Suz Smith's  Instablog

Suz Smith
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I am an equity/options/futures trader with a strong background in TA. I am passionate about the markets and love to empower other traders using an earning while learning strategy. I work for McElhenny Sheffield Capital Management, a private wealth management firm that specializes in real time,... More
My company:
McElhenny Sheffield Capital Management
  • Time Tested Advice For Trading Directional Options 4 comments
    Aug 15, 2012 9:32 AM

    I believe an important exercise in trading is to review closed trades, chart work and methodology. It is a valuable exercise because you now have the benefit of knowing the outcome of your original thesis. This enables you to spot trading errors, revamp your current thesis and tweak your trading methodology. As a result of this practice I developed my "trading rules" that are shared below.

    I have so many rules about options its not even funny...all designed to protect me from myself. For instance, I don't trade directionally with high flier's in options. No ICE, CME, GOOG etc. I just don't do it. I don't trade anything in options that can hurt me. I don't take position sizes that can mortally wound. I am content with nice singles and doubles as they add up quickly over time. I wouldn't know what to do with me if I couldn't trade, and since I am still growing my personal portfolio I don't take crazy chances.

    I trade with respect, and with a purpose for my life.

    1. I respect my money by using appropriate position sizes. Just because you can afford to buy $50K worth of AAPL doesn't mean you can/should buy $50K worth of AAPL options.

    2. If the option has a nice pop right off the bat (like overnight) and I get gains of 30-50% I sell my position immediately. I can always get back in.

    3.If the option position doubles over time I sell half at the point it doubles and let the rest do its thing.

    4.If after paring down my position the option returns to my entry price, I exit.

    5. If the trade goes against me from the beginning, I will exit at a pre-determined maximum cash loss, or at the point that the option loses 50% of its value. WHICHEVER COMES FIRST.

    6.If an option gaps down on me and blows past my stop and is down 80% I will hold it and do nothing as generally it will correct a touch so I can get a better exit.

    Not an even exit, but just a better exit

    This happens to us all. Less than 80% on a gap I take my lumps immediately and exit.

    7.I do not buy options on an illiquid stock.

    8. If an option has not made any directional progress in the first week I own it I exit.

    9. If trading an option because the stock is going to a predetermined price, I will exit the option when the stock hits its target.

    10. For each $1000 gain in a options position I sell enough of the position to bank that $1000.

    Suz

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Additional disclosure: Disclaimer: MSCM and/or I may or may not have a position in this stock which may or may not be exited without advance notice. Data is provided for informational and educational purposes only and is not offered as investment advice. Timing of transactions can be critical to the success of a position. MSCM, its employees or owners shall not be liable for any errors or delay in the content, or for any action taken in reliance on any content provided within. Opinions expressed here are the sole opinions of the author and not representative of any firm view.

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Comments (4)
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  • Investwar
    , contributor
    Comments (62) | Send Message
     
    Suz, Thanks for sharing this with us, I always appreciate getting a glimpse of others trading plans. Trading plans are critical for survival in this business for sure.
    17 Aug 2012, 10:37 AM Reply Like
  • Suz Smith
    , contributor
    Comments (28) | Send Message
     
    Author’s reply » Thanks friend - hopefully this article will help others to find their way. Thanks for reading!
    17 Aug 2012, 09:30 PM Reply Like
  • mezarraga@bellsouth.net
    , contributor
    Comment (1) | Send Message
     
    Hi, I also was anxious to find Suz as I have been learning from her
    for some time. I also trade for a living and have been doing so since 1994. I am a member of SMM. You wrote a lot of articles that I printed and lost them two months ago when I sold my house and moved. (I think the movers took them). Would love to read them again and again and refresh everything you taught me. Thanks for sharing your work and knowledge.
    21 Aug 2012, 09:28 PM Reply Like
  • eSchmitty
    , contributor
    Comments (33) | Send Message
     
    I agree with setting up tight boundaries. Well written article. Thx
    23 Aug 2012, 03:48 PM Reply Like
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