I received  an interesting email yesterday from a nice gentleman from Indonesia  (SMB gets lots of inquiries from all over the world) who has expressed an interest in SMB’s  options training course that we will be launching in May. Pete has studied options trading through literature and has experienced  some early success. What I found so interesting about Pete’s email, was the wisdom of his recognition that, while not impossible, it is pretty unlikely that someone can sustain success in options trading (or any other kind of trading for that matter), without the guidance of a mentor who can work the student  through the many different market scenarios that arise. What was great about Pete’s inquiry was that he had experienced success in his options trading, yet was smart enough to realize that his success could possibly be fleeting, and certainly would be made more consistent through engaging in a formal, interactive learning process with an experienced options mentor. (My comments are in italics.)

Pete:

“Hi Seth, just to give you a little bit of my background, I learned options trading  mostly from books. I started utilizing the bull put strategy and I’m currently trading mostly iron condors though I will do diagonal call spreads here and there.

Looking ahead, here’s some of the things I wish to learn:

1) A more consistent result.

I’ve only started trading with real money about 3 months ago. While the return has been excellent so far, I am looking to make my trading  more consistent. Pete, that’s really smart. At SMB we teach that in the long run, the process is much more important than the outcome of any one trade as you are learning any kind of trading discipline. It’s possible to do alot of dangerous and foolish things and make money on any one trade. But in the long run, if you make sound decisions on each trade, the profitability should come and be more consistent.

2) Adjusting your strategy/position based on what happened in the market. I believe entering an option trade is just the beginning of the trade. How you adjust the position based on the market is critical to consistent performance. I could not have said it better myself, Pete. The key to our program is the adjustment strategies that we employ. Anyone can sell an iron condor and pray that the market does not pierce either short strike. But experienced options traders incorporate adjustment techniques into their trading plans that allow the trade to be profitable in many different market scenarios by using the adjustments that we teach.

3) Risk management: Most of the risk management techniques  that I’ve learned are from stock trading. I tried to adapt as much as I could  but wasn’t sure if what I did was right. For example, some books suggest to put a stop loss at 10%  below your entry price. Well, does this really means you should  put a  stop loss when the options position  price drops more than 10% even though the position is still safe & potentially profitable? This is a great question, and the answer depends upon many, many factors. There are many positions in income options trading where the trader can be down 10% or more during the course of the trade, yet make a very fine profit on the trade ultimately due to time decay and volatility changes. Our course will teach you how to think through all of those factors and come to an intelligent conclusion.

4) Trading performance analysis: I keep a trading log/diary but there isn’t much literature about analyzing and keeping an  options trading log. In One Good Trade, Mike said we should judge a trader’s performance by the process and not the result. How to do that here? Our options training course is really ALL about the process. We are going to ask you to keep a trading log as an excellent way of reflecting upon all of the good things you have done on each trade as well as the areas where you need to make improvements.

5) Critique on my weaknesses or blind spots. To make a chess analogy, I feel I know the basic theory on how to play the game but need to know how to win the game consistently. While I may play relatively well  as a casual player, there is only one way to bring my game to the next level; that is to play with a strong player and being mentored by him or her. For options trading, I wish to improve my performance to the next level by being profitable consistently.You have stated very articulately a core belief here at  SMB. All of our educational programs involve your being paired up with an active trader who will work with you hand-in-hand, sharing their personal  growth experiences as a trader during the mentoring process. There is nothing in life that you can adequately learn simply from reading books unfortunately. If only it were that simple.

Does this make sense to you? It seems to me that your one year training program that emphasizes heavily on mentoring (months 3-12) is what I need. I certainly believe that our program will be helpful to you, Pete, if you decide to move forward. Your goals and  our  program design are incredibly in sync with each other, that much I can tell you.

Best of luck  in your options trading, Pete. You have a great attitude and a wise perspective on trading. Only good can come from that.

Seth