Reason number nine to be a tastytrader is trading is a skill that can be developed. Beef, Jared and Liz joined Dylan to elaborate. Inherent in being a skill is reason ten: be mechanical.
Intelligently leveraging capital gives traders an advantage. When used properly, margin is not risk, in fact, it is key in limiting risk.
There are seven fundamental option trading strategies. The proper strategy to use is dependent on the market.
Creating a large portfolio can be intimidating. It begins with selecting “core positions” and then hedging against them.
An active trader is an engaged trader. Active trading is educated trading. The only way to change the connotation around the word “active" is through education.
Creating diversification that reduces risk can be challenging in larger accounts. Options can help mitigate risk by lowering cost basis.
Losses are an unavoidable fact of trading. Understanding how long recovering from losses generally takes helps set expectations and reinforces the argument for staying small, trading often and staying in uncorrelated products.
Probability of touch (POT) expresses the likelihood of a stock reaching an option’s strike price between today and the option’s expiration. Using POT can help us assess risk in trades such as strangles while at the same time, combating cataracts!
Sector-specific ETFs offer diversification and require less buying power than index ETFs. Selling straddles in these products also offers a statistically high probability of success.
Just as we feed on panic by selling option premium when everyone is most afraid, we have to control our own panic when trades don't work.
Numbers have no agenda. Numbers do not know what they did the day before. They simply communicate the most up-to-date market information and it’s up to us how we use that information.
There is a direct correlation between risk and reward. The greater the risk, the greater the reward. We can limit our risk, but doing so means taking less profit and accepting a lower probability of profit.
Trade small, trade often. In the third episode of this new series, Tom, Dylan, Jenny, Jim and James discuss trading small, trading often and why this is so important.
Setting up wings on a defined risk trade can be done at a fixed width or based on probabilities. How you choose them is up to you.
Managing losing trades is much like containing a disease threatening the trees in your backyard. The earlier we manage the problem, the better off we usually become.
We already know selling out-of-the-money puts can be a consistently profitable strategy. We can increase our probabilities of success if we sell puts in large cap, liquid stocks, following a sizeable pullback.
Premium sellers often face a conundrum. Mathematically, our greatest opportunities come when psychologically, it is most difficult to “pull the trigger.”
Neutral trades are not concerned with direction. Their goal is capturing premium as it erodes over time. Sometimes, however, a stock moves and a neutral trade takes on a directional bias. To keep a trade neutral, we have several different options.
Smaller accounts can be challenged to create enough occurrences with limited capital. But that does not mean those accounts cannot create occurrences if they place trades in ways that limit the buying power being used.
After fifty episodes of Tom and Dylan debating active versus passive investing, it was time for a change. This week, Dylan hosted a discussion about the first pillar of the tastytrade method: liquidity.