July 28, 2017

Adding to My Position

As a high probability, mean-reversion trader I thrive on situations where the std. deviation in the indicators I follow closely push into an extreme state.

I increased my contract size slightly due to the extreme readings in all of the indicators I follow. Bearish seasonal tendencies are also upon us. The next eight trading days are historically weak which increases the probability slightly for a short-term reprieve. Typically, when we see a short-term ‘very overbought’ reading in every major bemchmark coupled with historically weak seasonal conditions the market takes a break. The most recent gap should also weigh on the market over the short-term particularly given the extreme readings and should give me a nice area to take a bit, if not all, of my position off the table.

All of the aforementioned led to the increase in my position-size, which is roughly 30% of my overall portfolio. I can’t emphasize this enough. You must always consider the size of your position and how much risk you are undertaking with each trade.

Moreoever, the actual options that I chose have delta around $.50 which means that for every $1.00 the underlying ETF goes up/down the option price goes up/down by roughly $.50. Of course, other greeks must be considered, but this is typically a decent indication of how the option price will move. Anyway, I mention this because, by choosing the delta I can gauge what my gain/loss will be before I place the trade. This is just another way (among others) that I use  to control risk on each and every trade. As I always state, trading is a marathon and not a sprint.

I will post the details of my current trades once the position is closed.