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Success With Options - Monthly Review, Issue #89-- August 2017 Edition
August 13, 2017
Hello,

Welcome to the August 2017 edition of this newsletter!

This is a monthly newsletter packed full of tidbits not found on the website. This is my attempt to stay connected with those who find value on the the website and want more.

Since this newsletter is published (nearly) every month, you are always up to date and empowered to be a better trader. That's because I'll be sharing lessons I've learned over the prior month, answering questions from other viewers and providing a spotlight on useful websites and trading tips. If you find this newsletter valuable, pay it forward and send it to your options trading friends.

To access previous issues of the newsletter, click here.

Anatomy of a Trade Entry Part 6 - August Newsletter

Some of you may be wondering what happened to the newsletter this month. No newsletter in July and no newsletter in August? First of all, I apologize for no announcements whatsoever. It was a busy summer and, while I had intended to send out a short July notice, it just didn't happen.

Meanwhile, the market continues to power up to new highs. What's going on with the market in the past week? Is this a turn in trend or a pause?

We'll have answers to those questions, a continuation of Trade Entry discussion, answers to your questions and more. For more details, read on...

I'm always interested in receiving feedback on the newsletter. If you haven't done so recently, please consider taking a few minutes to visit the newsletter feedback page and let your voice be heard. This can be done anonymously so please consider how you can help make the newsletter better.


In This Issue

1) Options Strategy Focus

2) Answers to your questions

3) Options Outlook

4) Featured Products



Options Strategy Focus: Anatomy of a Trade Entry - Position Sizing

This section of the newsletter will focus more deeply on the details of some of the options strategies I use in the tutorials and other topics related to options trading.

A subscriber recently submitted newsletter feedback requesting coverage of trade entries and exits. As a result, I've devoted the 2017 newsletters to covering a series of topics on just that. This month, we're focusing on position sizing. For the overview, check out the Feb, 2017 article.

I've been waiting for this section so I can make the case for position sizing. I can't underscore how critical it is to have a few basic rules around this.

The two keys to position sizing
In my mind, there are really only two keys to to correct position sizing. They boil down to:
  1. Size for sustainable loss
  2. Be consistent
There is so much that can go into these two points that I want to take some time to expand on each.
  1. Size for sustainable loss - It's easy to be convinced of the viability of any given trade and be so focused on the max gain value that you forget the flip side. The whole reason I started the website and began promoting the trading approach I do is related to this one thing. It's all well and good to have lots of contracts sold when things go right. However, when things go wrong on a large scale, you end up with an empty account.

    What is a sustainable loss? Truthfully, that's a decision you have to make. What can your stomach tolerate? My recommendation is to make this a percentage of your account. If you've followed the trade tutorials and any of the videos I've made, you'll find that I recommend 2% of your portfolio as a trade risk. Does that seem like too much? Fine. Make it 1%. This leads me to the second key.
     
  2. Be consistent - Imagine you are trading following your 2% rule and then you decide you are so confident in one given trade that you will change your risk strategy and 'double down'. What if that is the one trade that goes against you? Since we can't really know which trades will be successful and which won't, it's critical that you apply the same risk rules to every trade. Trust me, I've had months where several trades go against me. It's usually a month that is a loss month. I sleep at night because I can live with those losses. I also find that due to this strategy I really don't end up having favorite trades.

Wrapping Up
I can't underscore the importance of this aspect of your trade. How many contracts will you sell (or buy)? It comes down to risk. Determine what you are willing to risk per trade. Divide the risk per contract into that amount and you'll know how many contracts to buy or sell. It's as simple as that. For me, this has become fairly mechanical. 

For additional detail trade setup and analysis, check out the Option Trading Strategies page on the website. Also have a look at the individual strategy details because much of the details of how you calculate risk and reward and how you select strikes is covered there.

 As always, please send me feedback with any requests for topics or thoughts on what has already been published.

Happy trading this month!

Back to the table of contents.


Answers to Your Questions

I frequently receive email from visitors to the site with questions that aren't answered directly from content on the site. Many of these are great questions and I think the answers would be valuable to all readers. Each month I'll be posting one or two questions, so stay tuned!

This month I had a question submitted about recording trades.

Q: What has been your suggestion about starting the record keeping as of June 1. What do I do about recording previous trades?

A: This is actually a great question. There was a time when I had stopped tracking my trades and was just putting them on and closing without any way of knowing how I was doing overall. When I realized I needed to start again, I had much the same question.

My recommendation is to just pick a time and start. Month boundaries are a fine starting point I guess. They work for me. I think about trades in terms of option cycle month. If you put an August vertical spread on in July, I'd consider that an August trade.

Let's say you plan to start up again and use August as your starting month. I'd simply go back and locate all my trades planned to close this month and enter them. Usually this is pretty easy to find in your trade history of your trading platform. If you are using trade journals as well as a trade log, I'd even try to re-create the trade in your mind. It's a good exercise to remind yourself why you entered the trade and why you made the exit plan, sizing plan and so forth.

The bottom line is "Do it Now". Don't wait. Just pick a point in time and start. Let past trades be past trades and just move forward. Once you get started, your record keeping will become current and your information will be better. Realize that first month may not be perfect but it will get better.

I hope that answered your question. Don't wait. That's my message. It's critical that you know how you're doing and a trade log is perfect for that.

If you have any thoughts or suggestions on topics that should be added to the web site or topics that should be covered in video, please use the feedback link or contact me link to let me know.

Help me ensure we have an interesting question or two to respond to next month. Submit your questions at this page.

Back to the table of contents

 

Options Outlook

In concluding this newsletter, I want to provide a brief outlook for what I'm expecting for the next 20-40 days. Before I do, I need to insert the following disclaimer.

 
This is not a recommendation to buy or sell stock, ETFs or options. It is simply my opinion of what I expect and how I plan to trade. As such, expectations may change if the charts indicate something different during the month.
 

All summer, we've seen new highs being set. Are we in a pause?

In the June newsletter, I summarized my outlook as follows:

"We're already a couple of trading days into June and it does appear there is more buying ahead. I'd be somewhat cautious that the market is fairly news-driven but remain more bullish heading into this month. I suspect we'll see some additional bullishness initially and then more pausing to digest the movement....."

Here's how June and July played out.



This assessment is coming mid month. However, we can see a pattern has been established where there has been a pullback followed by a rebound and pushing to new highs. The most recent highs resulted in sideways movement, followed by some selling.

In the face of recent selling, it's important to realize we are still in an extended up trend. The latest one has lasted nearly 9 months. The real question is whether this most recent pullback represents the bottom or if there is more selling in store. At this point, we are pretty much at the 20/30 day moving average support. Further selling is likely to take us down to the 200 day moving average for the next level of support. I'm inclined to be cautiously bullish - expecting a bounce. However, I'd also be very careful about the recent lows. A close below that level is a strong indication there is more selling to come.

As busy as I've been, I haven't really put a lot of trades on. I'm now ready to enter some bullish trades with tight exit rules in place. I'm kind of waiting to see if the market is ready for another run to even higher highs.

As always, do your own analysis and whatever trades you enter, use good money management and have exit strategies in place in case you are wrong in your analysis. It's a good practice to be prepared with trades in either direction but not to act without confirmation.

Remember to stay nimble and alert. Make a point of doing market analysis every day, especially if you have open trades. If you choose to enter any trades, be sure to do your own analysis and follow your rules for entry and exit.

More on technical analysis.

Options strategies I use

Be sure to take time to provide feedback on the newsletter.

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Featured Products

I'm adding a new section to the newsletter. Feel free to disregard if you aren't interested in product information.

One of the more recent additions to the portfolio of services and products is the Live Web sessions. These sessions are recorded and and available for a very reasonable price of $12 per session. I've created a Newsletter Special. If you add all 4 sessions to your shopping cart, you can get 4 sessions for the price of 3 by using the discount code: WebEx4Pack

Some time back, I released the second for sale video. The title of this video is "Mastering Short Vertical Spreads". I now have a total of two strategy training videos for sale . Here is a quick summary of each.

An Introduction to Options Spreads
This video provides a good coverage of the basics of options spreads, including why they are preferable to other options strategies like buying options and selling naked positions. What I believe makes this video valuable is that it combines presentation with interaction. Once you have the basics down, you will be well-prepared to start digging deeper into some of the options strategies employed on this website.

For a relatively small cost of $29, you can own this video, which offers over 40 minutes of material. This package is very easy to install and use.

For more information or to purchase the video.

Mastering Short Vertical Spreads
The focus of the video is on one specific strategy, including all aspects of of the process. This includes:
  • Understanding the construction and how the trade progresses over time
  • Selecting the long & short strikes
  • Planning entry & exits
  • Managing the trade once entered
  • Back testing
  • Creating a trading system with the strategy
I'm excited about this project. Many know this is my go-to strategy for options trading. After watching the video, I'm certain you will understand why.

For more information or to purchase this video

Special Discount offer:
If you'd like to own both videos, you can do so for a bulk discount. Simply add both videos to your shopping cart and then enter the discount code 'combo10' to receive $10 off your shopping cart total.

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