I shared an option strategy that I had backtested and also forward-tested for few months with reasonable return. When I shared this strategy with friends, the feedback is that it is not workable and vulnerable to volatile market forces etc.
However, one friend decide to test out this strategy with his live account and so far all are winners. Now, he is excited and wanted to do more and explore other instruments with this strategy.
I predicted sometime in the future, my friend will abandon this strategy when market condition changed or when he hit a few losses.
A perfectionist seek to look for a perfect strategy that win all the times, and an average Joe is happy with high winrate and average return. I am the average Joe.
The author study Tastytrade style of option and some of the chapters seem interesting like Chapter 10 on Evaluate Candidate Strategies.
Beside POP, BE, ROC etc which is quite common, the author introduce Theta Efficiency which I have not considered previously in all my option trades. I decide to buy the ebook online at USD$3.99 and it come with an free excel software which calculate all these ratio automatically. However, the excel is so rich that I am still trying to figure how to use it effectively.
A good friend wanted to know what I do before market open. I told him that I usually plan my trades before market open. He asked how do I plan and can give him some specific example.
Example : This period is earning season and I will plan for earning play. I would list down all the after-market and before-market earning and list down all the counters. I prefer to do post-earning trades or when the earning result is announced. The stock will have a general direction where it is heading, I would put in my option trades and within 5 days I will be out of the trades.
- List down those stocks earning After Market closing and Before Market opening result
- Observe the earning result to get a sense of general direction
- When market open, note the price direction (spot trend or candle signals)
- Enter when there is confirmation
- Chose weekly option or DTE within a week (at most two weeks)
- Probability of win is high (follow trend strategy)
- Premium may be low but time decay is fast
- Effective use of margin as every week the margin is replenish
I caution my friend that following other people option method may or may not suit his character or nature. The best is that one should develop his own and practice it into perfect with fullness of time in the market.
So many choices. Thinkorswim is still the best platform in my opinion.
I like TOS platform as it allow me to automate my trades.
1st Trigger OCO usage
Simple steps to put an advance order to let the market fill at my preset price and then trigger auto contingency order to take profit or stop loss order at my preset price. So that I can do more option trades with lesser time.
This four chart is what I used to forecast for weekly option play.
Each chart tell a story…
Selling Cash-secured put is fine – collect premium.
Selling Covered Call is good – collect premium, capital gain and dividend.
If capital is limited, can do PMCC – collect premium and capital gain.
Import the list into TOS as watchlist and look out for high IV for consideration. Sell when IV is high and whenever volatility contract, the option loose it’s value very fast and can exit the trade very quickly.