Wednesday, 9 December 2015
Few thoughts on options trading through Q&A
Let me share the conversation between my friend and I. Enjoy reading!
Q: Why you choose the name Lifestyle Options Trader?
Lifestyle Options Trader (LOT): Trading can be stressful. I used to burn late night oil (due to time zone different) to monitor my position when the market is volatile. After spending years to study and trade in the stock and options market, I have developed a method which enable me to trade the options in style. It is my daily activity which I enjoy doing it very much and it is already part of my life.
Q: What is your most favourable options strategy?
LOT: It depends whether I am looking at long term or short term. For long term, i would prefer to buy long duration options (options that mature in 1 or 2 years) and sell shorter duration options (options that mature in a month) every month. This is a great strategy which enable me to continuously reduce the cost base of the long duration options and/or enjoying a monthly income through selling shorter duration options. As for short term strategy, I prefer to trade range bounce market in which I can profit as long as the stock does not break either side. If the stock does breakout, I will repair the position base on the market condition. This strategy has served me well so far.
Q: It seems like a sure win strategy. In that case, how could you lose money?
LOT: It is not true. Even though the strategy that I deploy has high probability of success and the repair method does further improve the chances of success, it does not represent 100% success rate. At certain market condition, I would just close the position, take the lose and move on.
Q: How do you avoid black swan event?
LOT: Don't sell naked options unless you are monitoring your position every second. Always hedge your position and construct a defined risk strategy, which means when you enter a position, you should have already known the max profit and max lose. Do not set stop loss when trading options as stock price gaps up/down will hurt your account badly.
More to come :) Cheers!
Posted by Lifestyle trader at 08:10