I just wanted to walk you through how you actually check, on an individual basis, all of your positions. Just check up on them, make sure that you’re in that good center position, where you’re not getting hurt. You want to make sure that your breakevens are on either side.
Now, unless the market moves 1,000 points today, we don’t have to look at it again. We look at it once, and we go about our business. It takes about 10 or 15 minutes to run through each one of your positions, depending on how many you have. You might have 3 to 7 positions, but when you’re just starting out, I would recommend 3 positions, at the most.
Then you can start adding. As you get used to dealing with individual positions, and you get used to taking a look at them on a portfolio-weighted basis, then maybe you can add additional positions. You can go with 5, 6, or 7 positions, in a diversified portfolio of income trades.
You check them out once a day. Take a look at them. See if they’re doing well. Walk away. Go have fun. Go play with your kids. If you have your day job, go to work. You don’t have to worry about your positions. It’s really a nice way to trade. You check up on these once, and you’re good to go, until the next day.
That’s it for today, guys. That’s how you run through positions. Check and see if any adjustments are necessary. Always go back to and review the Adjustments CD, because there is a lot of great information on what you want to do, when you do need to do an adjustment.
For example, we’re going to be doing an adjustment today, on this IWM position. It ran up against us, quite strong. We can even adjust this to the point where we can add an additional bit of profit to the position.
Even on my regular account, where I’m doing much larger positions than this, like 10 to 30 contracts, I don’t like to add all of my contracts on at one point. I’ll add maybe 5, and then maybe another 5 another day, and so on, until I have built up a position where I am really adjusting for price, over the series of a week or so, between that 35 and 40 days to expiration. You can have anywhere between 30 to 40 days to expiration. Then I would build a nice portfolio base there.
Of course, adjustments are necessary. If you do add your positions 30 to 40 days before expiration, that gives you time to adjust. That is nice. You don’t want to put on positions like – if you have 14 days before expiration, and you’re in a position where the prices are running against you, where do you adjust, at that point?
It’s going to be much more difficult to adjust at that point. You’re going to have greater Theta decay, but you’re also going to have greater price risk, because if you’re selling calls, or you’re doing vertical calls, if you’re selling call spreads or put spreads – you’re not going to have the prices that you need, in order to gain a large profitable position in that over time.
This is the way that I manage these trades. I run through them one by one, and then I take a look at them on a portfolio-weighted basis. To me, this is actually a very calm, very confident way to trade. If one of these positions gets out of line, I know exactly what to do. I know exactly what to do to fix it.
If this one is out of line, the only thing I am going to do, is lay a calendar on top of the calendar I already have. It actually increased my expiration profitability. You can see that the center of this tent is at $405. If I took these off, the center of this tent would only be $257.
Not only did I adjust, to bring these back into line, so that I am right at the center of my tent – but I also increased my profitability by another $150, or so.
There are lots of things that you can do. There’s absolutely no reason for you to get hurt really badly in any of these positions while you’re trading. That’s why I always say, “Trade with confidence.”