Friday, September 2, 2011

Option Flow In Action Sept 2nd

I hope everyone had a great week.  There was a LOT of opportunity this week for the active trader.  I have no idea why the talking heads are complaining and making excuses about the market, HFT, PPT, market makers, etc, etc .... obviously they're losing money. But that's another topic.

I wanted to do a quick review of the "layup" trade of the day.  At 2:15 EST I was notified about a large SPY put buyer in the Oct 107's 91k times.  I marked the chart below with a red arrow when I was notified.  Recognizing this was a big trade I also tweeted it. 

You can see on the VIX chart below that the put buys pushed the VIX higher. 

Personally I bot BAC puts and shorted stock just for a quick scalp.  Did I sell my puts at the lows? No.  Did I buy back my stock at the lows? Nope.  I knew my risk and I bot back my stock when my target was hit.  I sold half my puts at my target and scaled out of the rest slowly.  As soon as bids were starting to go away I hit them to not let my winner get away from me.    

Trades like these are lay ups, singles, free throws (enter whatever sports analogy you want).  They aren't home runs.  Remember risk 1 to make 2 is always the minimum ratio to trade.  And as soon as possible move your stop to break even. 

I had a few people thank me for tweeting this.  Sounds like people either shorted the SPY or ES for a quick scalp, sold their longs and bot them lower to improve their cost basis, or just shorted some random name and/ or bot puts and made money.  Fantastic! I'm glad everything worked out...  

There is one trader who I've talked with a couple times before over twitter.  I'll keep him nameless here. He bot GS puts.  When he first told me I congratulated him. But then he told me he didn't sell them.  Now I'm not here to tell anyone how to trade but what I can tell you is that the best traders I know take profits when targets are hit.  He did risk 1 to make 2.  He did hit his target. He did get in pretty early. But he didn't sell.   Maybe GS tanks on Monday and he'll kill it.  But is there really edge in holding front month puts over a 3 day weekend?  The market could do anything next Tuesday.  Even if GS tanks on Monday was it a good trade?  Plus, he is risking 10x what he was originally risking cause there is not stop over the weekend.

Recognizing today's trade was a lay up allowed me to get in and get out quickly.  Even if the GS puts work on Tuesday, in my opinion it isn't a good trade. The discipline to follow one's own plan, risk management, not being greedy, trading with an edge are much more important than profit over the long run. 

You can't control profit; you can only control risk.  

Enjoy the long weekend!

Get at me if you have any questions, comments, concerns. 


  1. where did you learn how to trade? degree? books? trial and error?

  2. I've been very fortunate to have a few great mentors... I've also read a lot of books and gained a bunch of experience in 2008/09

  3. Would you happen to have a reading list that you could share with us? I'd imagine that Guy Cohen's books are on that list... but what else?

    The Bible of Options Strategies
    Options Made Easy

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