Coach, I have read through this twice now. I will read through it once again and then need to formulate a business plan on my development as a trader. I do not have investment or financial experience prior to the options training I have undertaken since September. As far as a trading style I can tell you that my background is as a competitive athlete in HS and college. I am a police officer by profession and was on a tactical team for 10 or so years. So I am aggressive by nature but also very cognizant of risk. As I go through this process I will work to develop a theme or style to work from. I am going to start papertrading basic debit call and put positions on some stocks or indexes to gain the experience from this article in evaluating max risk, profit, and breakeven, along with delta and gamma, from your last assignment to Mark Trader. I am using TOS and need to learn the platform much better. I have the following: McMillan, Options as a strategic investment, unread Natenberg, Volatility, 2/3s read, will need to read again, I understood approx. 3/4 of what I read. Augen, Option trader's handbook, 1/2 read Murphy, Technical analysis, read, understood Graham, Value investing, unread Steenbarger, Improving trader performance, just bought after my blowout Dalton, Markets in profile, also just purchased Schiff, Little book of bull moves in Bear Markets, I find his arguments about the US economy very interesting and am reading this, 2/3s way through, as background to big picture persepective. I have gone through the CBOE online courses and need to repeat them. I passed the quizzes and exams but need to repeat. I have found that as I progress in my learning that prior subjects become more clear as I find new perspectives or insights from other areas, especially as I am growing in my appreciation of volatility.
Your attitude seems right for success. I suggest that you concentrate on making the following decisions so that you can trade within your comfort zone: When choosing to use options, are you a very short-term trader, a swing trader, or a short-term investor? Are you a predictor of market direction, or do you prefer strategies that are more market-neutral? Do you want to be a premium buyer or a premium seller? If seller, please avoid any naked shorts. Do you have a good enough understanding of the basic option strategies so you can choose one or two that are appropriate for you? You can always learn more strategies at a later date. Mark
Bart: Mark above took what I was going to get at next. In that Chapter 1, developing your plan and style is less about which option strategies you will use (i.e. debit spread or long calls) than deciding what kind of trader are you. Options are derivatives who value is derived from an underlying instrument. So the first step is to determine how do you like to trade the underlying instrument (putting aside pure vol plays and the like). As Mark asked, what is your style, what kind of trades do you feel the best attuned into looking for? Are you looking for long-term buy and hold candidates, short-term swing trades, stocks for shorting, what do you use to scan for candidates, what criteria makes you want to buy or sell a stock, what is your approach to directional bias, etc. Now you do not have to answer these questions to us, mainly to yourself. Once you have a firm handle on how you would approach looking for candidates and what trading style, approach and risk you would use, it will be far easier to start applying that wealth of option information you have been reading about. For example, assume you like to study fundamentals and technicals looking for stocks with good longer swing prospects over the next few months, then you can look to long calls or bull call spreads as a possible appropriate strategy and then looking at some of your stock candidates apply understanding of the options and delta and volatility and make some strategy selections and add some risk and trade management etc... Just an example but you get the point.
In response I can say this for a starter. I know I am just starting in this endeavor and many people with far more experience than I lost giant sums of money in the last 6 months, so I am cautious despite my blowout. The training program I was in was a trend following program so I am familiar with trendwatching and waiting for a pullback to catch the return to trend. The other aspects of the program were catching breakouts and short-term trend following. The program was just starting to go into debit and credit vertical spreads. My perception is that many technical analysis trendfollowing programs were very successful for the last 4-5 years until September and are now struggling to adapt to the current market. I expect that we will have a choppy market for a long time, several years at least. I think I need to learn several strategies to apply in this current market. I think that short term trading will be more successful for me now. By short term I mean entering a position with the expectation of being in it for several weeks to several months but being willing to apply sound money management to exit with the capturable profit in a shorter time frame, including a day trade. I do not have the capital to be beyond the day trading limits. I am not comfortable using options as a stock proxy in this market. I occasionally watch CNBC Fast Money and I like two things that Guy Adami has said. 1. You have to trade the market youâve got, not the one you want. 2. Fundamentals donât seem to apply in the current market. Stochastic shocks trump technical analysis but even the stochastic shocks have no predictable effect, for me, on the market now. Bad news and the market goes up. Pfizer completes a large merger that should benefit them and loses 15%. I work swing shift as a cop, finishing at 4am. I can be up by 10am central time and could be active in watching the market or responding to an alert. I enjoyed the technical analysis side of my experience so far. I can do the fundamental analysis with TOS tools. I think I will screen on TOS for breakouts. I also plan to pick 50-75 stocks or ETFs by scanning charts and looking for entities trading within brackets and then looking to enter positions as the underlying confirms in the return direction, utilizing ITM options. Part of picking such a large group is to gain the experience of chart watching as a practice. My initial criteria for the pick list is actively traded underlying and options so liquidity is not a limiting factor. I think you mentioned earlier, Coach, that you focus on watching the S & P so that you become very familiar with it. The above strategies will be papertraded for the near future. As in Jabbourâs chapter I have been in the position of entering a position, the blowout, without knowing how to even enter the stop loss order. I have a lot of skill development to accomplish in the mechanics of trading and using trading platforms to analyze and to trade. I have used long calls, long puts and debit vertical spreads. I am a rifle instructor. I recognize that the difference between the expert and the beginner is that the expert executes the fundamentals very well. The beginner always wants to be shown the magic things behind the curtain in Oz. My perception is that a lot of very successful traders do simple things like spreads over and over while unsuccessful traders get in over their heads very quickly. I am working to limit the amount of information I am exposed to. I watch the CBOE market updates with Dr. J everyday and then watch Brian Shannonâs market wrapup as well. That is my initial plan for building a trading foundation. Thanks for contributing, dagnyt.
Yes yes yes. Good perspective. Keep going back to what separates the expert marksman from the delusional beginner and that should continue to provide useful insights to you. Long before I began trading, when I was still a teenager, I had an eye-opening experience that provided me with a similar perspective. I sailed with my dad in a racing fleet, and we always finished far back. One day the fleet champion agreed to let me crew on his boat. I was very excited that now I would learn all his secrets. And indeed we won the race that day. But the big shock was that this champion didn't do anything different than my dad and I did. He just did each thing better. While my dad and I were overlooking the boring fundamentals, looking for the magic "big things," the champion knew that there weren't any big things, that the outcome of the race was the sum of all the fundamental, basic little things, all of which he took great care in mastering.