I've been trading options on Thinkorswim for about a year now, with 5-10 positions open at any one time. I actually did pretty well for my first year, until the market crash in October-November wiped out my gains for the rest of the year. I thought I'd share a few of the things I learned in my first year. I tried to stick to things I myself experienced, as opposed to valuable advice I might have picked up somewhere else. 1. Don't get over leveraged - Because the margin requirements for most positions are less than the max loss for that position, you can open up a lot more positions than you have cash to cover. This isn't a problem until you get a black swan event like last fall, when my "cash available" went below zero. I couldn't close out losing positions because I had no cash available and had to quickly deposit more money into my trading account just to close out positions. As a result, now I make sure that I only use up about 50% or less of my available cash so that even if every position sustains its max loss, I'll still have plenty of money left over. 2. Spiking IV means pull back, not go all in: Back in the fall I saw the spike in IV as a perfect opportunity to sell lots of premium. I didn't realize that when IV is high, you can make the same profit (or lose just as much money) as usual with less money on the table. Instead, I went all in, and got badly over leveraged, forcing me to add money to the account. Now, when IV spikes, I may close out a winning position or two but not add any new ones in an effort to trim back my risk a bit.3. Learn, learn and then Learn some more: Options are incredibly complex. Every time I think I know something about them, I realize I don't know much at all. There's a ton of free information out there, particularly via Thinkorswim.com under support/chat archives. I save the chats to my computer then load them onto my i-pod. 4. Stick with defined-risk trades until you know what you're doing: Lots of people think they're not really trading options unless they're using all kinds of exotic, high risk trades. I've learned the hard way to avoid trades/positions I don't understand. For now, I stick with iron condors, verticals and covered calls.5. Develop a trading plan and stick to it: I was listening to a TOS chat this morning on my way to work, and Dan Sheridan said it best: the best traders are almost without exception the most disciplined traders. After losing a lot of money in the fall I finally put together a trading plan, outlining how much money I wanted to make each month, how much I was willing and able to risk to do that, and what trades I would use to get there. I haven't strayed (yet) from the plan, and looking at it every few days reminds me not to cross those lines.Paul
Best Of |
Favorites & Replies |
Start a New Board |
My Fool |
BATS data provided in real-time. NYSE, NASDAQ and NYSEMKT data delayed 15 minutes.
Real-Time prices provided by BATS. Market data provided by Interactive Data.
Company fundamental data provided by Morningstar. Earnings Estimates, Analyst Ra