Copycat Trading

What
can I blog about when sitting in an airplane? 
I feel isolated being unable to connect to the internet.

Yesterday
I posted a live trade for the first time, based on the urging of one
reader.  My reasons for refusing to do
that earlier are still valid, and I feel more strongly than ever that posting a
trade is a poor idea.

I
certainly want rookies to learn to trade options and have the courage to
open a paper trading account.  I also
want to encourage those of you who have experience trading options to read my
offerings and if you find them educational and if you are in agreement with my
general philosophy and outlook, to begin using one of my six recommended
strategies

But
too many rookies see a ‘live trade’ posted by someone online and automatically
assume that the specific trade is suitable for them.  They somehow get the idea that the poster is
some kind of trading genius, never has a losing trade, and that the posted
trade must be a sure winner.  Those are bad assumptions.


And there’s
more to it.  Suppose my comfort
zone is violated, and I decide to adjust the position, after posting the original trade.   I don’t want the obligation to
remember to post every adjustment and eventually mention when the trade is closed
(although I will try to remember to do both). 
But more importantly, what happens if the trade violates your comfort
zone?  Will you refuse to adjust because
I didn’t?  That would be a poor
idea.  And would you plan on asking my
opinion?  That’s even worse.  How can I know what your investment
objectives are and where your comfort zone lies?  I never offer advice on a specific
trade.  My goal is to TEACH you what you
need to know to enhance your chances of becoming a successful option trader.

That’s why I hesitate to post trades. This specific
iron condor was suitable for my investment portfolio for a variety of
reasons.  It is not suitable for
everyone, and I specifically mentioned that it was NOT a recommendation.  Yet, one reader decided he was going to
‘follow’ the trade every day – until it expires about 12 weeks later.

There
is nothing to be learned from that exercise. 
The way to learn anything is to decide for yourself if buying
this iron condor is a good idea for you. 
Perhaps the idea of trading 12 weeks into the future is unappalling to you
– and believe me, many feel that way. 
Perhaps the strikes were inappropriate and you would only trade a November position if you received a much larger premium.  Or, you may feel the options were too close to the index price and would only
be comfortable with options that were several strikes further OTM.  The point is that you should NEVER open a
position just because I, or anyone else, does so. 

The
purpose of these writings is to encourage you to learn about options and to understand how options work, allowing you to decide for yourselves if a specific trade is
a good idea for you.

75

11 Responses to Copycat Trading

  1. slait73 08/30/2008 at 10:03 AM #

    Congratulations from Spain (yes, it´s a litle country in Europe)
    Congratulations for your web, it has been very useful to me. But one of the most usefuls days has been yesterday when you pots the trade, ´cause I realiced where you fixed the strikes, and that was clearifiting.
    Don´t be worried abaut what you did, it was a good idea.
    Un abrazo, Antonyo.

  2. Mark 08/30/2008 at 10:27 AM #

    Thanks Antonyo,
    I know where Spain is, but thanks for the reminder.
    Remember hat I fixed the strikes to suit my personal needs. Choose yours to suit your comfort zone.
    Best regards,
    Mark

  3. Roland 08/30/2008 at 12:44 PM #

    Mark,
    Can you recommend any books that focus on what is required to be a successful trader? I don’t mean books on strategies, but rather what is involved in planning, executing and managing trades.

  4. Roland 08/30/2008 at 1:11 PM #

    I think it would be good to elaborate on my previous comment. I realize that you are teaching us how to trade. I am learning a lot from your blog and I appreciate that.
    I would also like to find a book or other source of information where I can determine what all the components of successful trading are.
    Right now I have no idea of what I still need to learn in order to successfully trade.

  5. JB 08/31/2008 at 9:53 PM #

    Hi Mark,
    Your concern for the welfare of your fellow traders and students is commendable. Your teachings are solid – as many here, including myself, have commented.
    I adhere to your recommendation not to mimic your trade just because you posted it. However, I like the idea of following the live trade because it is real and we are living in the real-time environment and accordingly experience it. This added dimension strengthens the learning process. That’s why I would like to see you keep and post a daily running log of your thoughts on the position. Even if a daily post is only a quick note saying you have little reason to contemplate the position as the market and position remain with your comfort zone, at least for the day. Obviously, the more instructional posts will be when the market and position are causing you to consider an action.
    All the best.
    JB
    PS.. Please keep posting.

  6. Mark 09/01/2008 at 2:15 PM #

    Roland,
    “books that focus on what is required to be a successful trader”
    In my opinion, the psychological approach is crucial. Master that, and I believe success is yours.
    If you learn to avoid the habits of traders who are destined to fail and develop the ability to handle all types of situations – including winning and losing streaks, you will do well.
    Along those lines, I like the writings of Dr. Brett Steenbarger.
    Take a look at his blog: http://www.traderfeed.blogspot.com/
    His two – very well received books – are listed and he’s written a soon to be published third book. He has a great handle on the problems facing traders.
    Mark

  7. Mark 09/01/2008 at 2:35 PM #

    JB,
    “That’s why I would like to see you keep and post a daily running log of your thoughts on the position.”
    I don’t see how I can do this. It takes too much time and these positions don’t require constant monitoring. As time passes, or as the market moves, more frequent commentary is desirable – and I’ll provide it. As long as things are working well and the short strike prices are not threatened, there’s nothing for me to say.
    I do appreciate what you are requesting and I’ll try to keep track of this trade. But remember this: The position is very small and is a minor part of my iron condor portfolio. Thus, It’s not easy for me to always pay attention to this small position. But, for the sake of this blog, I’ll do the best I can.
    Some spreads work perfectly. That means open them, watch them, and eventually take your profit.
    Others are much more difficult and run into trouble quickly. I’ll pay attention to this position, as needed. And rather than concentrate on this single position, It may be better to post other trades. And then I can periodically (weekly?) post commentary on each open trade – or more often when needed.
    This is a relatively new blog and I appreciate your request and will try to satisfy readers.
    Mark

  8. Roland 09/01/2008 at 4:43 PM #

    Mark,
    I have Brett’s second book. He talks about the importance of having feedback loops to improve one’s performance.
    How does someone doing market neutral trading determine which aspects of his trading need improving?

  9. JB 09/01/2008 at 7:18 PM #

    Hi Mark,
    (follow-up to your post of 9/08 2:53pm)
    Any of your thoughts you care to share in regards to the position will be appreciated. Posting other trades is helpful also. As much commentary as you have time for is helpful.
    Could you elaborate about the “iron condor portfolio”? Do you attempt remove specific risk across underlyings? Expiration dates? Any other variable(s)?

  10. Mark 09/02/2008 at 12:42 AM #

    “How does someone doing market neutral trading determine which aspects of his trading need improving?”
    Reply on Sep 3, 2008 as a separate blog entry.

  11. Mark 09/02/2008 at 12:47 AM #

    JB,
    I will post thoughts on the position. Weekly or more frequently, as needed.
    My iron condor portfolio is atypical.
    1) I have only a single underlying – RUT. That’s the Russell 2000 Index.
    2) I believe trading an index eliminates substantial risk associated with trading individual stocks.
    3) I use several different strike prices per expiration month – if market moves allow me to open such positions.
    4) I carry positions in 3 or 4 different expiration months simultaneously.
    Any other idea you have for risk reduction can be used. Risk management is the name of the game.
    Mark