Hi Guys,
Another quiet morning here. No new trades to report as of yet. Sometimes an important part of a trading plan is knowing exactly when not to trade. And right now, according to the back-tested strategy, is one of those times. So I will wait patiently for new trades and I won't force anything.
It's funny how some periods are overflowing with trades and it's hard to keep up with them all. And right now is the exact opposite. To give you an idea, this morning DLR from the watch list was coming relatively close to hitting the entry price. Since there were no other trades setting up, I was watching that one single ticker for several minutes hoping it would set up and give me a little bit of trading action. On a typical morning I don't have time to watch a single ticker like that. Normally I have buy limit orders getting filled without even watching the charts. As odd as this feels to have so little trading activity, it's all part of the trading journey.
Yesterday I had several options trades close because they reached their time limits. As per my trading rules, that meant I would close them at the end of the trading day. Unfortunately over the course of the day, my options positions lost a lot of value. If you're anything like me, the thought at least crosses your mind that "maybe it would have been better to close these at a different time", and obviously in the case of yesterday's options that certainly would have been true.
But back tests suggest that ultimately it doesn't matter much exactly which time you sell. As long as it's near the expiration of the option, the general results might be similar over time. In the short run on any given week of options trades, there might be noticeable differences in results based on the exact cutoff time, but over the long haul those might all even out according to the research.
So for me, I just pick a time that works well with my schedule and is easy to administer, and I systematically close all my options at that point (which is the end of the trading day before the option's expiration). There will be times that it ends up giving me an exit at "peak" value, and there will be times that it ends up giving me an exit at a "trough" value. I'm ok with that, because I know that ultimately none of us knows exactly what will happen next so it's not possible to consistently have a perfectly-timed exit. So instead I keep it systematic, just like the back test. And it allows me to tolerate the times when I sell at a trough value because I know the same thing happened in the back test. As long as I'm in lock step with the back test, it gives me a sense of ease. And according to the back test, there will be plenty of times where the exit is timed during a trough. I can live with that.
If you have any questions or feedback, I'd love to hear from you.