Volatile Markets Call for Patience as an Option Trader

If you have not noticed, the markets have been very volatile over the past couple of weeks. If you add in September’s decline, it has been a bumpy road for several months. Even though the markets have been uncertain, there is something you should be clear about and that is the importance of being patient in your trading.

It Isn’t Easy

It’s not east to avoid jumping into or taking spur of the moment and gut feeling trade. Trust me, I have been on that side for several years. But having control and patience because of a written trading plan is the key. When the market sells off as it recently did, implied volatility levels surge higher. Many option traders are groomed to think that selling put spreads is the main way to go, and they see this as an opportunity to take advantage of “more expensive” premiums. But what if the underlyings continue to move lower as they often do? They might have sold elevated premium, but they are getting creamed by their positive delta positions.

Patience Pays

When it comes to opportunities based on technical analysis, it always pays to be patient but especially in volatile markets. Of course, no one can predict what the next day will bring but waiting for setups to trigger is essential. When the market is moving, traders tend to get hyped up and chase stocks instead of looking at potential support and resistance levels. Just appreciating the fact that support and resistance will fight to hold that level is a big advantage. And when a stock or the market is extended higher or lower, you have to ask yourself what has a better chance of happening there too. The answer is for the underlying to not continue in that direction onto the close most times.

Save Yourself From Losses

These simple thought processes can be the difference between not trading at times and saving yourself from huge losses. It all boils down to having patience. So next time you feel like you are acting on the spur of the moment, slow yourself down and ask yourself, is this the right thing to do and is this the right time to enter? More times than not, it probably isn’t.

John Kmiecik
Senior Options Instructor
Market Taker Mentoring, Inc.

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