The market is up big one day, and then down big the next day. We try our best to ignore it and trade according to our plan. You know Warren Buffett always says that he doesn’t pay a lot of attention to daily market swings. That is not his plan. He buys good companies cheap, and waits patiently. Of course, he has enough power to influence the Board and the operations of said companies, should he choose to do that.
On the other hand, some people DO trade the daily swings, and that is their plan. They like the excitement of the quickly moving game. This is the game that most people fall prey to – and they lose everything as they watch their account being whipsawed – which causes them to panic sell at the wrong time.
Just like anything else where money moves around, trading is a business and you must be an expert to make any money. You must specialize in a small niche, and then use your expertise to run your business. If you are a trading novice, and open an account & then read the financial press and watch CNBC – you WILL be whipsawed out of your money as the professional traders take it all.
We are options traders. We have a mission – We run a small insurance company for stocks. We get paid to take on a defined amount of risk for a defined period of time. At this particular game, you must become an expert risk manager to succeed.
We DO our best to ignore these large daily moves, and instead focus on our risk management. We can’t tell the future, so we don’t know if the market will be up or down tomorrow – but, with options, we can control our risk in any way our creative minds can imagine.
Use the increased volatility to raise your daily time decay (Theta) and lower your risk (Delta). With the right plan, and lots of experience, you learn to trade right through volatility and use it to your advantage. These are the times where big money is made, just not every day.
Wildly volatile market? Ignore it.
Stay Optioned, My Friend.