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Smaller wins, bigger gains trading options . . .

corneliussmurphy 0

Don’t always swing for the bleachers, just get on base!

Data can be brutally honest, so don’t mix emotion into the recipe when you are doing an analysis on your options trades. This is often a difficult lesson for options traders, but if learned early, long-term gains may be greater with more smaller individual wins.

As an options trader for nearly thirty years, I’ve been blessed to have had some incredible winning trades. My best recent trade was a Tesla 40-fold win, and I’ve had several more with Ford, Tesla and SoFi for 10-fold or more. However, I also let several more 10-fold wins expire worthless committing one of the seven deadly sins . . . greed. It’s easy to do when you are swinging for the bleachers which we all do. That’s a fine strategy, in my opinion, for LEAPs but not for the day to day short-term trades; just get on base!

Learning options trading was incredibly difficult so I believe in continuing education and follow several options traders, bloggers, websites, CNBC, Bloomberg, T.D. Ameritrade, Schwab, CBOE, tastytrade, etc. From these experts, I’ve learned some simple and smart guidelines that seem to help refine a strategy. A few tips that I’m using quite often for short-term options trades which I credit to Tom Sosnoff of tastytrade are as follows:

  • Plan your options trade around a 45 DTE (days to expiration).
  • With the above, try and close-out trades by Day 21 of 45.
  • Seek a DELTA of around .22 (between .2 and .3).
  • Options gains can happen quickly, so consider closing out your trades when you’re up somewhere between 25% & 50%. Having GTC (good until cancel) orders in place can further help with these transactions, automating & simplifying the process.
  • Stick with what you know and follow vs. what the noise offers.

If you truly want to improve your options trading skills then go back in time and look at each and every trade and build a what-if spreadsheet where you can input different selling data points and amounts and you’ll be shocked as I was.

RISK – Trading options may result in potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the options markets. Do NOT trade with money you can’t afford to lose.