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Tackle Today: Trading Metamorphosis

September 18, 2019

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Tackle Today: Trading Metamorphosis (Monarch Butterfly emerging from it's chrysalis)

« Lock in gains; reduce risk. »

By definition, metamorphosis is “a typically marked and more or less abrupt developmental change in the form or structure of an animal occurring subsequent to birth or hatching.” The word metamorphosis is inherited from the Greek which went straight to Latin and then to the entire Western Civilization.

There are many classic metamorphosis examples, either learned from school (biology, mineralogy), mythology or from tales of horror:

Caterpillar into a butterfly/moth;

Nymph into a dragonfly;

Tadpole into a frog;

Coal into a diamond;

Man into a werewolf;

Count Dracula into a bat;

Gregor Samsa into an insect.

However, there is one type of metamorphosis that could be crucial for your trading business: morphing an option strategy into another using trading adjustment techniques.

Markets don’t move linearly. Neither stocks nor currency pairs. Charts morph all the time in erratic behavior, hence the need for traders to be flexible enough to change their approach once a trade turns south and does not hit the predetermined target.

There are two main goals a trader must keep in mind when approaching this type of technique:

  1. Lock in gains or reduce the position cost;
  2. Reduce or shift risk.

Learning how to morph your trades could be crucial to your trading business; the key to long-term profitability.

How bad #TeamTackle wants a series on trading adjustments made by the Coaches at Tackle? Send us an email to [email protected] and let us know.

Chart of the Day

Option Gymnastics

Chart of the Day: Option Gymnastics. Source: ‘Trade Adjustment Basics’ by Michael Catolico, 2007.

The infographic above was adapted from Michael Catolico’s 2007 ‘Trade Adjustment Basics’. According to him, “Following the adjacent diagram, you should begin to attune your trading sensibilities to be able to visualize how any of the trade types can become one of the others. By adding or subtracting the pieces, a position can quickly be adapted to suit changing conditions.”

Video of the Day

The Fly (1986) – Trailer

“Be afraid. Be very afraid.”

Today’s line up

Traders Lounge 11 AM EST

Join the coaches in this live lounge, ask questions, discuss ideas or just sit back and listen to veteran traders discuss market conditions.

Coaches Show Replay

If you missed last night’s episode where Coach Gino Poore talked about the Put Ratio Backspread from the new Tackle Trading Playbook or would like to watch it again, check it out here.

Cash Flow Condors MasterMind Group 8:30 PM EST

The Condors for Cash Flow system is a high probability option selling strategy designed to generate passive income over time. Join us tonight to go over next month’s orders.

Halftime Report 12:30 PM EST

The Halftime Report starts at 12:30 EST and covers what news is driving the market, chart analysis from the movers and shakers of the day and fun in a way that only Matt and Tim can deliver.

Trading Justice Podcast

Trading Justice Episode 339: Black Swan

In this episode of the Trading Justice Podcast, we discuss Black Swan events. Over the weekend, an attack on Saudi oil facilities sent the price of oil skyrocketing. We discuss the overall approach a trader should take when thinking about Black Swan events. Listen to the episode on the player below.

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2 Replies to “Tackle Today: Trading Metamorphosis”

  1. Avatar EricSimmons says:

    I for one would be very interested in a sizeable section on adjustments. Take a given trade, see what can go wrong with it, and analyze which adjustment(s) are best given certain market conditions (i.e. buy options if I.V. low, vs. sell them if high), conservative vs. aggressive, and when to place each one (and possibly, remove them also).

    1. Great to know, Eric. Let’s see if other members of the team would be interested in learning trading adjustment techniques.

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