{"id":27025,"date":"2013-05-10T11:02:06","date_gmt":"2013-05-10T15:02:06","guid":{"rendered":"http:\/\/www.smbtraining.com\/blog\/?p=27025"},"modified":"2023-05-23T16:06:43","modified_gmt":"2023-05-23T20:06:43","slug":"trades-getting-out-of-hand","status":"publish","type":"post","link":"https:\/\/www.smbtraining.com\/blog\/trades-getting-out-of-hand","title":{"rendered":"Trades Getting Out of Hand?"},"content":{"rendered":"

Ever start out simple, with just one or two trades, and then end up with an entire mess of options? \u00a0Congratulations! \u00a0You’re now trading a “position”. \u00a0Perhaps you’ve heard the term but aren’t sure what it means. \u00a0You’re trading a “position” when you’ve gone beyond using just one strategy.<\/p>\n

Trading a position is typically going to be much different than managing a single strategy. \u00a0For instance, with a single strategy, the profit or loss of the trade may trigger an exit from the trade.<\/p>\n

Here’s an example of this: \u00a0you buy the June 50 call for $1.00, and you look to cut losses at 50% (if the call drops to $0.50), or you sell the call at a 100% profit (the calls moves to $2.00). \u00a0In this case, the greeks may give you an indication of the change in value of the trade, but it’s the price of the option itself that is triggering the exit order.<\/p>\n

If you compare that to a position with multiple options, the value of any one (or even more) of the options isn’t typically going to be the reason that prompts you to trade. \u00a0The profit\/loss of the position as a whole might trigger an adjustment or closing trade. \u00a0But here, the greeks become particularly important with a position.<\/p>\n

Delta and gamma are at the heart of gamma scalping a position. \u00a0Theta and vega considerations might prompt a rebalancing of the position. \u00a0And understanding the\u00a0change<\/em><\/strong>\u00a0in the greeks both over time, and with stock movement, really separates position management from a single strategy.<\/p>\n

If you take the example of a long call spread, this trade will never attain any short deltas, except perhaps in the case of assignment on the short call. \u00a0Depending on the makeup of a position, deltas can go from long to short and back to long again depending on where the stock goes.<\/p>\n

While handling a position certainly differs from single strategy trading, it’s not quite as difficult as one might think. \u00a0Take a look at the following position. \u00a0I traded this position on the SPY’s many years ago, and while closing down the risk heading into expiration, I realized I was sitting on gold mine of material for a\u00a0class on position management.<\/p>\n

With approximately 2000 options across nine strikes, inevitably the first question a student raises in the class is “How did you get into all those trades?”. \u00a0The answer is simple: \u00a0“The same way YOU do. \u00a0At times I was bullish; other times bearish; sometimes neutral.”<\/p>\n

The real question isn’t how the trade was opened; it’s “what are you going to do now?”. \u00a0Think of it this way: \u00a0once you’re up in an airplane, how you got there really isn’t the issue. \u00a0It’s how you’re going to land.<\/p>\n

So, after considering the effect of the dividend, the expected range of the stock, and the greeks, I placed six very easy trades. \u00a0Four ‘buy to close single option’ orders, one ‘buy to open single order’, and one stock order. \u00a0That’s it. \u00a0Don’t think that advanced trades need to be used. \u00a0It’s more about an\u00a0advanced understanding\u00a0of using the simple things.<\/p>\n

The effect of these six simple trades was three-fold:<\/p>\n

    \n
  1. Neutralized the risk and locked in the profit<\/li>\n
  2. Accomplished this with fewer commissions<\/li>\n
  3. Added free options with synthetics<\/li>\n<\/ol>\n

    Granted, the likelihood of the free options paying off heading into expiration is quite slim, but if someone hands you free lottery tickets, you take them. \u00a0For position trading, sometimes less can be a lot more, right?<\/p>\n

    Trade safe!<\/p>\n

    Greg Loehr<\/p>\n

    I have no relevant positions.<\/p>\n

    Disclaimer: Loehr Consulting, LLC (“Company”), doing business as Options Buzz, is not an investment advisory service, nor a registered investment advisor or broker-dealer and does not purport to tell or suggest which securities customers should buy or sell for themselves. \u00a0Before placing any trade you should consult with a licensed broker or registered investment advisor as well as read\u00a0The Characteristics and Risks of Standardized Options<\/a>. \u00a0Please visit\u00a0www.OptionsBuzz.com\u00a0<\/a>for the complete disclaimer and terms of use.<\/p>\n","protected":false},"excerpt":{"rendered":"

    Ever start out simple, with just one or two trades, and then end up with an entire mess of options? \u00a0Congratulations! \u00a0You’re now trading a “position”. \u00a0Perhaps you’ve heard the term but aren’t sure what it means. \u00a0You’re trading a “position” when you’ve gone beyond using just one strategy. Trading a position is typically going to be much different than … Read More<\/a><\/p>\n","protected":false},"author":904,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1,1532,1402,2063],"tags":[2999,4683,188,170,433],"class_list":["post-27025","post","type-post","status-publish","format-standard","hentry","category-general-comments-2","category-guest-blog","category-options-education","category-smb-options-2","tag-greeks","tag-options","tag-risk","tag-spy","tag-trades","no-post-thumbnail"],"yoast_head":"\nTrades Getting Out of 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\/trades-getting-out-of-hand\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Trades Getting Out of Hand? | SMB Training\" \/>\n<meta property=\"og:description\" content=\"Ever start out simple, with just one or two trades, and then end up with an entire mess of options? \u00a0Congratulations! \u00a0You’re now trading a “position”. \u00a0Perhaps you’ve heard the term but aren’t sure what it means. \u00a0You’re trading a “position” when you’ve gone beyond using just one strategy. Trading a position is typically going to be much different than ... Read More\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.smbtraining.com\/blog\/trades-getting-out-of-hand\" \/>\n<meta property=\"og:site_name\" content=\"SMB Training Blog\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/smbcap\/\" \/>\n<meta property=\"article:published_time\" content=\"2013-05-10T15:02:06+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2023-05-23T20:06:43+00:00\" \/>\n<meta name=\"author\" content=\"Greg Loehr\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:creator\" content=\"@smbcapital\" \/>\n<meta name=\"twitter:site\" content=\"@smbcapital\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Greg Loehr\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"3 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\/\/www.smbtraining.com\/blog\/trades-getting-out-of-hand#article\",\"isPartOf\":{\"@id\":\"https:\/\/www.smbtraining.com\/blog\/trades-getting-out-of-hand\"},\"author\":{\"name\":\"Greg Loehr\",\"@id\":\"https:\/\/www.smbtraining.com\/blog\/#\/schema\/person\/eca1238be72d9e66123c20153cbd2158\"},\"headline\":\"Trades Getting Out of Hand?\",\"datePublished\":\"2013-05-10T15:02:06+00:00\",\"dateModified\":\"2023-05-23T20:06:43+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\/\/www.smbtraining.com\/blog\/trades-getting-out-of-hand\"},\"wordCount\":694,\"commentCount\":0,\"publisher\":{\"@id\":\"https:\/\/www.smbtraining.com\/blog\/#organization\"},\"keywords\":[\"greeks\",\"options\",\"risk\",\"SPY\",\"trades\"],\"articleSection\":[\"General Comments\",\"Guest Blog\",\"Options Education\",\"SMB Options\"],\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"CommentAction\",\"name\":\"Comment\",\"target\":[\"https:\/\/www.smbtraining.com\/blog\/trades-getting-out-of-hand#respond\"]}]},{\"@type\":\"WebPage\",\"@id\":\"https:\/\/www.smbtraining.com\/blog\/trades-getting-out-of-hand\",\"url\":\"https:\/\/www.smbtraining.com\/blog\/trades-getting-out-of-hand\",\"name\":\"Trades Getting Out of Hand? | SMB Training\",\"isPartOf\":{\"@id\":\"https:\/\/www.smbtraining.com\/blog\/#website\"},\"datePublished\":\"2013-05-10T15:02:06+00:00\",\"dateModified\":\"2023-05-23T20:06:43+00:00\",\"breadcrumb\":{\"@id\":\"https:\/\/www.smbtraining.com\/blog\/trades-getting-out-of-hand#breadcrumb\"},\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"ReadAction\",\"target\":[\"https:\/\/www.smbtraining.com\/blog\/trades-getting-out-of-hand\"]}]},{\"@type\":\"BreadcrumbList\",\"@id\":\"https:\/\/www.smbtraining.com\/blog\/trades-getting-out-of-hand#breadcrumb\",\"itemListElement\":[{\"@type\":\"ListItem\",\"position\":1,\"name\":\"Home\",\"item\":\"https:\/\/www.smbtraining.com\/blog\"},{\"@type\":\"ListItem\",\"position\":2,\"name\":\"Trades Getting Out of Hand?\"}]},{\"@type\":\"WebSite\",\"@id\":\"https:\/\/www.smbtraining.com\/blog\/#website\",\"url\":\"https:\/\/www.smbtraining.com\/blog\/\",\"name\":\"SMB Training Blog\",\"description\":\"Lessons from the trading desk\",\"publisher\":{\"@id\":\"https:\/\/www.smbtraining.com\/blog\/#organization\"},\"potentialAction\":[{\"@type\":\"SearchAction\",\"target\":{\"@type\":\"EntryPoint\",\"urlTemplate\":\"https:\/\/www.smbtraining.com\/blog\/?s={search_term_string}\"},\"query-input\":{\"@type\":\"PropertyValueSpecification\",\"valueRequired\":true,\"valueName\":\"search_term_string\"}}],\"inLanguage\":\"en-US\"},{\"@type\":\"Organization\",\"@id\":\"https:\/\/www.smbtraining.com\/blog\/#organization\",\"name\":\"SMB Training\",\"url\":\"https:\/\/www.smbtraining.com\/blog\/\",\"logo\":{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\/\/www.smbtraining.com\/blog\/#\/schema\/logo\/image\/\",\"url\":\"https:\/\/www.smbtraining.com\/blog\/wp-content\/uploads\/2022\/07\/Logo-e1658419502954.png\",\"contentUrl\":\"https:\/\/www.smbtraining.com\/blog\/wp-content\/uploads\/2022\/07\/Logo-e1658419502954.png\",\"width\":230,\"height\":81,\"caption\":\"SMB Training\"},\"image\":{\"@id\":\"https:\/\/www.smbtraining.com\/blog\/#\/schema\/logo\/image\/\"},\"sameAs\":[\"https:\/\/www.facebook.com\/smbcap\/\",\"https:\/\/x.com\/smbcapital\",\"https:\/\/www.youtube.com\/user\/smbcapital\"]},{\"@type\":\"Person\",\"@id\":\"https:\/\/www.smbtraining.com\/blog\/#\/schema\/person\/eca1238be72d9e66123c20153cbd2158\",\"name\":\"Greg Loehr\",\"description\":\"Greg Loehr has been active in the options trading industry since 1990 when he first began working for the preeminent proprietary options trading firm Susquehanna Investment Group. Loehr began his career on the floor of the Chicago Mercantile Exchange in Susquehanna\u2019s FX futures and options operation as part of a team supporting five currency option traders, as well as the firm\u2019s traders on the Philadelphia Stock Exchange and the London spot currency trading desk. His professional training came in the form of game theory, quantitative option theory and pricing, and position risk management, and he spent time training with the firm\u2019s founding partners before going on to trade the firm\u2019s capital for the next three years as an equity options market maker on the floor of the Chicago Board Options Exchange. Loehr co-founded Third Millennium Trading, LLC with a Susquehanna colleague after leaving that firm in 1995. He continued to trade on the floor of the CBOE and co-managed the firm's trading desk. He also was responsible for training the firm\u2019s market makers to trade the company\u2019s capital. After nine years as a member of the CBOE, Loehr left the trading floor. In 2004, he discovered his passion for sharing his knowledge with others, teaching options strategy, and has been teaching online courses and weekend seminars ever since. Loehr\u2019s approach to options education breaks down \u201ctheory to tactics\u201d as he details the core skills used by every professional on Wall Street into useable and practical details we can all follow. Loehr has taught thousands of students through webinars and in-person seminars throughout the US and around the globe including Ireland, England, Dubai, Canada and Australia. Loehr earned his J.D. from The John Marshall Law School in Chicago, IL; and he holds the RG146 license from the Australian Securities Investment Commission.\",\"url\":\"https:\/\/www.smbtraining.com\/blog\/author\/gloehrroadrunner-com\"}]}<\/script>\n<!-- \/ Yoast SEO plugin. -->","yoast_head_json":{"title":"Trades Getting Out of Hand? | SMB Training","robots":{"index":"index","follow":"follow","max-snippet":"max-snippet:-1","max-image-preview":"max-image-preview:large","max-video-preview":"max-video-preview:-1"},"canonical":"https:\/\/www.smbtraining.com\/blog\/trades-getting-out-of-hand","og_locale":"en_US","og_type":"article","og_title":"Trades Getting Out of Hand? | SMB Training","og_description":"Ever start out simple, with just one or two trades, and then end up with an entire mess of options? \u00a0Congratulations! \u00a0You’re now trading a “position”. \u00a0Perhaps you’ve heard the term but aren’t sure what it means. \u00a0You’re trading a “position” when you’ve gone beyond using just one strategy. 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Loehr began his career on the floor of the Chicago Mercantile Exchange in Susquehanna\u2019s FX futures and options operation as part of a team supporting five currency option traders, as well as the firm\u2019s traders on the Philadelphia Stock Exchange and the London spot currency trading desk. His professional training came in the form of game theory, quantitative option theory and pricing, and position risk management, and he spent time training with the firm\u2019s founding partners before going on to trade the firm\u2019s capital for the next three years as an equity options market maker on the floor of the Chicago Board Options Exchange. Loehr co-founded Third Millennium Trading, LLC with a Susquehanna colleague after leaving that firm in 1995. He continued to trade on the floor of the CBOE and co-managed the firm's trading desk. He also was responsible for training the firm\u2019s market makers to trade the company\u2019s capital. After nine years as a member of the CBOE, Loehr left the trading floor. In 2004, he discovered his passion for sharing his knowledge with others, teaching options strategy, and has been teaching online courses and weekend seminars ever since. Loehr\u2019s approach to options education breaks down \u201ctheory to tactics\u201d as he details the core skills used by every professional on Wall Street into useable and practical details we can all follow. Loehr has taught thousands of students through webinars and in-person seminars throughout the US and around the globe including Ireland, England, Dubai, Canada and Australia. 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