How to Plan Your Option Trading Day

Just recently in MTM’s daily group coaching class, I shared a PowerPoint about how I go through my option trading day. It was not extremely detailed because of lack of time, but I would like to share some of the finer points with you here today.

Prep Work

Consider taking into account what the general market is doing as a whole. I would rather be on the right side of the market more times than not. If the market is bullish, maybe look for more bullish trades. Then scan for opportunities based on charts using several different time frames. Then you might look at your current and ever-changing watch list. Do things need to be added or taken off?

Market Open

Do any current positions need tending? Do mental stops need to be changed and do you need to use new profit taking orders out there? In addition, since I like to trade long time spreads, I look to see if any implied volatility skews are present so I can consider calendars as a potential strategy. Once again, you can scan charts to confirm possible opportunities either from your watch list or from the pre-market scan and look for new opportunities as well.

Due Diligence

This part is easy but often it is forgotten, even by me at times. Check for expected announcements including earnings. In addition, do the options have acceptable bid/ask spreads? Once those two things are confirmed, consider moving on to the next step.

Contract Size

How many contracts are you considering? Will this stay the same if something changes on the charts or maybe strategy-wise? Do you fully understand the risk-reward for the trade?

Is There a Trigger?

I like to tell option traders to have a plan in place before entering the position. So, do you? Is the trade ready to go now or do you need confirmation down the road? Do any of your current positions need revisiting?

Into the Close

Do you need to do something or attend to a position before the close? Are any potential trades triggering? How about risk? Are there any positions where you can reduce risk from your portfolio?

The Close

Step back and relax. Get away from the computer and consider exercising and/or meditating. This of course can be done anytime too. If need be, get prepared for the next day after you have taken a break. That is very important in my opinion.

Lastly

Take some time off as needed when doing bad or well. Time off from trading is always a good thing. When the market it closed, do two things. The first is to review previous trades and the second is to continue to improve and work on your personal trading plan. Of course, there is more involved to how I handle my options trading day, but I hope this will give you some food for thought for not only your trading day but also your trading plan.

John Kmiecik
Senior Options Instructor
Market Taker Mentoring, Inc.