Options Investing : My Learning Track Update

Saturday Morning 8 July 2017 – Starbucks NYC

This week I am in New York city. As I wake up early morning due to the time zone difference, I love going to the gym and then grap some healthy breakfast at Starbucks. They have those wireless phone chargers outlets in a wooden table. I love it !

My goal this week is to write a reflection on my Options Learning Track. Where am I ? Am I on track to meet my first objective? What did I learn so far?  What are the 3 Key Learnings that I can share with you…

I will write this blog post in a Calendar style format as I am here for work with all day meetings on Saturday and Sunday…indeed. I love being in NYC but there’s ample time for fun. All my days will be filled with business meetings, a conference and business dinners in the evenings. I also try to allocate some time to my options investing learning track..if possible.

My Learning Track

At the end of May 2017, I posted the blog post Why I decide to learn Options Investing ? and I wrote that I will start the 8 week learning track of OptionAlpha.com. At the same time I started with Listen and Learn in my car during all my commuting time to work.

Today we should have finished learning track Week 5 from the “Fast Track” course. Actually I only finished week 2 recently. It’s a lot of information to absorb and I need a mechanism to engrain all the terminology and knowledge in my brains. Otherwise I will simply forget… So I am working on a methodology to write down the key important learnings from each learning week. If this will mean that I need 16 weeks instead of 8 weeks, so be it…I don’t mind.

Listen and Learn in the car. So far I have listened to 60 podcasts…YES ! Six – zero…it’s awesome. Actually when I start the car in the morning and start the podcast, I am always excited on what I will learn now. Sometimes I listen to a podcast twice. I discovered two major advantages to this way of learning :

1. The right mindset. Listening to the podcasts helps me to learn and understand how options traders think and how they make decisions. At the end of each podcast there is also an Optionalpha marketwatch where Kirk reviews a new trade they made. Although I am not familiar with complex option strategies, I already learned what an iron condor and straddle/strangle is by listening to the strike prices setup over and over again. I learn about the reasoning for the trade and how to evaluate the risk reward of the trade.

Time to go to my business meetings…yes…all day work.

Sunday Morning 9 July 2017 – Starbucks NYC

Sunday morning 7 AM…we still wake up early. I am not used to sleep in a very noisy city such as New York city. Fire brigades, police cars, a noisy fridge in the room…many things wake me up at night. I live in a silent village in Belgium. Even using ear plugs doesn’t help. So I went to the gym for more than one hour and then to Starbucks for a healthy breakfast with a cappuccino.

So here I am continuing my learning track update blogpost. There is one more advantage of learning I wanted to touch on when listening to Kirk’s podcasts.

Learning from others. Kirk brings in other options traders who apply different option strategies or financial investors that provide some interesting financial insights about investing. What I learned from listening to the interviews of options traders, is the fact that they often apply different strategies. Some options traders trade weekly options, others only monthly or earnings plays…Another interesting blog with option traders interviews is the blog of Amber Tree Leaves. This Belgian blogger does regularly an option trader interview. Reading those interviews helps me to understand the thinking process that option traders apply and getting into the right mindset. Check this blog out I would say…

Now let’s list out my 3 most important key learnings in those 5 weeks.

My 3 Key Learnings so far

Key Learning 1 : Volatility VIX 

The VIX is the ticker symbol of the CBOE Volatility Index or “Fear” Index as most investors call it. The VIX measures implied volatility for S&P 500 options. Implied volatility is VERY IMPORTANT !

It is quoted in percentage points and translates very roughly into the expected move or change in the S&P 500 over the next one year. If the VIX is currently at 15 then we could expect a 15% move in the S&P 500 up or down over the next year or approximately 1.25% every month between now and then.

The VIX is also one of the main ways that we can tell if option pricing is rich or cheap because of the high or low implied volatility which directly affects how an option is priced.

Options traders want volatility. Option premiums are higher when implied volatility is high. Now even Fed Officials are starting to wonder if the VIX is too low…read here the Bloomberg article. 

Actually options traders love market crashes or major events that pump the implied volatility higher. That’s their moment to sell “insurance premiums” at high(er) prices. Interesting…

Listen to Podcast Show #07 Why Implied Volatility Is The Key To Your “Edge” Trading Options

Key Learning 2 : Portfolio size and Risk Management 

Another key learning for me was about portfolio size and risk management. As I prefer to start small and do not want to risk losing money nor blow up my account, I evaluate what portfolio size I should start with.

Here podcast Show #47 Options Trading Risk Management & The Indisputable Math Behind Optimal Position Sizing was very insightful.

As I do not want to allocate more than 1 to 5 % risk per trade, I should start with a portfolio of 5k. with a preference of 50$ risk per trade.

Key Learning 3 : Options Strategies to focus on

Did you know that there was an options strategy that just takes just 1 hour per month to implement and actually beats the S&P 500 benchmark index both in performance and with less overall portfolio volatility? And this one strategy is available to any trader, regardless of your account type or size? All it takes is less than 1 hour per month. Yes, less time that it takes you to aimlessly scroll through your Facebook or Twitter feed.

Listen to Podcast Show #53 The 1 Hour Per Month Options Strategy That Beat The S&P 500 by 24% to learn about the exact strategy that beat the market. No fluff.

Personally I like the simple options strategy of covered calls or selling cash secured puts. It’s simple to apply. And it seems to be the strategy where all novice options traders start with. There is an options trader called John Greathouse on Youtube who reviews his covered calls and naked put trades in small 10 minute videos. I learned already a lot from John. Look at the results he made so far in 2017…wow !

So I think this option strategy of covered calls and selling cash secured puts will be my first focus.

Going forward

In the blog post of 31st of May I wrote that by the 1^st of September, I hope to start paper trading within my account. I am behind on the fast learning track of Optionalpha but ahead in listening to the podcasts. Soon the family and I are going on vacation to France for two weeks and then I have more time to read and learn about options trading. We are committed to keep this learning track going ! Tomorrow morning we will continue our learning track.

We hope you learned something from this blog post and keep on following us. We will share our story as we progress on this investment strategy journey…

Thanks again for reading and until next time ! Greetings from New York city !

As usual we end this blog post with a quote. Have a great summer !