Financial Resource

When trading options online you may ask, what is a coupon trade? In our trading group this is what we call an out-of-the-money options trade with a long expiration date. Other words, this is an intermediate option trade with expiration of 3-4 months or more.

Why would a person coupon trade?

• Uses less capital
• Normally does not require constant monitoring
• You are looking for a long term investment. Several months.

When not to use a coupon trade

• If your weekly charts and your long term are not in solid agreement
• If the volatility of the stock or option is too high
• If you can not find an option with an acceptable delta that is between 25-40 cents

What to look for in a coupon trade

• Look for low volatility stocks that have a solid trend in the same direction on both the weekly and monthly charts.
• When looking for the desired option, look for deltas between 25-40 cents.
• Look for expirations that are at least 3-4 months out.

These need time to develop.
• Look for stocks that are being traded (higher volume stocks)

When to close your position

• Close your position when the delta reaches 50 cents. Don’t get greedy.
• If you reached a pre-defined limit or you feel you have made enough profit
• If the trade starts reversing

Coupon trading is a good way to trade if you have a smaller trading account or you don’t want to spend a lot of time in front of the computer. Some of our traders in our trading group have been very successful with this strategy. The most important criteria are picking low volatility stocks that have a history of sustained movement over 3-4 months.