the options you might target for these stocks and put them on a watchlist of your own. That way, if an official alert does come, you already know exactly what to pick and don’t have to hunt for it. 

As a general rule of thumb when picking a strike price to target, I look for the one closest to a delta of 0.70 or higher, which simply means the option moves 70 cents for every $1 the underlying moves.  

For expiration dates, I generally look 10 to 20 days out. 

If the market is moving fast, then I go two weeks out. If the market is choppy, then three to four weeks out is best in case we need to hold it a day or two — I only pick trades we can hold overnight if they need to be swing trades instead of day trades.  

Going out longer will cost more up front, but your option won’t suffer quite as much from time decay.

If I give a specific spread, I always give full details on the expiration date and strikes. 

Ensuring Optimal Trade Execution

Before I issue any trade alert, I always consult with my assistant to check the spreads on the options. We need to ensure that the trade is practical, and the options aren’t too wide, which could hamper execution. If the spreads are too wide, I will likely decide against issuing an alert. 

For example, if I find that the option spreads are too wide, I’ll simply advise that I like the stock but caution against trading options if the spread isn’t in our favor.

You can still buy shares outright or sell them short, but it would be better to avoid an option trade.  

This ensures that when you follow my alerts, you are entering trades that are set up for success, not just in terms of market positioning but also in practical execution.

Final Thoughts

My goal in the Trading Pit is to provide clear, actionable and practical trades in addition to sharing my thoughts and analysis to help you become a better trader.  

The distinction between official alerts and general commentary is a critical part of this approach. As we navigate the markets together, understanding these nuances will help you make more informed and strategic trading decisions.

Remember, every piece of advice or alert issued is aimed at enhancing your trading effectiveness and ensuring that you’re well-prepared to act when the right opportunity arises. 

Let’s continue to trade smart and stay ahead of the game…

I hope that helps! 

Roger Scott
Roger Scott Trading

 

WRITTEN BY<br>Roger Scott

WRITTEN BY
Roger Scott

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