Thursday, January 24, 2013

Sometimes you have to sit on your hands

First let me start off by stating that my activity level in the markets is much less than it was when I first started engaging the financial markets back in 2007. If you are just starting off it is natural to want to be involved every minute of every day. But overtime you will find your rhythm or cadence as you gain experience and find an activity level that suits both your personality and lifestyle.

I personally have many interests and pursuits, so over the years I have chosen to put on trades that don't require me to check in on a daily basis. But I still remember the time when I was glued to a screen watching every tick in the market. It was a rush, but overtime became a bit of a roller coaster ride. Every tick in favor of your P&L was euphoric and every tick against you was the end of the world. At least this is what it was like for me.

Now I will be the first to admit that my activity level does ebb and flow based on my free time. If I have more free time I am a little more active. But I honestly don't trade option cycle to option cycle. I am much more discretionary putting on trades. I don't trade just to say I made a trade.

The biggest thing that I have learned over the years is that I like to be a premium seller. I like the fact that time makes me money. Because lets be real, in this world you exchange your time for money. So why not let you money increase your pay over time with out putting in the extra hours. Put your money to work for you. I am also a huge fan of the power to reduce cost basis whether executing long or short trades via the premium collected for selling options.

Although you could choose the inverse of any option selling strategy and theoretically have the same statistical chance of profitability. I prefer to collect than to pay when initiating strategies.

Which leads me to the title of this post. As an premium or option seller if you will, I look for a market with higher volatility levels than we are currently experiencing. I want the premium to be worth the risk of taking on the trade. But with the current low vol environment it is difficult to find such trades that meet my criteria.

When you can't find trades that meet your risk/reward criteria, the best course of action is to sit on your hands and sit on your cash to position yourself for the next round of opportunity. That may mean doing absolutely nothing or it may mean trading really small. It depends on you.

For me its a combination of both. I am trading really small, and only putting on what I would call longterm cash flow trades. I have posted about this strategy whereby I look for quality high yielding dividend paying stocks and sell a long term call or LEAP against it. It is kind of a set it and forget it.

But other than that I am basically sitting on my hands and my money waiting for fear to enter the market once again and present me some opportunity. I am sitting on about 50% cash as I write.

Good Luck Trading!


  1. Dominic,

    not sure if you explain it in your profile, but are you trading for a living, or are you part time trading?

    You mentioned finding an activity level that suits... I share your desire to pursue many other activites and or idea. In my perfect trading world, I would never sit in front of the screen to trade on a daily basis.

    I feel I am a better day trader than a options trader, but it will be a few years before I will have the capital and the time before I can declare myself a full time day trader.

    If I can evolve my day trading into more of a swing trading/options strategy that I can support my lifestyle on, that would be the business to be in!

    And please post more content on option strategies with charts.


    - Trin

  2. Hi Trin,

    I trade as a suppliment to my many other ventures. I did trade professionally for about two years for an energy company. I traded options, futures, and the west coast spot market. I have to say that it is different trading your own money vs trading someone else's money.

    Based on what you explain it sounds like transitioning away from day trading to a longer time frame may help you find what suits you. It is a journey!

    I encourage you to comment and ask question. I promise to try to help as best I can.