About a month ago we talked about an options trader having a commitment to excellence. This time we’ll go over why an options trader needs a trading plan and how to go about writing one. If you really want to improve your trading in 2013 you should absolutely to do this but be forewarned; this is the part nobody wants to do. Most options traders think that their trading plan is in their head and all I need is a proper options education. “I know what I need to do when I need to do it” most beginning and some veteran options traders will exclaim. If it was just that easy, everyone would be a great options trader. Unfortunately it’s not. That is specifically why you need a written options trading plan. Just because you know what to do doesn’t mean you will do it.
Before you even begin to write your options trading plan, you must take an inventory of yourself. What are your strengths and weaknesses? You must take the time to truly examine yourself and be honest about whom you are. Your options trading plan must match your personality.
The first thing you need to do to start your options trading plan is to write down your goals like we talked about last time. Once you do this, it brings everything into perspective. The same reason you need to write down your goals is the same reason you need to write down your options trading plan-so your thoughts are transformed from the subconscious to the conscious. It doesn’t matter if you write the plan on a nice piece of paper or a cocktail napkin. It just needs to be written down in your own words.
The next section of your options trading plan will be money management. This is one of the most crucial and often overlooked components of successful options trading. How much are you going to risk per trade? What are your weekly or monthly profit targets? What are the maximum losses you are comfortable with on a daily, weekly or monthly basis? All of these questions need to be answered right in this section.
Strategies will be the next component of your options trading plan. This will be the meat and potatoes of the plan so to speak. A thing to consider is to start with relatively a few simple strategies (long calls and puts) and master them before you write in more complex option strategies into your plan. You need to describe in as much detail as possible the strategy you intend to use. You will probably be making constant changes to this part until you get exactly what you want.
The last section will be the follow up and review. This is when an option trader needs to print out the charts and the option chains and review them. Did I follow my written options trading plan like I said I would? This needs to be done when the market is closed so all your attention can be on the review. You must keep a trading journal and must always acknowledge your winners and more importantly learn from your losing trades.
This is just a general outline of an options trading plan to get you started. If you need more help or more direction, feel free to contact me.
John Kmiecik
Senior Options Instructor
Market Taker Mentoring
Looking for an options trading system to give to someone in need or for yourself this Holiday Season? Let the Market Taker Mentoring Trading Path be your options trading guide.
The MTM Trading Path
The MTM Trading Path is a simple, but powerful proprietary options trading system designed to be a veritable options trading guide that outlines a step-by-step a plan for options trading. There are a total of eleven steps in this options trading system which begins with observing the market and discovering opportunities.
Options trading is, of course, more involved than stock trading. Specifically, there are two steps in this options trading guide that are not in a conventional trading plan. These steps center around analyzing volatility and selecting among the various strategies.
The important thing here is discipline. Having a guide to follow to avoid missing important steps is the key to any options trading plan. The Trading Path is central to my Options Coaching program, Dan’s Online Options Education Series and my Group Options Coaching. I encourage my options coaching students and students in Dan’s options seminars alike to closely follow this option trading guide for all their trades.
It makes the perfect gift because it is a gift that can keep on giving!
John Kmiecik
Senior Options Instructor
Market Taker Mentoring
About two months ago, we talked about an options trader having a commitment to excellence. This time we’ll go over why an options trader needs a trading plan and how to go about writing one. This is the part nobody wants to do. Most options traders think that their trading plan is in their head and all I need is a proper options education. “I know what I need to do when I need to do it” most beginning and some veteran options traders will exclaim. If it was just that easy, everyone would be a great options trader. Unfortunately it’s not. That is specifically why you need a written options trading plan. Just because you know what to do doesn’t mean you will do it.
Before you even begin to write your options trading plan, you must take an inventory of yourself. What are your strengths and weaknesses? You must take the time to truly examine yourself and be honest about whom you are. Your options trading plan must match your personality.
The first thing you need to do to start your options trading plan is to write down your goals like we talked about last time. Once you do this, it brings everything into perspective. The same reason you need to write down your goals is the same reason you need to write down your options trading plan-so your thoughts are transformed from the subconscious to the conscious. It doesn’t matter if you write the plan on a nice piece of paper or a cocktail napkin. It just needs to be written down in your own words.
The next section of your options trading plan will be money management. This is one of the most crucial and often overlooked components of successful options trading. How much are you going to risk per trade? What are your weekly or monthly profit targets? What are the maximum losses you are comfortable with on a daily, weekly or monthly basis? All of these questions need to be answered right in this section.
Strategies will be the next component of your options trading plan. This will be the meat and potatoes of the plan so to speak. A thing to consider is to start with relatively a few simple strategies (long calls and puts) and master them before you write in more complex option strategies into your plan. You need to describe in as much detail as possible the strategy you intend to use. You will probably be making constant changes to this part until you get exactly what you want.
The last section will be the follow up and review. This is when an option trader needs to print out the charts and the option chains and review them. Did I follow my written options trading plan like I said I would? This needs to be done when the market is closed so all your attention can be on the review. You must keep a trading journal and must always acknowledge your winners and more importantly learn from your losing trades.
This is just a general outline of an options trading plan to get you started. We will go into more detail in each area in upcoming features.
John Kmiecik
Senior Options Instructor
Market Taker Mentoring
The trifecta of option greeks are delta, theta and vega. But the next most important greek is gamma. Options gamma is a one of the so-called second-order options greeks. It is, if you will, a derivative of a derivative. Specifically, it is the rate of change of an option’s delta relative to a change in the underlying security.
Using options gamma can quickly become very mathematical and tedious for novice option traders. But, for newbies to option trading, here’s what you need to learn to trade using gamma:
When you buy options you get positive gamma. That means your deltas always change in your favor. You get longer deltas as the market rises; and you get short deltas as the market falls. For a simple trade like an AAPL June 540 long call that has a delta of 0.48 and gamma of 0.008 , a trader makes money at an increasing rate as the stock rises and loses money at a decreasing rate as the stock falls. Positive gamma is a good thing.
When you sell options you get negative gamma. That means your deltas always change to your detriment. You get shorter deltas as the market rises; and you get longer deltas as the market falls. Here again, for a simple trade like a short call, that means you lose money at an increasing rate as the stock rises and make money at a decreasing rate as the stock falls. Negative gamma is a bad thing.
Start by understanding options gamma from this simplistic perspective. Then, later, worry about working in the math.
Edited by John Kmiecik
Senior Options Instructor
Market Taker Mentoring
The trifecta of option greeks are delta, theta and vega. But the next most important greek is gamma. Options gamma is a one of the so-called second-order options greeks. It is, if you will, a derivative of a derivative. Specifically, it is the rate of change of an option’s delta relative to a change in the underlying security.
Using options gamma can quickly become very mathematical and tedious for novice option traders. But, for newbies to option trading, here’s what you need to know:
When you buy options you get positive gamma. That means your deltas always change in your favor. You get longer deltas as the market rises; and you get short deltas as the market falls. For a simple trade like a long call, that means you make money at an increasing rate as the stock rises and lose money at a decreasing rate as the stock falls. Positive gamma is a good thing.
When you sell options you get negative gamma. That means your deltas always change to your detriment. You get shorter deltas as the market rises; and you get longer deltas as the market falls. Here again, for a simple trade like a short call, that means you lose money at an increasing rate as the stock rises and make money at a decreasing rate as the stock falls. Negative gamma is a bad thing.
Start by understanding options gamma from this simplistic perspective. Then, later, worry about working in the math.
Looking for an option trading system? Let the Market Taker Mentoring Trading Path be your options trading guide.
The MTM Trading Path
The MTM Trading Path is a simple, but powerful proprietary option trading system designed to be a veritable options trading guide that outlines a step-by-step a plan for options trading. There are a total of eleven steps in this options trading system which begins with observing the market and discovering opportunities.
Options trading is, of course, more involved than stock trading. Specifically, there are two steps in this options trading guide that are not in a conventional trading plan. These steps center around analyzing volatility and selecting among the various strategies.
The important thing here is discipline. Having a guide to follow to avoid missing important steps is the key to any options trading plan. The Trading Path is central to my Options Coaching program and my Online Options Education Series. I encourage my options coaching students and students in my options seminars alike to closely follow this option trading guide for all their trades.
For more information on the Market Taker Mentoring Trading Path, email me personally at dan@markettaker.com