Options Portfolios

As an individual full time trader, I find that I am able to manage around 30 different symbols at one time, and this is probably a few too many. There is no doubt that I miss opportunities because I don’t have the time to look at every angle for every option. It’s probably better to manage a smaller number of positions and feel that you have done everything possible so that you do not leave any money on the table.

I don’t recommend that you try to get anywhere close to this number of open positions. Take one symbol and try to become an expert in that symbol. If you can’t make consistent money trading one symbol, why trade 2 or more? You’ll just compound your losses. Options appear to be very simple at the beginning, but as you learn to trade them, you uncover an endless depth of complexity. Be careful.

Here’s a game plan: Start with an ETF, not a stock. Stocks can move violently at any time for reasons known and unknown, but a large basket of stocks has a much, much lower chance of  a sudden large move (but it can happen). I like the Select Sector SPDR’s. They are very large, very heavily traded, and tend to stay in an established trend for extended periods.

There is a valuable web site called ETFScreen.com. Spend some time learning what you can find there. Then, click on the Segment Views “Select Sector SPDRs”. This will open a Relative Strength ranking page that takes some of the SPDR’s and displays their strength in various ways.

Presently, at the top of the table, is the Health Care SPDR, or the XLV (stock symbol). This is a basket of companies that are in the Health Care sector. This has been the strongest sector for some time. It takes a lot of money, all flowing in the same direction, to get an entire sector moving, and once it is in place, it tends to continue for a long time. You are putting the odds in your favor by trading the strongest sector from the long side, expecting the strength to continue. I like to sell puts on the #1 SPDR on ETF Screen on days when that symbol is down. On the flip side, you could also sell calls on the cellar-dwelling symbol at the bottom on trading days when it is up.

This is just one idea for beginning option traders. It’s a good place to start for many reasons. We’ll talk more about the concept in later articles. Your account may not be approved for selling naked puts and calls, and that’s OK for beginners. You can accomplish the same thing with spreads in a limited account. We’ll get into that later, too. Ahhh – there –  you are beginning to see the ever-increasing complexity of the options trading business.

Stay Optioned, My Friend!

 


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