When you think of some of the greatest football teams in history, these teams had head coaches that helped lead them to championship glory. Some of these great coaching names include Vince Lombardi, Bill Belichick, Bill Walsh, John Madden & George Halas.
I believe being successful with stock options in the financial markets requires that same type of leadership, support and managing skills, just like these great coaches offered to their teams.
Of course, football is a team sport. Not one individual coach, position or player makes a team. In trading, one individual trade shouldn't make or break your portfolio.
Risk should be distributed amongst positions…that way if one of them doesn't work out, you'll still have capital left over to trade again.
It's true that Tom Brady steals headlines because he throws touchdowns that win games on Sunday…but he doesn't do it alone, his team's defensive has to be steady, the offensive line has to protect him, the receivers need to catch the ball etc.
After all, good teams do lose games…just like every option trader has losing trades.
You can be totally prepared, have the right strategy, considering the market conditions…but for whatever reason, it doesn't go your way.
Football teams prepare a week for their opponents, studying their strengths and weaknesses. Even with a solid game plan, sometimes things don't work out their way.
In the same respect, bad strategies can on occasion turn out to yield profits. Just like bad teams sometimes beat good teams in football. Chances are that it was a fluke, the bad team will continue staying bad, while the good team gets back on their winning ways.
Over the long haul, low probability trades will end up costing you money. While, high probability trades sometimes lose money…they have a higher chance to pay off in the long run.
The say football is a game of inches.
In some ways trading is as well. Think about it, the difference between being profitable and losing money can wind down to execution and transaction costs (commissions and slippage).
A penalty can knock the offense back several yards, making it harder for them to get that first down. Trading stock options that have wide bid/ask spreads can lead to too much slippage to overcome.
Part of being a strong team is having a rock solid defense.
In options trading, selling premium is sort of like playing defense in football. You see, when you sell premium, you are mainly reacting to the position if it becomes vulnerable.
However, time is working in your favor and the offense has to pass through you in order to score.
On the other hand, buying option premium is like being on offense. You've got to make something happen in order to profit, time is working against you. Usually, volatility needs to rise and/or the stock needs to move in your favor to come out on top.
Just like in football, you've got to move the ball 10 yards to get the first down and move the chains across the field. Bottom line, you've got to make something, just like a long premium position that needs to overcome time and potential implied volatility drop.
When it comes to high probability set-ups , I think about selling premium in stock options that are experiencing high implied volatility levels in names in which I feel expectations are unreasonably high.
It's sort of like starting off in the Red Zone with first and ten. Also, when the QB decides to sneak in on fourth and inches to get the first down. The probability of you coming up with points is high…just like taking set-ups which have several advantages already working in their favor.
How about buying deep out of the money options?
Well, isn't that like throwing up a Hail Mary and hoping that someone on your team catches the ball in the endzone. These type of trades have a low success rate…however, miracles do sometimes happen.
Especially, if you're following something like unusual options activity using my SIZZLE Method.
Furthermore, if you sell premium and you're sized up too much…you might be forced to buy your options back at the worst opportune time. Over leverage can hurt the premium buyer and the premium seller…just like turnovers can hurt a football team.
It's important to know what works for you. For example, a football team knows what their strong points are on offense. They know which weakness their opponent have and will look for ways to exploit that.
They have designed a game plan & specific plays that they want executed.
Just like in trading, you've got to construct a game plan, make sure your entries meet your criteria, to give you the best chance of success.
Football teams devise their game plan based on who their best players are. Some teams rely on running the ball, while others rely on throwing the ball or on their defense to win them games.
Just because a certain style of trading works for someone else…doesn't always mean it will work for you, for whatever reasons. What works for someone else might not work for you and vise versa.
However, once you know your strengths, you've got to exploit them.
Football can be a very brutal sport. Injuries are part of the sport. With that said, key players can get hurt at anytime during the game. When that happens, adjustments need to be made.
Just like in trading, there are always things we can't control, certain headlines have the power to change the outlook of a stock.
The best we can do is adjust to the current market conditions.
I could keep going with these analogies but I think you get the picture. Time is running out, just like the time is in a football game…similar to how options are as they approach expiration.
There are swings in the game, just like a position can swing from profitable to losing…but the only thing that matters is who has more points at the end of the game. Options either expire worthless or go in the money…there is no in between.
Now, if you'd like to learn about how to approach options trading like football game, you're going to want to learn from myself and OptionSIZZLE.
Anyways, I'd like to hear some analogies that you might have. The most creative one will get a free copy of the second edition of my book, Fearless Leverage For Income I'll be hanging out in the comments section below.