Morning Update: How to place a winning SHORT TRADE?
Last Friday right at the close you may recall I shorted the SP Futures via ES Options. At the time the SP Futures were 4274. I choose the 4400 strike AUG EOM contract as I had no Fibonacci areas of resistance at 4400 and by and large I'm conservative when shorting naked options. I received $825 per contract I sold (Short price was $16.50). I sold only 3 contracts for $2466 in premium. For that trade, ToS (Think or Swim) required $28000 in account equity. I share these details NOT TO BRAG but to educate.
How to place a winning SHORT TRADE?
1. Give yourself a chance to be wrong
Despite the best analysis and the clearest of patterns, I will always tend to be conservative when dedicating hard earned money. I AM NOT A SWING FOR THE FENCES TYPE OF TRADER. I put that trade on when the SP was 4274. I didn't do that thinking price could go to 4327 (which it did yesterday). But I choose 4400 because my analysis showed an extremely low probability price could reach that area in 18 days (Options Expiration).
2. I tend to want to be a seller rather than a buyer
When dealing with options the time value is where the meat of the profit comes from. I sold on a Friday, because immediately I pick up 2 days of time deterioration (The Weekend). I would never get this kind of wiggle room if I just shorted the SP outright, or bought puts. When dealing with options I NEVER BUY....NEVER. I sell. So if I'm bullish, I sell puts. If I'm bearish I sell calls. The last reason I sell rather than buy is the buyer's success hinges on only one moment in the future. 5PM EST on the day Options Expire. It doesn't matter how profitable the option buyer is if at 5PM EST on the day that option expires if the strike price has not been breached. The buyer looses 100% of their investment. That appears to be a terrible deal for the buyer....Nonetheless, the buyers line up for the junk I'm selling them. Once again, I have the time factor on my side because I'm a seller.
3. I choose Expirations closer to my trade rather then further away
Some may say, give yourself more time to be right. That's not what my goal is. My goal is to keep 100% of the premium...not be right. Case in point, I shorted these options when the SP was 4274. If on expiration day at 5pm EST the SP futures closes at 4399....I keep 100% of the premium. However, in terms of my entry it appears I entered that short way too early. Clearly from a standpoint of timing the short I was wrong....but in terms of making money I was 100% successful. I'm not keeping score, I'm trying to grow wealth.
In closing I'll share this. In my opinion you have the advantage when you're always a seller, rather than a buyer. Be conservative and choose strike prices outside of your most optimistic or pessimistic viewpoints (based on sound analysis, NOT GUESSES or EMOTION). Don't swing for the fences. The options I sold on Friday expire in 14 days. The SP is 20 points higher than when I sold, and my option is exactly where I sold it. In 3 days it moved my entry up 20 points. This is a winning short trade plan. Why? It appears (as of right now) in 14 days I'll make 9% on money I never spent, having never owned anything.
Best to all,
Chris
How to place a winning SHORT TRADE?
1. Give yourself a chance to be wrong
Despite the best analysis and the clearest of patterns, I will always tend to be conservative when dedicating hard earned money. I AM NOT A SWING FOR THE FENCES TYPE OF TRADER. I put that trade on when the SP was 4274. I didn't do that thinking price could go to 4327 (which it did yesterday). But I choose 4400 because my analysis showed an extremely low probability price could reach that area in 18 days (Options Expiration).
2. I tend to want to be a seller rather than a buyer
When dealing with options the time value is where the meat of the profit comes from. I sold on a Friday, because immediately I pick up 2 days of time deterioration (The Weekend). I would never get this kind of wiggle room if I just shorted the SP outright, or bought puts. When dealing with options I NEVER BUY....NEVER. I sell. So if I'm bullish, I sell puts. If I'm bearish I sell calls. The last reason I sell rather than buy is the buyer's success hinges on only one moment in the future. 5PM EST on the day Options Expire. It doesn't matter how profitable the option buyer is if at 5PM EST on the day that option expires if the strike price has not been breached. The buyer looses 100% of their investment. That appears to be a terrible deal for the buyer....Nonetheless, the buyers line up for the junk I'm selling them. Once again, I have the time factor on my side because I'm a seller.
3. I choose Expirations closer to my trade rather then further away
Some may say, give yourself more time to be right. That's not what my goal is. My goal is to keep 100% of the premium...not be right. Case in point, I shorted these options when the SP was 4274. If on expiration day at 5pm EST the SP futures closes at 4399....I keep 100% of the premium. However, in terms of my entry it appears I entered that short way too early. Clearly from a standpoint of timing the short I was wrong....but in terms of making money I was 100% successful. I'm not keeping score, I'm trying to grow wealth.
In closing I'll share this. In my opinion you have the advantage when you're always a seller, rather than a buyer. Be conservative and choose strike prices outside of your most optimistic or pessimistic viewpoints (based on sound analysis, NOT GUESSES or EMOTION). Don't swing for the fences. The options I sold on Friday expire in 14 days. The SP is 20 points higher than when I sold, and my option is exactly where I sold it. In 3 days it moved my entry up 20 points. This is a winning short trade plan. Why? It appears (as of right now) in 14 days I'll make 9% on money I never spent, having never owned anything.
Best to all,
Chris
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