Christopher Smith at The Option Club

Christopher Smith is the owner of the The Option Club

He has been trading for years using conservative option trading strategies. As part of his website he has a yahoo group that I belong to and he just made a post that is so relevant to trading conservative options. Here it is…

“If you accept that options represent a zero-sum game, then you have to accept that if you consistently and repetitively open positions, long or short, that your return will be zero, less your commissions and trade overhead. So, if you consistently open a short options position 1, 2 or 3 standard deviations out from the current positions, it simply means that the majority of those positions will expire worthless. It also means that some smaller percentage of those positions will expire in-the-money.

I have been trading out-of-the-money credit spreads and iron condors on the major indexes for years, now. I have made many, many mistakes. I have made and lost money. I also like to think that I have learned some things along the way.

One of the things I have learned is that you cannot rely exclusively upon a standard deviation to plan your trade and expect to be profitable over the long term. You must do something that provides you with an edge; i.e., a positive expectancy. That edge can potentially be acquired through various means. Superior market analysis, effective trade adjustments, etc.

The critical component in determining whether a trading methodology is ultimately profitable is risk management. Recognizing and managing losses is what I have found separates the successful, profitable traders from the majority. ”

Christopher Smith
TheOptionClub.com

I agree that in order to be successful in the options or even the stock trading world risk and capital management is the key.

Dan Beatty
Conservative Options

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