My Trading Plan includes a section that documents the specific trading strategies that I am allowed to use. For each of the trading strategies in my plan I describe:
- The type of strategy it is (e.g. short, medium, long term trade, trend following, momentum...)
- The conditions I look for to ENTER the trade
- The conditions I look for to EXIT the trade
- The instruments (indices, stocks, exchange traded funds, etc.) that I will use in the trade
- More confidence to enter a trade when the situation clearly meets my criteria
- More disciplined in entering and exiting a trade based on clearly established rules
- Learn which types of trades work best for me
Short Puts on Blue Chips Strategy
Write options to consistently collect premiums. Only trade on stocks I would like to own in the event the options are exercised.
- Stock price is has NOT gone up for 3 consecutive days
- Earnings announcement is not within 14 days
- I do NOT already own shares in the company
- Write a Put Option (or a Put Spread) that is anywhere from 2 - 6 months until expiry
- Select a Strike Price that is near the recent support level
I will exit the trade under these conditions:
- I can close the position and collect 50% or more of the premium within 1 month of entering the trade
- I can close the position and collect 80% or more of the premium anytime before the week of expiry
- If none of the above conditions occur, I will wait until the option expiry and take assignment of the shares if needed
- Large cap, dividend paying stocks such as PG, KO, JNJ, MCD
Again, the above is just an example of one type of trade I look for. In future posts I will describe the various Trading Strategies included in my plan in more detail. Stay tuned...
Disclaimer: This web site and the information contained in the posts are my personal opinions. I am not a financial advisor. Don't take this as advice on what specific investments you should enter into. Do your own due diligence and make your own decisions!