Author: Chris Hood
Be sure to check out new episodes of my video podcast each week, where my ace pupil Brian Jones and I talk the ins and outs of options trading- and give you insights and strategy that you can immediately put to work for you in the markets.
“Traders today have never had it better!”
I know I sound like a raving, bitter old man, but I’m not.
My 20 odd years of trading have provided experience, skill, market perspective, and a trading system that makes me consistent profits every year.
There’s no need to rant about trading innovations I use every day.
No more phoning your broker to set trades or close them. You can do it from your computer or phone. I love all the trading platforms, position trackers, and other subscription data services.
What does bother me is when newer traders don’t use them!
As a professional trader and coach, I spend lots of time in front of my monitor, especially with the never-ending COVID lockdowns here in Canada.
Under normal circumstances, I like to do other things.
Jiu-jitsu practice, vacationing with my family, and running errands – all the usual things a healthy person should do.
Yet even with all the screen time, I don’t watch each position constantly.
I told you previously about how important it was to set alerts on your trading platform.
Know immediately when a stock on your watchlist gets into your buy zone, or ding when it’s time to add to a long-term position, or when technicals get dodgy.
Have your platform inform you of ANYTHING you care to know about!
I use Think or Swim, and if an indicator doesn’t exist, you can write the code yourself or buy it from another trader.
My favorite feature, which would serve many part-time traders best, is the autoclose order.
Before you ever place a trade, you should know PRECISELY when you’re going to get out.
Whether that is taking profits or cutting losses, you need to know in advance.
This is the only way to truly take emotion out of your decision-making.
Have you ever drooled over unrealized profits only to see them evaporate overnight or even within a few hours?
My hand is up.
Whether due to greed or other responsibilities, you missed out.
It happened to me years ago before all these phone apps existed.
I couldn’t get to my computer in time to sell and watched a seven-figure profit on silver completely evaporate.
My god, that was terrible!
Setting sell orders at a certain percentage is a standard method of profit-taking.
You can use this rule for credit spreads, iron condors, butterflies, long calls, and many other trade types.
For example, I typically sell my bull put credit spreads at 70% and bull call debit spreads at 60%. For long calls, I like a 100% gain target.
Your percentages may be different.
Just make sure when you place the trade, you set it to autoclose at your profit target. You can always revise the order when you do have eyes on the screen.
Let’s look at a real example of a bull put spread from my account.
AMZN 23 APR 21 3200/3195 PUT @2.26
If the trade price is 2.26 and I want to make 70%, I need to repurchase it when it hits 0.69.
It’s simple math. I just take 0.30 x 2.26, and I have my closing price.
And here’s a quick tip you may not have heard!
Set your put spreads to close at 0.10 overnight, then change them after about 11:30 am.
You never know when a sudden gust of morning volatility might fill your order!
On long calls and bull call spreads, you could also set your platform to sell when the stock prices rise to a particular price.
Use your brokerage platform to help you follow your system!
Don’t know how to set these orders?
THEN FIGURE IT OUT!
Get help from your broker or just find a how-to on YouTube.
You’ll be glad you did!
Next time we’ll discuss the most basic of options trades, the covered call.