“The time has come,” the trader said, “to sell so many things. Of calls and puts and strangle spreads, of high IV Ranking. And why the market never drops, and whether our straddles will have wings.”
“But wait a sec,” the newbie cried. “Before we have our chat; Some of us are totally new, And not very good at math.”
“Don’t worry!” said the veteran.
She thanked him lots for that.
“A ton of Vol,” the trader said, “Is what we chiefly need. Liquidity and price extreme Are very good indeed.”
“Now if you’re ready, TraderKatie,
It’s Trading Time,” he decreed.
Alright, enough channeling "The Walrus and The Carpenter" and turning it into a crazy trade poem. By the way, does anyone else do that after they’ve started trading? Find ways to make songs into trade-related songs? Just me? Bueller?
Well, I can confidently say that since beginning “WDIS: Back to Cool” in September of 2013, that is one skill I DIDN’T think I’d pick up along the way. When I was first approached to do the show with Tony (the first person I ever met at tastytrade), I was incredibly nervous due to my lack of knowledge on the subject of trading options (but I guess that was the point of the show).
And now, nearly 400 episodes later, Tony and I’s time together on air has come to the end. While it’s certainly bittersweet for me, I’m so excited to give Nick Battista the opportunity to learn from his father, who is an excellent teacher and mentor.
So, with all of that said, looking back on my experience, what have I learned? While I could probably talk for several days straight on options trading now, I’ll spare you.
Here are my top 5 takeaways!
1. Don’t be afraid to hit the button, but know your trade on entry.
Like many things in life, getting started was probably the hardest part of this journey. With a background in journalism, I was incredibly used to knowing as much as possible about a topic before speaking on it.
So the fact that I had zero knowledge of options and was expected to do a show each day was a quite the undertaking for me. Soon, however, I realized Tony was right when he said that I would learn best by just diving in. Like when Mary Katherine Gallagher jumps into the cold pool in Superstar.
After a few episodes, I realized that a routine would make this transition easier for me, and I think most people would probably agree that forming some habits around trading will help you retain what you learn and stay mechanical (the ultimate trading goal).
So what do I suggest? Make a checklist, set aside some window in the day to manage your portfolio (doesn’t need to be more than 15 minutes), and of course, have a game plan ahead of time if you want to defend any positions you may put on! Like they say, proper preparation prevents poor performance, and you’ll be so happy (and less emotional) if you do!
2. Know your deltas.
Once you DO develop that trading routine, I encourage you to make checking your deltas a part of it! When you know how your position will behave with up and down moves in the market, trading becomes more manageable, and you’ll be able to assess when you start to develop too much “directional/delta risk” for your liking!
From there, know how to under hedge that delta, which still gives you the same assumption, just less risk! Last but not least, get a sense of how any new and existing positions play into the beta-weighted delta of your portfolio over all! If there are any outliers, or you find yourself with too much long delta, look for some plays that’ll neutralize it!
3. Fair Pricing is Crucial.
It’s no secret that while Tony and I have had some trades work out greatly for us, we’ve also been wrong. But hey! No one is perfect 100% of the time! Luckily, those wrong times turned out to be when I understood the importance of fair pricing on your strategies, ESPECIALLY when it comes to deep ITM options.
So remember, my friends: stay in liquid products, look at the corresponding calls and puts (“the box) to determine fair value and understand how your credit/debit relates to the probability of profit on the trade!
4. Consider the alternatives.
As a compulsive over-thinker, I’ve found that it has actually benefited me to consider all angles when trading in a smaller sized account. Ask yourself: Is there a more liquid, higher IV Ranking related product? Can you reduce the buying power requirement on the trade and still keep it high probability? What similar strategy will give you a higher POP? Sometimes, first impulse isn’t always the right trade for you! Use your noggin!
5. Be patient.
This is probably the one I struggle most with on a day-to-day basis. When you’re a newbie and a perfectionist, you’re no doubt going to get frustrated in this process.
KEEP GOING! Remember that our research shows your trade will likely be a loser before it’s a winner. Don’t beat yourself up when you can’t grasp a concept right away. Danny had to wash and wax, like, twelve cars before Miyagi taught him karate that allowed him to beat Johnny Lawrence. Allocate a few minutes each day, every day, and you’ll be surprised at how much more financially literate you’ll become!
So keep those little tips in mind as you continue on your “Options Odyssey,” as I like to call it. I would like to personally thank all of the viewers who have supported me and sympathized with me in the up days and down days (cough cough /CL), and I hope that some of you will tune in to my new show with Pete Mulmat as I navigate Futures.
And, of course, I wouldn’t be anywhere without the constant motivation, coaching, and encouragement from my amazing co-host, Tony. Bat, your kindness and patient ability to lead by example truly make you one of the best instructors and human beings I know. Thank you so much!
Keep in touch with me on Twitter and keep following my trades @TraderKatie!