Dan Passarelli, CEO - Market Taker Mentoring

 

When I train people on how to trade options, one of the most important things that I try and impart on folks is to have a methodology to simply have a system. And I tell people even a bad system is better than no system at all.

One of the things that I do to help folks get down their own system is to introduce them to the MTM trading plan checklist. Now this is the MTM trading plan checklist.

As you can see, there are several steps. I'm going to be talking about the MTM trading plan checklist all week and I'm going to break it into five different parts for each of the five days of the week. And right now I'm just going to talk about the analyses. Looking at the technical set up, identifying volatility events and the volatility analysis. I call them the Trifecta of analysis. They're really very simple.

First we go through and we do our technical analysis. That checklist can work for any type of trade there is. Straddles, directional calls, breakout trades, times spreads, earnings trades. It's general enough that it can be adapted to any type of trade and any type of trading style.

So we always want to do an analysis. For example, we could see that a stock crossed above the 20 day moving average and we think that it might be a momentum play or you might use a longer term moving average as a support or resistance area. Speaking in general terms, this is the first thing we want to do. Then we also want to do our fundamental analysis or identifying volatility events, which is simply going and finding when earnings is. It's really, mostly, that simple.

I will also go and I will look at news on a particular stock. Think or swim here has a pretty solid series of stories to get the live news on any particular stock and I'll just go through and make sure I haven't missed anything, see if there are any whale trades.

And again, know when earnings are and know when things like Fed announcements are. Next thing we have to do a volatility analysis. And I've done some videos on this in the past. I don't want to spend too much time on it, but I like to use the one, two, three volatility analysis.

• Step one is today's implied volatility above or below today's historical.
• Step two is today's implied volatility in the top half or bottom half of the six month range.
• And step three, what's likely to happen with volatility, implied volatility and historical volatility going forward.

 

So once I have those three analyses done, then I can move on to the next step in the MTM Trading Plan Checklist, which we'll talk about tomorrow.