Trading Options Successfully

Over the past seven years, I have been a full-time trader and options trading mentor. I have found, over that time, that becoming a mentor has helped my trading, just as much as or more than any other thing that I’ve ever done to improve my trading.

As a mentor, I see day-in and day-out what works and what doesn’t. So whenever someone asks me, “How can I trade options successfully?” I think I can speak with some experience.

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How to Be Successful at Trading Options

The most important thing you need to being a successful options trader is to have a plan. The plan requires answers to these questions:

  • What will I trade?
  • How will I trade it?
  • What will my profit goal be?
  • What will my max loss be?

A very important part of the plan is that the plan has to be a good one, meaning I have to find a valid option strategy, and I have to understand how stock or indexes that I use, move. The plan must involve:

  • Which options I’m going to use?
  • Which underlying (and the strategy)?
  • When I’m going to enter the trade?
  • How will I manage the trade if it works for me/ against me?
  • How can I hedge my risk?
  • How can I adjust my trade?

Those are all very important things you must know before you ever enter a trade!

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Have a Plan

Many times I see traders who think they have a plan, but once they enter a trade, they change around what they are going to do. They then become listless and indecisive, which causes problems.

You must have your plan and stick with your plan and adjust it only over time.

Do not follow every emotion and whim that you have, while you are in a trade. I think it’s also important to not only have a strategy and a plan, but also to have trading goals.

You should keep a written record of your trading goals and your trade results over time, so you can see for yourself what works for you and what doesn’t, allowing you make changes along the way.

Risk Management

Risk management is also key along with having a max loss number and adjustment plans. Many times, when you are making a monthly living in options trading, it’s really not how much money you make when you win, it’s how much money you do not lose when you lose.

If you have a 10% profit goal each month and you are successful most months, that will work, if, maybe you only lose 10-15%. However, if you are losing 30% and 40%, that will become a problem.

Accountability

Lastly, you need some accountability. I found for myself and for other traders that, if you have someone to talk to about your trades and to give you a second set of eyes to look at them and give you some guidance, I think that will do great things for your trading and take you to new levels of ability and success.

One-on-One Mentoring

This is why, at Sheridan Mentoring, we feel that One-on-One mentoring is the best process for developing traders. Trading can often be solitary and when you get out on your own, you tend to lose your way.

Having someone checking in with you, who you feel accountable to, will keep you on the right track and make your trading much more successful.
mark fenton, senior mentor
Mark Fenton, Senior Mentor at Sheridan Options Mentoring

Do you have more questions or topic ideas? Submit them here!


Credit Spread Option Strategy

credit spread option strategy One of the most basic option trading strategies is to sell a credit spread.  This is usually done whenever the trader has an opinion on a stock or other underlying issue that it is going to go up or down in price, in a certain period. For instance, let’s suppose APPL was trading at $106 per share and you thought that APPL would stay above 100 for the next few months, you might sell the December APPL 100 Put and then buy the December 90 Put; thereby creating a credit spread, because the 100 Put you sold would be more valuable than the one that you bought at 90. As long as APPL stays above 100, the duration of the trade, that is until December expiration, you will be profitable . You have time decay on your side in this trade, that is, it’s positive theta. Each day that passes by, the short you sold is worth a little bit less in time value. This is how you make your profit over time.

Often the difficult part of this type of strategy is the management plan. What do I do if APPL does drop in price towards our below $100? One strategy that you can utilize is using your P&L percentage of profit, or percentage of loss, as your guide to either make adjustments to the trade or to close the trade. For instance, you could use a guideline: If the trade is up 10% on profit, I will close the trade or close half the trade and maybe let the rest go for higher profit. And conversely, if the trade is down 10%, I will close half the trade or even all the trade. This type of risk management will prevent you from just staring at the screen while APPL goes down further and further and your loss deepens. Of course, the percentages you use are up to you and what works with your portfolio level and your level of conviction of APPL’s movements. Always have a plan such as this, though, that prevents catastrophic losses or at least losses that outpace your gains from previous trades.

Mark Fenton- Senior Mentor at Sheridan Options Mentoring

Do you have more questions or topic ideas? Submit them here!


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