Fear and greed are timeless emotions. They've been around since caveman days, and they'll be around for a long time to come. Particularly when it comes to buying and selling options... Fear and greed motivate us as traders and, to a slightly lesser degree, as investors.

When the market or a stock is headed up, people are getting "greedy"; when the market or a stock is going down, they're feeling "fearful." Considering that options tend to move with stocks, understanding and reading fear and greed can be to your advantage as an options trader.

As the importance of an individual trade increases in the trader's mind, the fear level tends to increase as well. A trader becomes more hesitant and cautious, seeking to avoid a mistake. The risk of choking under pressure increases as the trader feels the pressure build.

For example, just by buying an option on a "maximum fear" day instead of a few days later when greed is kicking back in, you could easily wind up with a 20% gain versus a 20% loss...

Even better, there are ways of drastically improving your chances of buying on a maximum fear day.

When a Stock Has Reached a Low - Strike!

As a quantitative analysis-based investor, I look at numbers to determine which direction a position is headed. But what I'm really tracking are fear and greed as they ripple through the markets. As I look at the numbers, the trends, I'm using an algorithm that is seeking extreme levels of fear and greed within the normal oscillations of the market. I'm looking for percentage moves up, percentage moves down, and the oscillation of price - and ultimately I'm looking to find direction. On a monthly basis, for example, the markets move anywhere from 6% to 10%, up and down. Individual stocks tend to move between 10% to 20% each month. So for short-term traders, the key is getting in when the stock's headed up that 10-20%, instead of when it's headed down. In other words, you want to determine when maximum fear has hit - and the crowd has finished selling out of a position - and that's when you want to buy. How do you do that? By identifying attractive stocks at the bottom of their normal trading range...

Look for Stocks at the Bottom of Their Range

When markets and sectors and stocks are down at the lower range of our expectation, we start taking notice. And of course, this is when I would tend to look to get into a long position. (The opposite is true for stocks people are greedy for - their higher prices make them good shorting opportunities.) On a very basic level, you can see when the market's fearful about a particular stock by looking at its 52-week range... If the company's trading on the low end of its 52-week range, it could be a sign that maximum fear is driving investors. Here's an example using IBM:

You can see that IBM hit a 52-week high of $99.10 in January... and today it's trading around $76.59. So should you rush out and buy IBM right now because it's trading on the lower end of its 52-week range ($71.85 to $99.10) - because there's fear in the market? No. But considering the fear factor, you might consider IBM...(Of course, the quantitative analysis systems I use are taking in a number of factors, not just one.) But be assured that learning all the different ways of reading fear and greed can help you:

• Take advantage of the markets rather than letting the markets take advantage of you
• Preserve capital by telling you when to stay on the sidelines

A master trader should have very little fear. Fear mesmerizes the subconscious mind to produce the very thing you fear. If you fear losses, you will program your subconscious to achieve losses. Trading should be just like placing loaded bets or rolling loaded dice. If you had a set of dice that won say 85% of the time and you used good money management and kept your bets small enoung to avoid any risk of ruin - how could you be afraid of playing the game? Would you care if 15% of your plays lost? No! You would keep rolling those loaded dice until your arm fell off and your would grow rich collecting the money! An experienced trader with a long-proven system or method should approach trading just like a gambler playing a loaded game. He could care less which trades win or lose because the percentages are loaded to guarantee a long-term profit. Achieving this mental attitide is the death knell to fear and an open door to success and prosperity in the trading arena. It comes from knowing and following your system religeously and trading every signal robotically - letting the odds do the work.

All 4 fears mean that you are not ready to trade or that you are among the many who should never be trading. OK lets look at them individually.

1. Fear of Loss :
Most are not cut out to trade and need the security of a monthly salary. As a trader you have to create an accurate and reliable methodology. You have to check if infinitesimally, paper trade it, test trade, take it to bed with you and stroke its bottom. Its has to be one mother of a winner. Now if it works but you still sh*t yourself trying to play it in the market then do yourself a favor. Go away and do something else other than trading.

2. Fear of Missing Out :
After a blind fuzz of analysis paralysis or a start out catatonic brain freeze or a delayed gambling need to shoot from the hip, you enter late and panic at what is an imagined or real turn in direction - you take out your position yet again at a nervous loss or wash or miniscule profit. Your personality wouldn't have enough confidence to expect the Sun to rise in the East each day. Sorry, pal, trading is not for you.

3. Fear of Letting a Profit Turn into a Loss :
You don't really know sh*t about the market you are playing in or you don't know enough yet. Stay away from it until you know the mother back to front in terms of having a very accurate system with a detailed plan to apply it.

4. Fear of Not Being Right - All Too Common :
Right or wrong? Free yourself. This is only a game - to win of course. Forget right or wrong. And if you are in the 'all or nothing' category it is the hallmark of erratic and primitive trading.