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Trade Approach

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For today’s segment, Tom and Tony discuss the things we should consider while setting up a trade. It is important we have proper strike selection for efficient probabilities when trading options.

Things to consider:Use Probabilities
  • Using delta to approximate probabilities
  • More occurrences get us closer to the expectations
Avoid Illiquid Underlyings
  • Slippage
  • Larger price fluctuations on low volume
  • Inability to close trades due to wide markets
Use Caution When Legging in and Out of Trades
  • Best scenario-- we get a slightly better price
  • Worse scenario-- we start legging, and stock moves away
Consider Sizing
  • Understand notional value
  • Size appropriate for portfolio
  • Stay consistent when sizing positions.

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