BrewBrain Sports Investing

So, without some rules to live by, stock and especially options trading tends to be a losing proposition.  Here are the rules I intend to live by in order to make some scratch:

1) My target number of positions is 10, with representation at all times from both calls and puts.  I won’t force neutrality between the long and short side, but I will strive to be as market-neutral as possible in order to avoid a complete wipe-out should the market rocket one way or the other for whatever reason.  Ten positions should allow for some semblance of market/directional diversity without becoming overly burdensome to manage.

2) Each position will be entered at a time and price where the first stop will limit downside risk to an estimated 25% of position cost.  Obviously, this is impossible to pinpoint, but as long as the effort is made to limit risk to 25%, I shouldn’t blow too many positions by too much.

3) Stops will be adjusted on a daily basis as appropriate. 

Generally, new trend lows (highs for puts) will be used as stops.  A low is defined as the lowest trading point reached between the two most recent closing highs.  A new closing high can be achieved only after four or more consecutive days closed below the previous high close.

I will also use higher natural technical stops where appropriate, such as high-volume gaps.

4) Positions will be closed at the earlier of a) the stop is triggered, or b) 35 days prior to contract expiration.

5) Contracts traded will be in the money with a cost basis at or below intrinsic value +5%, generally 3 - 9 months from expiration.

6) I will trade a single contract of each position until I reach 10 positions, at which time I will switch to a 10% of bankroll position size.

This is a trading strategy I’ve been using successfully from the long side trading equities in my retirement account for quite awhile.  We’ll see if it translates well to ITM options.