Great post, Jeff and your points should be well heeded. I would suggest to any relative newcomers that it takes over a year to learn how to trade and even another year to learn how to make money trading. Sometimes longer. Personally, i never paper traded. I took a beating and i'd love to have that money back but i can't say i'd be as far along as i am now if i didn't have the long nights, the shocks to my psyche, the self-doubt. It forces you to decide if this is REALLY for you or not. Time and again i have forced myself to rectify my mistakes (many i made over and over again). I tell myself that the difference between where I will be and where most other people will be is that i was willing to continually break myself down and put myself back together. For those of you who quit, I feel badly, since I don't wish any harm on anyone, especially option addicts. However, and I mean this respectfully, I am competitive and I am driven to succeed here. I truly love interacting with all of you and learning from each other. But at the end of the day, only a small number of us will be traders and I intend to take one of those spots.

PS CME is nice but so is BOT jeff.

Good action on CME about time. If the market trades down for the next few days which I'm leaning towards I'm sure CME will move closer to its price target of $510 or so.
Kicking my butt for selling my KBH put yesterday. Ohh well it did better than i expected.

Danny DR

Hi Jeff,

I almost feel like your comments today were for me and perhaps a result of emails exchanged. The problem with spreads in my opinion is that you can have a lot of wins that don't earn much and then have a loss that wipes out all the wins because of the risk/reward ratio--even trading way OTM.
Regarding option trading, for me this is a learning curve. All the information is new and applying this new found knowledge with some acumen isn't going to happen overnight. Making mistakes is part of the process and it takes time for some of the concepts to sink in--at least for me. So as for me, I won't be dissuaded in this endeavor and am determined to figure it out and be successful even at the risk of looking inept most of the time.
So please hang in there with us because I intend to hang in there with you, your classes and your blog.
Suzanne

Howdie Jeff,

Your blog is awesome and full of helpful info. Keep up the great job!!!

Great post... the learning curve varies greatly from person to person. This blog is an awesome way to learn more "real life application" to what all the books, courses, etc theorize about

Justin

Hi Jeff,

Loving CME, but I also have puts on GOOG, LEND and NDE. Subprime is getting all of the attention. I don't believe this story has played out. Look for some of the stocks that still have room to move, such as IndyMac (NDE) and Countrywide (CFC).

I've been with Investools for a year and I've been combination paper trading and real trading. It was only recently that I started to recognize good entry and good exit points. Good entry points minimize your exposure to loss. To often, I was getting in near resistance and getting stopped out at support. The Advanced Technicals class really helped solidify my process and buy and sell signals.
I'm starting to feel, whichever way the market trades I am ready for it.

Thanks Jeff and all of the other instructors at Investools. There's no other way to get this type of knowledge with spending years of training and thousands in the market.

Joel R.
California

Jeff,

You know very well what our minds are thinking in situation like this. You're NOTE keeps us encouraged and hopeful. Pls. try to add them as and when you think its appropriate.

--thanks, Meena

Jeff and fellow bloggers,

Thank you for the great option community!

I feel I have to give an account of my short trading career in light of the mood that has been running amuck the community as of late.

I must say that I am feeling pretty damn lucky since I just started trading in November and feel real confident in what I am doing. My first month I lost money, but not much. My second, December, I almost made back as much as I lost in my first.

In January, I began doing the Matertalk Series, at least one per week with some weeks digging into the archives. Also in January, I began listening to the Marketcast each evening; I have only missed two nights since… I believe. In February, I found THE BLOG. I have printed all of the archived posts and have read them all more than once. Several times a day I visit the blog to see if anyone has posted any new comments.

I have attended the Investools Stocks and Basic Options courses and have read the course material for the Advanced Technical Analysis course several times.

I am thrilled to say that I am up over 30% since I began the Matertalks, the Marketcast and THE BLOG.

My wife says that she has never seen me so committed to something. I must admit, other than my addiction to skiing, mountain biking and hanging out with my wife and children, this is the first time I have committed myself to my education since I passed the CPA exam fourteen years ago! In this journey, I have found another addiction, trading options.

I have been an accountant by trade for the past seventeen years, accountants are supposed to be conservative, right? I have taken my thirst for extreme sports (trading directional options) and coupled it with the conservative nature of my job. I love this business and have a BEHAG of retiring from fulltime accounting in five years. All this would not be possible without this option community, the MT/MC combination and all they have to offer.

I continue to learn each and every day and continue to refine my trading rules (which are not written yet… shame on me). I have notes jotted down on paper in a file but I am very disciplined about documenting my entries and exits on the ProphetCharts of the equities that are on my watchlist and in my “we own” folder. If I have no notes or analysis on my entry and exit on an equity, I don’t participate. It is that simple.

For me the hardest part was eliminating emotion from both entries and exits. My main rule is that my risk reward must be 3:1 at a minimum and I won’t get emotional about entering a trade as long as I have that ratio. I also know from this risk/reward calculation when my trade has gone bad. A “gone bad” trade is a real unemotional time of exit. I set stops at 0% to 70% of the option price and have the liberty of watching intraday action nine out of ten days. Hitting my target is also a time to tighten up a stop using the ATR and a trailing stop or if I am enough above the original target to prevent being kicked out by intraday movement I prefer to use the target as my stop. I will then exit on weakness from candle pattern analysis or news. I try to enter and exit trades at the end of the day but sometimes have lunch meetings and have to use amateur hour the next morning.

I know rocky roads are ahead but we have an in-house therapy community here to see me through. I like to call it Kolher’s Couch… I find that I rarely have to post my thoughts and feelings because someone else is asking/feeling the same thoughts.

Right now CME looks like gold. I hope everyone had a chance and is participating.

Again, I feel real fortunate and lucky to be where I am right now and thank you all for lending a hand.

John
Rhododendron, Oregon

Jeff and all -
What I had to say has been said so only a big THANK YOU! from me.
Bob H.
CA

Brett,

I completely agree with your comments. This takes time and committment. I know I spent 4 years of college and 2 years of graduate school to start my first career. So what's a couple of years to learn and become a consistently profitable trader.

By the way I'll be joining you in one of spots.

Sarah

P.S. great post Jeff. I also had a great day with my SPY puts.

Jeff:
Your blog is beyond awesome. We want to trade like you!!

I believe that the probability of an option expiring worthless is about 75%. With that said, when I first started trading I only use to sell puts of the stocks I wanted to own. This strategy works best only in up trending and sideways market. I tried this for a year and I did well, the problem was that I kept on finding good stocks and the reward was small compared to buying the underlying stock. Certainly, when I was wrong I was really wrong and wiped out a lot of gains.

What a lot of people do not understand; that buying options, should be done with some type of technical knowledge of how fast, how much and how long will that option last until your price is met. If you lack that knowledge, or you feel that you rather direction trade, buy an option with a high delta, it is very similar to owning the stock and as long as the analysis of the direction is right you will profit. With this strategy you still spend less than owning(leverage) the stock and you have a determined risk.
Speaking for myself, I think if people heard more instructors talk about the losses that they experience and why they concluded to take that loss, they would feel better knowing that trading is not always about being right.

Everybody has loses, the trick is to lose less than you win.

I have recently spoke to a fund manager and portfolio manager. When I started telling them the strategies that we use and have learned, they could not grasp half of them and it surprised me that their only strategy is buying stocks.

I think we all get frustrated, because we want to trade like Jeff and all the pros at Investools, but we forget that all these traders have paid there dues to the market. The only difference is that they persisted and found a way to beat the market.

Just know that if you went to open a business, the success ratio for that business to be profitable is minute. This is the same thing, you opened a business and it may fail, but if you persist and cap your losses, who knows you could be the next McDonalds or the next Jeff!!.

We all new the possibilities of the market re testing the lows, some of us went long and some of us took the advice from Jeff to nibble if you were not sure.

Keep it up, once we figure out a system that works, and one that limits our losses we will know how to react to trades going against us. This is a business that we have to keep on adapting to and keep on learning.

suggestion: It would be nice if Jeff could do a video on how your trading day is set up and how and why you chose a certain option.

I know you do not like making a trade for us, so how about a trade in the past.

just a thought
David S

David,

Fair enough. Great idea. Make sure you stay on my case until I get this done.

Everyone else, great comments. Your support and dedication ceases to amaze me.

JK

Jeff,
This whole trading world is quite overwhelming with so much to learn, so many different directions that you can go and so much isolation. You have helped me so much in just knowing your insights and thought processes through good days, bad days and even days when the markets just go sideways. I think it is natural to tend to trade the way that you do, especially in the beginning. Personally, I have been following you with Master Talk since last summer, then the blog, which is exceptional insight, and now the Marketcast as well. I Have to say that I lost a lot in the beginnig but that was my own fault for not developing my own system. I have spent a lot of time tweaking my own system and have had a lot more success. I am actually very interested in learning spread trading and just got a couple of the books that you recommended to attempt to learn more. At this point I think you have taught me well. I am quite determined to make this work and whatever direction I end up going, it will be based on the fundamentals that I feel I have learned from you.

Kudos for you have definately kept me going.
Rene
AL

I have seen some comments about using the ATR for exits. What is the ATR and how is it used?

Bob

Jeff, (and all other bloggers)

I will share my personal crisis here. I lost BIG the week the market took a turn for the worse. Why? Long on options, no stops, went to Canada snowmobiling for a week of fun and foolishly ignored all smart trading discipline. I paid, big. 100K...gone. (yes, that's 100K)

Depressed. Yes. Shocked. Yes. Did I deserve it. Yes. Quitting. Never. Not in my character, not an option! (pun intended)

That was a F@#$ING huge mistake on my part, I got sloppy, and I paid very very dearly.

Like Brett, I have been broken down but will put myself together, pick myself up, dust myself off, and get on to being smarter.

I am fortunate that I am still in the game, but even more fortunate to have found this group on this blog. Nothing like like minded people working together. A great support team.

Losing money is no reason to quit. I can make money. I'd rather lose money than good health, my family, my friends. Money is easier to replace than the aformentioned, and less valuable than my health, family and friends.

So to all that have though about quitting, first re-evaluate the reasons.

I'll be joining others here grabbing one of those "spots".

Lets go CME!! Burn baby burn...

Bob,

There is an amazing article in my archives on the right called "Average True Range."

;)

Thanks Jeff1

I am all over that article ASAP!!

And thanks for this Blog...

Cheers...