Upgrade in Trading Strategies

Recently, I have made some major changes to my trading strategies.

I have started to use extensively option spreads to bulletproof my trades.

I had been successful with directional trades for many years. My core approach was briefly outlined in an earlier post in my blog.

Many traders because of the following factors have considered options risky:

1. Volatility – prices move too fast
2. Spreads – there is often a wide gap between the ask and buy prices
3. Time decay – options lose value fast especially during the front month

However, if applied properly options can be safe. Actually, spread strategies turn the entire negative factors in your favour.

In addition, spread strategies soundly applied offer the following advantages to your directional trades.

1. It drastically reduces fear and greed and forces you to plan your trades – your risk, reward, entry, primary exit and secondary exits if you trade goes against you. Planning is the key to success in all trades whether you are directional or using options. Plan your trades and trade your plan. The proper use of spread bullet proof your trades
2. It allows time for the trade to work. Very often, I am forced to execute my stop loss even those I know I am right fundamentally. With option strategies you can buy time to allow your trade to work finally. Even if you are wrong eventually, you can minimize your lost if you exercise discipline
3. Very frequently, mistakes are made in short-term timing. It is impossible to perfectly time our trades although many traders try, especially day traders. Adjustment can be used to get back on track. No one can guess the short-term direction perfectly. With the use of combination of long and short options, you cover yourself in all directions short term.
4. Strategies can be used to prepare for explosive movement of stock owing to some companies’ news event. Whether the stock moves up or down, you can profit from the move. The only time you lose money is when the stock does not move.

Thus spread strategies are a great complement to the strategies of my trades. Ultimately, fundamental rules in trading. Option spreads are used to control, leverage,

In subsequent blogs, I will be showing actual trades that were made to illustrate all the comments made above. I have invited a group of traders who are trained in spread trading to comment, show case their new trades and we all learn together. It is our intention to monitor our trades. We will make mistakes and we will certainly learn from it. Note that all trades as stated in the policies section in this blog, are not for investment advice but for educational purposes only.

For those who are not initiated in options spread trading, I apologize. Many of the subsequent threads will not be easy to follow if you are not trained in the methodologies. We are a group of traders who are trained in options spread strategies. Actually, we are all trained by Options Animals. I have personally looked at a number of companies including Optionetics, Option University and Option Planet. Options Animal provides the most complete training at a reasonable price. The key value is the interaction with the coaches on actual live trades. Alternatively, you can get a lot of free training on the web like those from CBOE and brokers like Think or Swim or Option Monster. It takes practice, time and commitment to be proficient. It is worth the effort!