Sunday, November 17, 2013

Calm down Strategic Traders

This is a miserable time for a lot of strategic options traders. The market is up 31% this year, and there have only been two occurrences from 1992-2012 of the market being up more than 30%. Also,  we have been parabolic in the S&P (we have gained 171.25 S&P points in the last 3 months or more than 10%). However, do remember that moves like this are extremely unlikely. In the last 63 years, the S&P is only up 2.5% or more in one day 243 times! This has to prove that strategic options trading works. The probabilities do work and volatility based trading does work. If you stay consistent with the way you trade the markets will turn around. Another example, would be selling calls in AAPL, BIDU , and AMZN in the last two years. These stocks were some of the technology leaders and had huge parabolic moves. However, selling the 69% OTM calls into strength and covering the trade after a couple of weeks in these three underlying's made $8,905.5 in two years, but buying the calls lost over $11,000. This proves the strategy; therefore, stick with what we (strategic options traders) have been always doing.

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