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How Theta Raiders Trend Trade

January 11, 2017

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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.

16 Replies to “How Theta Raiders Trend Trade”

  1. SYLVIATREVINO says:

    Brilliant. I love the creativity and the idea. My New Year’s Goal (Note, I’ve been reading) is to focus on learning to set up a system that will not only provide me with cash flow, but be simple enough to teach my grandchildren. I see myself standing by all those dusty wells in the desert, filling my portfolio buckets time after time, and stacking my “glorious greenbacks” all the way to the bank.

  2. Arturo Medrano Arturo Medrano says:

    Pearls of trading wisdom…… Thanks Tyler!!!

  3. KerenClark KerenClark says:

    I needed to hear this. I get too wrapped up in finding the “perfect” set up.

  4. ThomasFlohr says:

    This is right where I was leaning, OK taking a break. Thanks for the confirmation !

  5. ScottMills ScottMills says:

    Love to read your articles Tyler. Great subject and something i’m currently focussing on. Ironically XOP is one of the stocks i picked to sell premium against every month for the coming year. Wonder where i got that idea from. Great themed articles, keep em comin!
    Thanks again

  6. KEITHGIUNTA KEITHGIUNTA says:

    It’s great to be reminded. Thanks.

  7. KEITHSEILER says:

    Great article Tyler. You crack me up with the amount of enthusiasm you put into it!

  8. Sundar says:

    Tyler, your articles invariably make us stop to think and help us uncover our follies. Thanks again for the contribution.

  9. Bill Trimborn Bill Trimborn says:

    I LOVE it, Tyler! Thanks!

  10. Adam Barr Adam Barr says:

    Great article Tyler! I love your writing style.

  11. RichardBlanchard says:

    Very good article, Tyler. I like the delta you take on this theta subject….and with such vega! 8^) I plan to take this approach in 2017 as well.

    1. TylerCraig TylerCraig says:

      I see what you did there. Well played:)

  12. Nicholas Kingsbury says:

    Good work.

  13. ROBERTBREWER says:

    Tyler .. you have made a believer to completely adopt this gameplan .. Thanks

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