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Today, it’s down almost a full point, here. It’s completely reversed. As I mentioned in previous videos, we keep an eye on the VIX, just to get an idea where the short-term trend of the market is going to be. Right now, it looks like we’re going to be in this range between 22 and 17.
If the VIX does lose some momentum, we could drop down into the 18 level, or the 17 level. Going back, it’s right about the level that it hit back in November. We may be in this range here again. From then, who knows? I think that we’re going to trade in this range for a while, which is very good for our position.
If we trade in that range, we’re just going to be sliding up and down this scale here. This is great for our position. We will just end up making more money that way. When prices actually do nothing – the closer we get to expiration, our options will increase in Theta, and lose their time value altogether. We’ll just keep collecting the money, which is great.
I think we’re in really good shape, here. There’s no news out. There is nothing that’s really going to be driving the market, at this point, that is going to affect our prices. I don’t think so, one way or another, unless we get some really negative news. That’s the only risk, at this point, in our positions.
If we get some really negative news, and we start trading down significantly, then we are going to have to make some adjustments. There are also some additional potential profits there, which would be very nice.
Either way, we look really good. I don’t see any reason to adjust anything. Again, this is the daily routine. Take a look at your position statement. Take a look at the VIX. Analyze your profit picture. And then you’re done for the day. How easy is this? It’s not rocket science. I think it’s a simpler and less stressful way to trade.
If you had other positions on, if you have done bull call spreads, or put spreads, or any other calendar, if you’re doing this one-dimensional trading, where you’re just putting a position on and leaving it there. You’re not creating a portfolio, in which you’re creating many different positions, over on top of other positions, and creating this type of multi-dimensional trading. One-dimensional trading is stressful. You have picked the market direction, basically. You have said, “Okay, I think it’s going to go up,” or “I think the market is going to go down.”
It didn’t do either one, or it went the wrong way. Now you are in a very stressful position, and you are probably losing a great deal of money. That is never fun. What we try to do is eliminate that directional risk in the market, by taking these nondirectional trades. These are not nondirectional trades that we just put on and forget about. These are nondirectional trades that are fluid.
In other words, if the market goes against us, there are things that we do to adjust our position. We take a look at our numbers. We see that our numbers are not looking good. We adjust our position, so that we take advantage of the opportunity that the market is presenting us. If it does trade down, too low or too high, it presents additional opportunities.
This is where the allocation of capital comes in, and how critical it is. You can’t use all of your capital on your initial positions. You need capitals in reserve, in order to make adjustments. When you make adjustments, it presents additional opportunities to collect more money from the market.
Do not go out there and trade. There is something called concentration and risk, and I’m going to do a separate video, just on that. Basically, concentration and risk is, when you put on one-dimensional trades… If you’re selling the 142, and you’re buying the 141 puts, you’re collecting a little bit of credit on those. You’re selling a put vertical spread. Now, you’ve concentrated all of your risk, right around the 142 position. If it moves up or down a little bit against you – if it moves up, that’s great, but if it moves down, against you, you’re really going to start hurting. What do you do?
The art of adjustments is absolutely critical, to maintain profitability in these positions. That is something that very few people actually teach you how to do. Review the videos on our adjustments. That’s what you need to do, in order to remain profitable and fluid in these markets.
If you ran any kind of business – if it’s a deli shop, or a gift shop, or a car wash – you’re going to go into your business every single day, and say, “What did we make? How’s the traffic? What is customer response? How many sales did we make? What are our expenses today? What is our profit and loss?” Basically, you’re doing the same thing. You don’t want to put these trades up and forget about them. You want to manage them on a daily basis.
Today, it’s easy to do that, because the Internet is almost everywhere. If you have a laptop, you can monitor these from your laptop. With the Think or Swim platform, you just download the desktop app, and you’re all set to go. You can go anywhere, and do this anywhere. It doesn’t matter.
Now they have these cards that you can stick into your laptop computer, through your wireless phone providers. I know Verizon has one that is a fairly high speed connection now. You just stick it in to your USB port, and you can get a connection anywhere, even if you don’t have wireless. You can’t find a cafe with a wireless connection, or you’re out in the middle of someplace. You can be out far in the country, but any place that you can get a cell phone signal, you should be able to connect to the Internet and check the status of your positions.
This is not the type of business that you want to leave, and go away for two weeks, and never look at it. Even if you’re on vacation, checking it for 10 minutes a day is not going to hurt you. Then you can go out and surf and go swimming, or play golf, or whatever you do.
That’s it for today, guys. This is how we manage by the numbers, and we do our daily reviews. Go out there and trade with confidence.