Option traders generally love volatility. It gives them an edge that stock traders cannot get. But when market volatility is running rampant as it has been over the past several weeks, it can make things a little more difficult for option traders.
Generally, option traders are not day traders. They typically hold positions overnight. With a market that has gapped unpredictably big almost every morning over the past few weeks, it makes holding a position the next day a little more tenuous. In addition, have you seen how wide the bid/ask spreads have become, particularly when the market has gapped down? It is hard enough to profit as a trader, and when the spreads are increased, odds go down too. So not only should option traders consider a more conservative approach like sitting on their hands at times, they should review some of their past trades.
This should absolutely be done year-round, but many of us do not do it enough. Here is the excuse you need to get started. I know you might have put off writing that trading plan for a long time, but I hope you have finally completed it or are close to doing so. This is an integral part of your trading, and putting it off is not doing you any favors.
The method is very straightforward and simple. Take some screenshots of the charts and option chain when the trade is initiated. If you are not doing this already, shame on you. You need to start. Then take a few throughout the trade and of course when the trade is exited. Did the trade work out as planned, or did you do something that was not planned? Was it a bad trade but it still profited? These are just a few of the questions that you might be asking yourself as you review your trades postmortem. Trust me, there are hundreds.
Lastly, review your trades when the market is closed so your full attention can be on the review and not on the active market. If you do this on a regular basis and not just during volatile market conditions, I promise you will put yourself in a better position to profit going forward.
John Kmiecik
Senior Options Instructor
Market Taker Mentoring, Inc.
