Uncle Bob's Money: Generating Income with Conservative Options Trades by Uncle Bob Williams

Author:Uncle Bob Williams [Williams, Uncle Bob]
Language: eng
Format: mobi
Publisher: Warm Wisdom Press
Published: 2011-11-13T05:00:00+00:00

The Trade Finder Checklist constantly analyzes the key market indicators for each strategy that we trade at Uncle Bob's Money. Experience has shown that when we trade outside of the checklist parameters, our probability of profit goes down. The checklist keeps our trade selection disciplined so that we only enter trades that have the greatest probability of success.

Trade Finder Checklist Factor # 1:

Time Until Expiration

Each strategy that we trade at Uncle Bob's Money has an ideal time when to enter the trades. Remember the Greek "Theta" which was the TIME gauge for Options; we saw that when the Expiration of the Option is more than 30 days away the value of the Theta is very small. (Theta is how much the price of the Option will go down after 1 day has passed assuming that the price and volatility of the underlying did not change.) The idea with our Income Generating Options trades is to be close enough to Expiration that we can profit from the bigger changes in Theta. If we trade Options that have an Expiration too far in the future, we expose ourselves to risk without getting the benefit of Theta change profit. This is why the Options that we trade are usually around 1 month away from Expiration: exactly when the Theta change starts to increase significantly.

The 'ideal' trade day is only a suggestion, and shouldn't be viewed as the only day to trade. If we see a good trade opportunity and it is in the correct time range, we will take that trade.

The Time Guidelines we use at Uncle Bob's Money:

BUTTERFLY STRATEGY

Days until Expiration: 35 days to 25 days

Ideal Trade Day: 30 days before Expiration

CALENDAR STRATEGY

Days until Expiration: 35 days to 25 days

Ideal Trade Day: 30 days before Expiration

HIGH PROBABILITY CONDOR STRATEGY

Days until Expiration: 55 days to 35 days

Ideal Trade Day: 49 or 39 days before Expiration

LOW PROBABILITY CONDOR STRATEGY

Days until Expiration: 35 days to 25 days

Ideal Trade Day: 30 days before Expiration

DOUBLE DIAGONAL STRATEGY

Days until Expiration: 45 days to 35 days

Ideal Trade Day: 40 days before Expiration

TIP: Uncle Bob's Money Trade Calendar

On the bottom of the Trade Finder, we provide a convenient Trade Calendar so we can see the Optimal trade range for each Strategy on a Calendar. We can use the Trade Calendar to schedule when we will look for Options trades.

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