Option Traders, it is that time again. It’s time for the Option Pit mentors take a break and allow all of our option mentoring students to read about the keen insight brought to Option Pit by Mark ‘Odi’ Oldani in his popular ‘View from the (virtual) Pit.’ Today, Odi talks about the one thing I think many option traders need a better understanding of, approach and attitude.
Deep Thoughts of an Options Trader:
Option trading is something that can be as blind as a monkey throwing a dart at a balloon board or as technical as a 256 bit algorithmic equation (no idea what one is). For most of us, what we do as traders (i.e. what trades we make) puts us somewhere along spectrum between dart-throwing monkeys and rocket scientist algo's.
We look at stocks. We watch their historical charts. We follow news tickers; looking for earnings announcements, takeover rumors, FDA advisory panel dates, etc. We look at historical and implied volatility relationships across the months. We try to identify whether skew is steep or somewhat flatter than normal. We must consider hedging at different underlying intervals in order to monitor risk. We have to time when/if to take some or all of a position off. We try to make sense of order flow to get a feel for what the "pros" are doing and capitalize. We time for holidays, 3 day weekends, and 5 week cycles, to take advantage of extra premium erosion. The amount of thoughts and decisions that go into trading options and managing the risk of an options portfolio are enough to make the normal person's head hurt.
Frequently, no matter what technique we employ, no matter what litmus test we implement, no matter what scenario we prepare for, the randomness of the market comes into play and takes us for a ride. We can feel that we've dotted every i and crossed every t in a position just to wake up one day and have it "Hiroshima" on us. That's the nature of the beast, sorry to say.
I'm sure you'll agree there is no better feeling than winning on a trade. Putting your gut into something, analyzing the benefits compared to the carried risk, and seeing it blossom into sheer profit. This is what makes us come back for more. The thought that, no matter how random, we can actually minimize potential disaster and maximize reward by evaluating all angles of a trade and keeping things realistic. No reason to get out of control slinging calls here and puts there, "hoping" that something sticks. What it takes is calculated trading, knowledge of breakevens, and an exit strategy.
Option trading is not for the faint of heart....it's not rocket science either. Being disciplined, having NO ego, and staying on top of risk can navigate us safely through the dark forest of the stock market. As a good buddy told me many times when I was starting out, "the key isn't to make money, it's just not to lose.....then it builds from there". Easier said than done? Maybe. Don't forget though, worst case scenario: we've always got the dart-throwing monkey.
Brief Market Update (Not By Odi):
For those that are interested in what Option Pit Mentoring think of IV and SPX price. We think we end up popping back over 1110 sometime this week (which is a slow news week). We are looking at implied volatility levels and thinking that the we are may have bounced off the bottom on Friday. We are currently not in any rush to sell premium at this time.
We are seeing more people at the AM Report. Do not forget to check out my seminar for Serious Options as part of their "Meet the Mentor" series. As we have stated over and over again, we LOVE being compared head to head with other programs because we are so much better.
