Once upon a time I trumpeted the idea of trading the same stocks over and over again. With megaphone in hand, I’d ascend the soapbox for some preaching. “Hear ye, hear ye! Stop your nomadic wanderings and other time wasting adventures. There is no need to travel from well to well, I tell ye. A better way exists. I know of wells that allow you to return again and again for profit-giving water. Portfolio buckets descend dust-ridden but emerge filled to the brim with glorious greenbacks. I’ve seen it with me own two eyes! What’s particularly vexing is every one of you miscreants have visited these watering holes at some point during your wanderings, you just didn’t know it.
There they sat, teeming with potential. But your eyes, ever searching, had already moved on to some other water source. The insanity must stop!”
I took my advice from time to time but not as much as I should have. I’ve since learned the true genius behind the idea. Listen up friends, and I’ll reveal how Theta Raiders trade the trend.
First, consider how equity investors milk a trend. They buy shares, hopefully early in the uptrend, and then trail the stop below each successive support level. Provided the stock keeps trending their profits keep growing.
Riding the trend is different with option selling. The limited reward nature of naked puts and the like means once the credit runs out, your profit dealing ventures are over. Unless, of course, you sell another put. And another one after that. And another after that.
Let’s say you spotted the great trend reversal in XOP last summer. Like a good little theta raider, you decided to sell Aug puts to capitalize on the newfound bullish action in the energy sector. As expiration neared you smiled all the way to the bank while the puts died alone and penniless. And then, like a naive little nomad, you bid adieu to that particular watering hole in search of another.
And why, pray tell, did you depart? Because you hadn’t had the pleasure of coming across a preacher like me before. Or perhaps it’s because XOP didn’t offer another picture perfect pattern for re-entry (as if it needed to). Or maybe it’s because you never thought about building a premium selling system to exploit trends.
Whatever the reason, I suggest modifying your behavior before the opportunity cost of your ignorance piles too high.
What’s the point in nailing a trend if you only catch a tiny piece of the action? Wouldn’t it have been better if you sold another put for Sep, Oct, Nov, and so forth? Why not go back to the XOP well every single month in 2017?
I certainly will. Along with any other ETF/Index which is trending (hello IWM, SPY, GLD, TLT, FXE, XLF, XME). Until the well runs dry, you can bet I’ll be there. While I’d love for a perfect setup to arise in each underlying right as I’m looking to enter the next month’s trade, it’s not a necessity. As long as the overall trend is pointing in the right direction, dips and rips will be capitalized on with aggression.
And if it wasn’t obvious, finding trades is a cinch when you’re playing the same stuff every month. Think on that next time you’re two hours into searching for that ever-elusive perfect setup.