Develop a Trading Plan

Developing a trading plan is common thread among diverse options traders

My name is Josh Sampson and I am the Options Education Specialist for Scottrade, Inc. The majority of my professional career and education has centered around the options industry. Through this time I have had the opportunity to interact with a wide variety of participants in the options markets from beginning retail investors to professional market makers. As you might think, their views on investing and the markets vary greatly.

Recently, I had the privilege of sitting in on an industry leadership panel discussion at the TradersExpo in New York City. The panel was made up of individuals with a diverse background in the options industry. One trader only bought deep in-the-money options for very directional trading. Another trader only traded market neutral volatility strategies. Needless to say, these traders had very different views of how to trade options.

Even with such a diverse panel, there was one common theme: a rigorous trading plan must be in place before entering any trade. All of the panelists identified this as the biggest mistake investors make when trading options.

Most traders spend a lot of time indentifying trading opportunities and strategies and get anxious to enter a position, but fail to develop a full trading plan. Just as much time and effort – if not more – needs to go into planning the exit and/or adjustment for the strategy.

I truly believe that this should be done on every trade, regardless of how simple or complex of a trade it is. By knowing your exit and adjustments before the trade, you can take the emotions out of the equation and make rational investment decisions.

Developing a trading plan is one of the biggest steps an investor needs to take to be a sustainable options trader. The next step is to stick to the plan!

Josh Sampson is the Options Education Specialist at online investing firm Scottrade, Inc.. Scottrade customers can trade options through their Scottrade account or through OptionsFirst, Scottrade’s advanced options trading platform.