Dozens of strategies await the onlooker in the options market. The dizzying array beckons to all who desire a more sophisticated trading game. I’ve always said stock traders are playing checkers while options traders are playing chess.

Derivatives offer a million more moves creating a complex web of outcomes. But, I wonder if some make it more complicated than needs be.

Consider, for instance, the impact of adding one more strategy to your bag of tricks. To the single-strategy-toting novice, acquiring a second way to play can be a game changer. Think of someone who only knows how to go bullish suddenly learning how to trade bearish. It opens them to a whole new world of possibilities. The addition of a third strategy – this time a neutral one – may have an equally powerful impact.

But as you continue traveling the path, picking up new weapons along the way, you’ll discover the incremental benefit of adding strategy 4, 5, 6 and beyond begins to diminish.

Suppose your playbook already contains four bullish strategies (long calls, bull calls, naked puts, bull puts). Is the addition of a fifth or sixth really going to move the needed? Is it going to be the impetus finally pushing you from losing to making money?

Probably not. At some point (and that point likely varies from one trader to the next), you know enough and your time is likely better spent mastering the weapons already in your arsenal instead of seeking after new ones.

The Mentor

I think about this a lot as a mentor who needs to fill 24 hours with each client. Ultimately, it’s a question of depth versus breadth. We can cover a lot about a little or a little about a lot.

It’s your choice.

My preference is usually to specialize, to build a few core trading systems and attack them from all angles. The market gods don’t dole out bonus points to traders wielding ten strategies.

It’s not the instrument you choose; it’s how you use it that matters. Maybe the smartest traders are those who master one thing to the exclusion of everything else.

I view the strategy chosen simply as your admission ticket. It gets you in the door and onto the dance floor. Whether or not you leave with the prom queen, however, depends on just how well you move and groove.

Boeing is breaking out as I type. I buy a bull call and you sell a bull put. Two different tickets, but we’re both at the same dance. The fact that we are we chose different strategies doesn’t matter near as much as how we manage them.

The Matrix

To bring context and order to the question of strategy selection, I use a matrix like the one below.

It clearly identifies the four different directional opinions a trader could have. And, because options can be either cheap or expensive, there are two ways to build trades with each opinion resulting in a total of eight sections.

Does that mean eight is the optimal number of strategies to have in your bag of tricks? Not necessarily. It varies for everyone.

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