Good Day All, we are continuing down this path of setting ourselves up for trading success by being prepared for the inevitable changes in the market that come along and can affect our original plan. As we have discussed in recent weeks we need to be prepared for changes in direction as it relates to time and volatility depending on the type of trading one is doing.
This week I want to take a very common scenario and run down the specific items we need to pay attention to so that we ensure that if things change we don’t get caught up in a trade scenario where we will be subject to large losses. We can do this by planning for the changes in advance and then executing those plans in accordance with the movement of the markets or equity that we are trading. This planning will involve lots of technical analysis as well as thinking about any fundamental concerns we may have in regards to the position.
The specific trade I want to delve into this week is the covered call. This is a very popular and easy strategy to learn but it requires as much planning as any other trade. The reality is that all trades require a great deal of planning regardless of how simple the strategy may appear. For those who may not be familiar with the covered call it is simply taking a long stock postion and then selling a short call option against the original position. Seems simple enough, right? Well, its execution is quite easy but its mastery may be a whole different story.
Check out the short video below, I am going to go through the entire thought process of the covered call trade. Check it against your process to see if you have all the bases covered in this trade. If you are missing some steps then this will be an opportunity to enhance your game.
I hope you were able to see the level of planning that is necessary for this simple trade. We will continue on to other types of trades in the coming weeks to see if there is little nuances between strategy types. If you spend enough time planning the trades, you will spend less time worryiing about the outcome.