{"id":10068,"date":"2011-02-25T11:42:34","date_gmt":"2011-02-25T16:42:34","guid":{"rendered":"http:\/\/www.smbtraining.com\/blog\/?p=10068"},"modified":"2021-05-06T15:16:28","modified_gmt":"2021-05-06T19:16:28","slug":"sometimes-nothings-a-real-cool-hand","status":"publish","type":"post","link":"https:\/\/www.smbtraining.com\/blog\/sometimes-nothings-a-real-cool-hand","title":{"rendered":"Sometimes Nothing’s A Real Cool Hand"},"content":{"rendered":"

For those of you who are movie buffs like me,\u00a0 you’ll know that one of the truly greatest films of all time is Cool Hand Luke,\u00a0 the titlecharacter having been played by Paul Newman in one of his\u00a0 finest\u00a0 roles.\u00a0 If you haven’t seen it, see it. What a great flick.<\/p>\n

The Paul Newman\u00a0 character is a prisoner on a chain gang in the South. After a hard day of road work in the grueling hot sun, the prisoners would congregate to play poker after dinner. Luke was an excellent player, renowned for his bluffing skills. In the scene that explains the movie’s title,\u00a0 he was able to bluff his way into collecting the pot with literally nothing in his hand.\u00a0 As the rest of the prisoner’s laughed in amazement as his cards were turned up,\u00a0 he explained, “Sometimes nothing’s a real cool hand.” Here’s a link to the scene:<\/p>\n

http:\/\/www.youtube.com\/watch?v=xVXKOb5EE7Y<\/a><\/p>\n

Every great options\u00a0 trader has, consciously or subconsciously, developed\u00a0 a\u00a0 “playbook”\u00a0 of trades that fits his or her personal trading style and risk tolerance level and\u00a0 each of those trades is employed\u00a0 as the market conditions become ideal for that particular trade.\u00a0 Once the strategy is executed, these traders then practice great patience and discipline during the course of the trade, trusting from experience that the trade will be successful most of the time if\u00a0 the\u00a0 trade\u00a0 plan is followed<\/p>\n

All newer options traders have trouble with trade discipline in strong market conditions–either rallies or sell-offs. They react viscerally to scary looking risk graphs and will often, in panic, throw on an adjustment which takes\u00a0 alot of risk out of the trade\u00a0 during that particular trading day \u00a0 but in the long run kills the income potential of the trade.<\/p>\n

A classic mistake for example is the tendency\u00a0 to panic in a sell-off, when implied volatility has gone through the roof as it did earlier this week.\u00a0 Many newer traders will panic, and buy put options to cut downside risk on the trade.\u00a0 That will make you feel better for the moment and cut your downside risk if a further downside move occurs. However,\u00a0 once the market settles down and reverses, that put price\u00a0 will not only lose value as a result of market direction, but will take a beating as a result of the drop in the implied volatility embedded in its market price.\u00a0\u00a0 The loss on that put purchased in fear, can ruin a solid trade that would have been a big winner. I’ve seen it happen hundreds of times.<\/p>\n

Instead, follow the old aphorism: “plan the trade and then trade the plan”.\u00a0 If your plan is well designed, the plan\u00a0 itself will contain a protocol for dealing with a big market move with an adjustment that will NOT kill the trade in the longer term. And there are lots of ways to cut risk while preserving your opportunity to make good money on an options income\u00a0 trade. Those methods must be embedded in your plan and they must be employed at the right time. Don’t get ahead of the market to make yourself\u00a0 feel\u00a0 better.\u00a0 That’s almost always a mistake.<\/p>\n

So if your plan calls for you to do nothing on a “scary” day in the market, then the best thing to do is just that:\u00a0 nothing<\/strong>.\u00a0 Depending on your personality type,\u00a0 that can be one of the hardest things that you have ever done–to restrain yourself from responding to your natural instinct to control risk in the short term, when doing so will hurt you badly in the long run.<\/p>\n

So the\u00a0 next time you are tempted to deviate from your trading plan on a scary day in the market, just think of Cool Hand\u00a0 Luke and remember:\u00a0 sometimes nothing’s a real cool hand.<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

For those of you who are movie buffs like me,\u00a0 you’ll know that one of the truly greatest films of all time is Cool Hand Luke,\u00a0 the titlecharacter having been played by Paul Newman in one of his\u00a0 finest\u00a0 roles.\u00a0 If you haven’t seen it, see it. What a great flick. The Paul Newman\u00a0 character is a prisoner on a … Read More<\/a><\/p>\n","protected":false},"author":741,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1,1402,1584],"tags":[1629,1259,148],"class_list":["post-10068","post","type-post","status-publish","format-standard","hentry","category-general-comments-2","category-options-education","category-seth-freudbergs-blogs","tag-income-options-strategies","tag-options-trading","tag-trading-plans","no-post-thumbnail"],"yoast_head":"\nSometimes Nothing's A Real Cool Hand | SMB Training<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.smbtraining.com\/blog\/sometimes-nothings-a-real-cool-hand\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Sometimes Nothing's A Real Cool Hand | SMB Training\" \/>\n<meta property=\"og:description\" content=\"For those of you who are movie buffs like me,\u00a0 you’ll know that one of the truly greatest films of all time is Cool Hand Luke,\u00a0 the titlecharacter having been played by Paul Newman in one of his\u00a0 finest\u00a0 roles.\u00a0 If you haven’t seen it, see it. 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