Risk Mechanics

Knowing how and when to evaluate and control risk Trading is commerce, and commerce is the relationship between the markets’ vast number of buyers and sellers—all aiming to end the day with a profit. Some will win, and others will not. As in all of the many manifestations of commerce, trading has rules for success. … Continued

Four Pillars of Options

These four elements can provide the key to successful investing. In statistics, the law of large numbers says that as the sample size grows, outcomes will more closely resemble the expected probabilities. Flip a coin 10 times, and it may come up heads 80% of the time. Flip a coin 10,000 times, and the outcome … Continued

Outsmarting the Machines

Be prepared when the algorithms switch from BUY to SELL In his cutting-edge 1950s I, Robot science-fiction stories, Isaac Asimov created a world where robots gained more than a bit of world-wise experience and insight. The stories center on how the robots’ knowledge, intelligence, understanding and wisdom affect their relationships with humans. Have Wall Street’s … Continued

Metrics & Mechanics

Alleviate the guesswork and reduce the risk of trade decision-making The market reacts to the decisions of millions of traders and even expresses their emotions. It does both by establishing equity prices from moment to moment. That’s why a well-defined set of mechanics can help alleviate the guesswork of trade decisions. This cheat sheet was … Continued

Market Awareness

Getting in touch with your inner guru  The phrase “market awareness” isn’t commonly used in finance, but it’s essential in the trading world. It’s broad but not specific. It’s not a one-size-fits-all. Think of it as the sum of a trader’s market exposure plus knowledge of current market conditions—everything that sets the stage for assumptions. … Continued

Calculating Tradability

Before placing a trade, confirm liquidity, implied volatility rank and risk exposure. Then make sure it fits the portfolio. Before executing a trade, confirm a product’s tradability. Do it by checking liquidity, implied volatility rank and risk exposure, and by ensuring its size fits the portfolio. Strive for consistency through a more conscious and precise … Continued

Acquiring Short Delta

Delta can be either static or dynamic. Here’s how to get either one. Acquiring short delta means adding positions that benefit from a move to the downside. Keep this cheat sheet as a reference for strategies. Delta can be either static or dynamic. To generate static short delta, sell stock or sell a future. Regardless … Continued

Delta Force

Choose from the many ways to add positive delta to a portfolio A contrarian strategy suggests buying into weakness and selling into strength. From that standpoint, the market currently resides in the territory of buying into weakness. To take that approach, know the ways to get long on an underlying. That can also be called … Continued

Three Rules for Longevity as an Active Investor

If you’re in it for the long haul, you need to know the rules—that the news doesn’t matter much, the markets are random and active trading beats long-term investing. Just when you think you know it all, you find there’s a lot left to learn. In my case, the lessons began in earnest after I … Continued

Trade Management

Prepare for almost anything by outlining and organizing a trading response for every for every short option position Investors should formulate a contingency plan as soon as they place a trade.  In the example of trade management below, the flowchart lays out actions to take for several possible scenarios. Improving mechanics this way is a … Continued