The Rules of The Game!

What's up everybody!  I'm just sitting here doing my taxes and getting more depressed by the minute.  Nothing like a new blog post to cheer me up!  When I look back at my first five posts I "think" I've provided enough information to get most folks up and running with options.  As always, if anyone has questions please leave a comment.  Today, I want to go over what my trading rules are.  After much trial and error I've found that as long as I stick to these rules things should go pretty well.  I've had these rules in place for six months and my account is up over 30%!  Can you say the same about yours?  OK, here we go!

Rule#1: Only Trade Credit Spreads on The Call Side (Bear Call Spreads)

As I've mentioned before you can trade credit spreads with either calls or puts.  If you use calls, you're betting a stock won't rise to a certain level.  With puts, you're betting a stocks price won't drop to a certain level.  So why only trade the call side?  For my peace of mind I like to eliminate as much uncertainty as possible.  The last thing I want to do is wake up in the morning as find out that because of a terrorist attack or some other pending financial crisis that the entire market has dropped 500 points!  I could've had a put spread with a 90% chance of winning that is now a total loser because of one bad event.   To avoid that risk I only trade on the call side.  So when the next "To Big To Fail" crisis comes, I'm like "whatever"!

Rule# 2: Avoid Volatility Producing Events (Pick boring stocks)

As I'm sure you know there are thousands of stocks with trade-able (Is that a word?) options.  Some good.  Some not so good.  I've learned that the credit you can earn from options is always higher when there is a level of uncertainty in the short term stock price.  What can cause these uncertainties?  Well, things like court cases, FDA approval votes, earnings reports, changes in company leadership, etc...  All these events cause uncertainty.  And the more uncertainty, the more risks.  The more risk, the more sleepless nights and lost productivity at our day jobs.  What's great is that there are tons of good trades each month that avoid all that stuff.  I always (always) stick to those boring trades.  Boring trades equal money in the bank!

Those are my first two rules guys!  Next time I'll go over a few more.  This weekend I'll be trolling the net for opportunities next month.  IOC is looking interesting!  Connect with me during the week for live trade updates on Twitter @optionadventure.  Have a good week!