A Table of Actions

Our friend Happy Trade posted the following message:
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HI,
I am still watching the DVD. However I really hope you can have a "table" form for different actions for different senerios so we can monitor the position.
e.g. if IV spike, but price goes up, then....
those "if..then..." condition will help beginners to track them.
thank you
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Hi Happy, you must be a computer programmer !

I suppose I can do something like that. However, you are asking me to condense years of knowledge in a 1 min chart.

Let me start by saying that this is equivalent the clichet "buy low and sell high". This is an obvious oversimplification. Your job is to learn by paper trading, back testing and actually taking real trades. There is no substitute for experience.

In my disks, I have shown you multiple entry examples. I have been keeping track of those examples and creating new ones, and actually I have been recording my entries in video clips to create a record. Just in case I decide to make a follow up disk.

However, you have to understand that there is nothing simple about trading options. I truly believe that the only way one can be successful in option trading is with knowledge of the Elliott wave, because it is the only approach that takes the variable “time” into consideration. I also believe that the PCCRC is the only way you can be consistent because given sufficient time, most stocks will move strongly in one direction or the other (sometimes both).

This knowledge cannot be simplified further, and you have to do your homework. Perhaps I should create a membership blog where I can post one or two videos once a week on what I would do to enter candidates. Perhaps I should make follow up videos with examples to show you that the PCCRC has the flexibility for you to respond to market conditions profitably. I am not sure what support there would be to either proposal. For now I would like to keep this group growing, so I don’t want to ask people to pay anything. I’d like to hear from you.

Here is the paper trading account described in my disks and that I have been increasing with various new trades according to my rules. Keep in mind that the first trade was entered 1 month ago.




Having said all that, here are some basics on exiting:

1. The PCCRC is based on Vega, Delta and Theta, so consider exiting the trades, or parts thereof when any of these is maximized.

2. Vega gains should be taken when IV is high by exiting the trade completely. This may be just before earnings because IV tends to collapse right after earnings.

3. Take Delta profits by selling your long options or adding to your short position. Which one would you sell? The one with the highest IV.

4. Rollover or exit the trade 7 days before expiration. If the resulting rollover does not look like a good opportunity, exit the trade. This may happen if the second month IV is lower than the front month IV.

Here are some guidelines:

Delta increases: The stock may rally strongly, above the risk graph curves: Use technical analysis indicators to take profits by selling calls. You may use Bollinger bands, candlesticks and moving averages to progressively sell calls.

Delta decreases: If the stock declines with low IV, you have the worse case scenario because there is no Vega gains to compensate you for the loss in Delta. This is because a PCCRC that has all legs at the same strike price is bullish, unless the stock declines in high IV. If the stock declines with high IV, then the Vega gains will compensate you for the loss in Delta. It may well be that the stock declines below the curvature of your risk graph, and then you'll have moderate gains. It would be OK for you to exit with a small loss. Markets conditions will change in due time. Expect a stock that has declined in price with low IV to rebound at some point. However, realize that time is working against you. The best way to protect against this worse-case secenario is to limit your risk to 2% of your account. Both TOS and Platinum will generate risk graphs in which the max risk is shown.

I recommend that you enter the trade only if IV is low. This generally happens right after earnings. Conversely, IV is highest just before earnings so don’t hold on to a position that is profitable because IV is high through earnings. You may see your profits vanish because of IV crush. What is high IV? Well if you entered the position with IV below 40%, an increase to 50% or more should be enough to give you a good profit.

ALWAYS BANK your profits. There are so many opportunities out there, there is really no good reason to risk your profits.

In the next few articles I will deal with the Technical Analysis indicators I use routinely.