Trade Management Game Plan. Module 5 Review 5 Key Principles Trade Management Techniques Big Mistake To Avoid Action Items To Take

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Amos Long
5 years ago
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1 Disclaimer The VectorVest Program ( the System ) which we promote is not intended to provide you with specific or personalized advice. In all circumstances where you are looking to apply the System to your own personal needs you should consider whether you should first seek advice from a suitably qualified investment professional. Figures and information provided refer to the past and past performance and are not a reliable indicator of future results. Where stocks are quoted in foreign currencies, returns may increase or decrease as a result of currency fluctuations. In the event that you, as a recipient of this presentation, have any doubts as to the suitability of the investments or services promoted you should seek advice from a suitably qualified investment professional. You should be aware that the value of shares and other stocks may rise or fall. The rules on tax can change, and these changes may have an influence on the effectiveness of the System in the future. It is for you, as the tax payer, to assess the System s effectiveness throughout the process. Some assets are more readily realizable than others, and you should bear in mind that it may be difficult to deal in or obtain reliable information about their value. You should always take account of dealing charges. In addition to any initial charge quoted there may also be a bid/offer spread or dilution. Investments in options and other forms of derivatives may expose you to a higher degree of risk given market circumstances relative to other forms of quoted investments. The System even if used in its entirety, cannot be guaranteed to provide specific returns in the short, medium or long term and you should bear in mind that individual securities may and can fluctuate considerably in value from day to day. The System has been designed without any reference to the specific interests of a particular investor. We reiterate, when using the System, you must take into account your own specific needs and liabilities. This financial promotion has been approved by European Financial Publishing Ltd trading as VectorVest UK which is authorized and regulated by the Financial Services Authority under Register No European Financial Publishing Limited is a company incorporated in Scotland under Company Number SC with its registered address at Exchange Tower, 19 Canning Street, Edinburgh EH3 8EH. 1

2 Trade Management Game Plan Module 5 Review 5 Key Principles Trade Management Techniques Big Mistake To Avoid Action Items To Take 2

3 Trade Management Game Plan 3

4 You don t know what to do 4

5 You freeze & don t do anything You need to Be Prepared 5

6 Key Principles To Managing Your Trades 1 6

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4/25 - TSN Bull Put Spread 62.00 60.00 Using Midpoint: 1.50 0.95 = 0.

12 4/25 - TSN Bull Put Spread Using Midpoint: = 0.55 credit received 4/25 - TSN Bull Put Spread Since the credit on 10 contracts is $550, look for profits at $ % of credit received

13 Stock rose for the next two days

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16 4/26 - AVGO Bull Put Spread

17 4/26 - AVGO Bull Put Spread Target is $575, which is half of the $1,150 credit. 4/26 - AVGO Bull Put Spread On 4/29 AVGO drops to the short strike of

18 Cut losses at $438 If you didn t, losses are now at $1,

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21 2/11 - LUV Bear Call Spread 21

22 Sold 38 Call for 0.68 Bought 42 Call for 0.15 Total Credit Contracts = $

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Two days later it hit the adjustment price of 36.50 42.00 38.00 36.

24 Two days later it hit the adjustment price of Sell a Bull Put at 34 / 30 And receive 0.40 or $400 for 10 contracts 24

25 The Iron Condor is on: Bear Call of 38 / 42 Bull Put of 34 / $530 Credit $400 Credit Could I have sold a higher Put? Maybe. But I want to be at or below the previous low

26 On Feb 17, close out the Bear Call trade as the Short Strike is hit $700 Loss $200 Gain Net Loss of $500 26

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28 Plan Ahead! 1. Profit Target = $ Exit $ Add the other $155 If I need to add the other side: Target the Strike with a Prob ITM of 30% or less and near the one standard deviation point. The Bear Call is a hedge against the stock moving lower. 28

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30 Case Study: UNH Bull Put Date: May 1, 2017 Trade Details: Sell 170 June 16 Put for 1.95 Buy 165 June 16 Put for 1.05 Net Credit of.90 Plan Ahead: Mitigate if the stock gets to

31 I try not to mitigate after a one day sudden move. I wait at least until the next day. Mitigation Level Hit: On 5/3 I add a Call Spread Action Taken: Sell the June Call for.95 Buy the June Call for.27 Net Credit of.68 31

32 Short Strike Hit: On 5/16 I exit the trade as the short strike is taken out. 32

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39 SPY - Iron Condor Scenario 1: SPY remains fairly flat & Delta doesn t change more than.20. Action: Take profits at 25% of the credit

40 SPY - Iron Condor Scenario 2: SPY falls & Delta of 198 Put changes more than.20. Action: Close profitable side (Bear Call side) and sell new Bear Call with Delta < SPY - Iron Condor Scenario 3: SPY continues to fall below the short strike. Action: Close unprofitable side (Bull Put side) and manage the Bear Call side using credit spread techniques

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SPY - Iron Condor Trade starts with Delta of -0.06.

42 SPY - Iron Condor Trade starts with Delta of ProTip: Delta should never be over or under +/ to start 42

43 SPY - Iron Condor Trade starts with Short Delta of When Delta moves to.37 we adjust. SPY - Iron Condor This typically occurs about half way between the entry price and short strike. 43

44 Plan Ahead! 1. Profit Target = $22.75 per contract (25% of the $91 received) 2. Adjust when Delta changes by If short strike is hit, exit that side of trade. Then manage remaining side using credit spread techniques. Plan Ahead! You ll notice that when the Delta changes by 20, you ll generally be near the midpoint. These are prices you can monitor or add an alert, but still base decision off Delta. 44

45 Case Study: On 4/8 we initiate an Iron Condor on SPY (ADX < 20) The Call has a Delta of.16 The Put has a Delta of.16 45

46 Current Price Current Price The Delta Changes by 20, approximately half way between the price of the market at entry and the short strike 46

47 Entry Price On 4/14 price hit halfway between entry price and short call. Delta on Call has increase by more than.20. From.16 to.38. So, close the original Put spread. Sell another Put spread with Delta <

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50 Max Reward Max Risk Max Reward Max Risk How do you know what is bad Risk:Reward? Max Reward Max Risk Max Reward Max Risk 50

51 Versus acceptable Risk:Reward? Max Reward Max Risk Max Reward Max Risk Versus near ideal Risk:Reward? Max Reward Max Risk Max Reward Max Risk 51

52 Risk : Reward Minimum Credit per $1 Width MAX! 5:1.16 4:1.20 3:1.25 2:1.33 Risk : Reward $1 Width $5 Width $10 Width MAX! 5: : : :

53 Method #1: Make sure credit per contract meets the minimum criteria. Example: $10 Width needs a credit of at least $1.60 Method #2: Divide Max Risk by the Credit to make sure the Risk:Reward is in line. Example: $835 / $165 = 5.06 or 5:1 Risk:Reward 53

54 Method #2: (if you like the math) Max Risk = Width - Credit Max Risk / Credit = Risk:Reward Example: $10 $1.65 = $8.35 $8.35 / $1.65 = 5.06 or 5:1 Risk:Reward Trade Type Risk : Reward Guideline Directional Stocks Max 5:1 Iron Condor Stocks ~3:1 Directional SPX ~9:1 Iron Condor SPX ~5:1 54

55 How do you know what is bad Risk:Reward? Max Risk Max Reward This one is bad. A $5 spread needs at least $0.80 to meet the minimum 5:1. This trade is almost 21:1. Versus acceptable Risk:Reward? Max Risk Max Reward This one is acceptable. A $10 spread needs at least $1.60 to meet the minimum 5:1. 55

56 Versus near ideal Risk:Reward? Max Risk Max Reward This one is near ideal. A $5 spread needs at least $0.80. This one gives you $1.32. It is 2.7:1. On the Matrix you can begin to screen for the required Risk to Reward by looking at the last price. 56

57 Using the Matrix to Screen for Risk:Reward 1. Look at the width of the spread 2. Subtract the last price of each leg 3. Make sure it falls within the guidelines Risk : Reward $1 Width $5 Width $10 Width MAX! 5: : : : Example: AAPL 1. Width is $5 ( ) 2. Estimated credit of.99 ( ) 3. Since we need.16 per $1 of width, this works. In this case the $5 width means we need.80 of credit Risk : Reward $1 Width $5 Width $10 Width MAX! 5: : : :

58 Acceptable Risk:Reward of 4:1 Risk of about $400 Credit of about $100 Max Risk Max Reward 58

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60 This trade on 6 contracts gives a $1,020 Credit (my target) 60

61 If I decide to do a Home Run and up it to 12, I get a $2,040 Credit. If the trade goes against me and the stock hits the short strike, my loss becomes $2,740 vs. $1,293. Short strike 61

62 Percent Loss Drawdown vs. Percent to Recover % Loss of Capital % of Gain Required to Recoup Loss 10% 11% 20% 25% 30% 43% 40% 67% 50% 100% 60% 150% 70% 233% 80% 400% 90% 900% 100% broke 62

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64 Risk: Reward Profit Loss Loss w/ Mitigation 80% Accuracy 80% Acc. w/ Mitigation 70% Accuracy 70% Acc. w/ Mitigation Risk: Reward Profit Loss Loss w/ Mitigation 80% Accuracy 80% Acc. w/ Mitigation 70% Accuracy 70% Acc. w/ Mitigation 5:1 $893 $2,858 $2,000 $17,146 $37,720 -$27,862 $3,000 4:1 $893 $2,143 $1,500 $34,291 $49,722 -$2,143 $21,003 3:1 $893 $1,429 $1,000 $51,437 $61,724 $23,575 $39,006 2:1 $893 $536 $375 $72,869 $76,727 $55,723 $61,510 64

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Getting Paid System Part 2. Module 2 Review The Market Up, Down & Sideways 5 Key Principles Big Mistake To Avoid Action Items To Take

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