I’ve gotten a lot of questions about how I trade options lately. Many of those questions are really roundabout ways of asking if I have any hard and fast rules for trading options. I don’t have many rules that I consider “hard and fast,” but I do have three. So I thought I’d share them with you here.

Caveat emptor: There aren’t any guarantees. By following these rules, you might make some money; you might lose some. I offer these rules to give you some insight into how I trade. Obviously, you will need an overarching trading strategy to get the best results.

Now that we’ve gotten that out of the way, here are my three “hard and fast” rules…

1. Don’t hold an option near term. 2. Don’t buy out-of-the money options. 3. Don’t hold an option until expiration.

The way these are written, it sounds like a list of what NOT to do. And it is. But these three rules can also be rephrased in a positive way…

1. Always buy options that have plenty of time before expiration. 2. Only buy options that are already “in the money.” 3. Always sell off your options before expiration.

There you have it: the only three “hard and fast” rules I consistently follow when I trade options. The rest of my trading really depends on the movement of the underlying stock and the particular set-up I’m trading. Unfortunately, there aren’t any blanket rules that fully address the unpredictable forces in the market.

Said another way, there are additional rules that I use. But those rules depend on the stock, the set-up, the timing, and a number of other factors that require closer examination and interpretation.

I hope the rules I’ve shared here give you some new insight into how to trade options for profit. After all, many of the so-called “experts” say to trade the latest news. I don’t suggest doing this. You want to be aware of what’s going on so you don’t get blind-sided. But you don’t want to base your trades on the news all by itself. It’s simply too unpredictable.