So I was looking at the Russell 2000 options chain today, looking to open a Correct Condor.
I like opening positions on down days because the volatility on down days is higher. Higher volatility means higher options prices, and that means more profits in my pocket faster.
So imagine my surprise that when I was looking at the Jan 14 options and could not find a suitably OTM call spread! The first option that was acceptable according to my trading guidelines was the 1190 call. That would mean, of course, that I would need a 1220 call to cover and complete the call side of the condor.
But the highest option on the market right now is 1200!
So I couldn’t open my position and still be following my rules.
So I did what all good traders do in this situation: I waited.
Here’s one of the key characteristics that separates a professional trader from an amateur trader, regardless of whose money is being traded. A professional will wait for the conditions to be right before entering a trade. An amateur has an emotional need to trade all the time.
This one difference can explain the majority of the reasons why professionals make money and amateurs lose money.
Let’s face facts. All trading is based on probability. Knowing the history of the markets, we can predict with a fair degree of accuracy what will happen in a given circumstance. But that prediction has a confidence interval. In order to be a trader who makes money consistently, you need to be entering trades that have a very wide confidence interval.
In other words, you need to put the odds in your favor.
With options, we can create a position that slices and dices the market any which way we want. So there is no reason to ever be entering a trade that has a low probability of success. Most options trading platforms even have probability calculators built in so that you can view how certain your trade is.
So I will continue to wait until the market gives me the opportunity that I want. I will follow my rules that have been tested against the market and work for me and my trading style.
Are you doing the same?