Options Strategy

I put a couple of options in play a few days ago. Two GS calls and I didn't have any downside protection. I also had ignored the larger market sentiment. The DOW trading at an all time high and the financial sector not performing well.

After a two day drop that caused me to buy GS call, I was down again. Then the selloff came, the market was down almost 200 points. My positions were way under water. I had to act. After reading, the options book. I learned about a of couple strategies; straddles and strangles. The strategies are to be used in cases where direction of the stock doesn't matter as long as there is pronounced direction; a volatility trade. Straddles emphasizes ATM options where strangles emphasizes OTM options. One buys and equal number of call and puts to execute and the preferred timeframe is 3 months. A couple of other rules are:

1. EXIT the entire trade no later than one month left to expiration.
2. Use support/resistance level and Fibonacci retracements to establish entry points
3. Look for news/event to happen
4. Find stocks with Implied Volatility is <>

Using this info, I placed 3 OTM puts on my GS position and purchased another OTM call on my established position. Now, I'm balanced on both sides. Had I utilized this strategy initially, I would be positive on puts and the call would be worth less. Fundamental/Technical anaylsis played a role in the execution. I used the charts to determine the next major support level and reconfirmed it with a Fibonacci retracement of about 80%. The PE for the company was now less that 10 for the market leader in the Investment Banking Sector.

Once thing I noticed after executing the above is that I was more relieved. I have CEO OTM call that I don't have this strategy employed. I need to fixed that.


I having a real hard time setting stop losses. Each time I don't, as in the above case, I lose money and if the losses are great, then I usually sell. One thing that I know is once I do finally sell a position, my mind is freed and the weight is removed. As I think about that I would be better served if I limit my losses and clear my mind as soon as possible with a losing position; hence the stop loss.

I probably need the reread that paragraph everyday until I learn to do it without fail. Use Stop Losses. Period!!