Every so often, I like to remind option traders about things they need to think about before, during and after their trading day. Clearly, there are a lot of moving parts in making that decision, but there are also more than a few constants. Here are some factors I consider each trading day.

Current Market Conditions

You absolutely need to start here: What is the market doing as a whole? I’m not sure about you, but I would rather be on the right side of the market more times than not. To keep it simple, if the market is bullish, maybe look for more bullish trades. Then scan for opportunities based on charts using several time frames. I like to break down the market by bullish, bearish, neutral, non-bearish (more bullish than bearish with support levels holding) and non-bullish (more bearish than bullish with resistance levels holding).

When the Market Opens

Look at your current trades. Do any of your positions need tending? Do mental stops need to be changed, and do you need to use new profit taking orders? Does your watch list need to be updated? Traders tend to slack off on tending to their watchlists. In addition, since I like to trade long time spreads (lots of calendars), I look to see if any implied volatility skews are present so I can consider them as a potential strategy. Once again, you can scan charts to confirm possible opportunities either from your watchlist or from pre-market or post-market scans and look for new opportunities as well.

Keep an Eye on Volatility Events

This part is easy but often forgotten, even by me at times, especially right now with quarterly earnings starting to flow. Check for any expected announcements, including earnings. Also, consider whether the options’ bid/ask spreads are acceptable or too wide for your comfort level. Once you’ve confirmed these two things, consider going to the next step, which is contract size.

Contract Size

How many contracts are you considering? Does the number vary depending on whether you see changes on charts or in overall market sentiment? Consider breaking it down in three ways: nibble-size, half-size and full-size contracts. Do you fully understand the risk/reward for the trade based on your contract size? You absolutely need to!

Is There a Trigger?

I like to tell option traders to always have a plan in place before entering a position. So, do you? Is the trade ready to go now, or do you need further confirmation down the road? I like to enter most directional trades based on the close. Again, that is my preference, and it does not have to be yours.

The Close

Do you need to do something before the close, such as entering a trade or attending to a position? How about risk? Are there any positions where you can reduce risk from your portfolio?

Once you wrap up the day, step back and relax. Get away from the computer and consider exercising and/or meditating. There is nothing else you can do at this point. If you need to, get prepared for the next day after you have taken a break. Your mind and your eyes will love you for it.

Finally

Remember to take some time off as needed, whether you’re doing poorly or doing well. Time spent away from trading is always a good thing for a few hours, days or weeks. When the market is closed, do two things: review previous trades and continue to improve and work on your personal trading plan.

Of course, this is just a quick synopsis of how I approach my options trading day. No two traders are the same, so no two plans will be the same. My goal here is to give you some food for thought for not only your trading day but also your trading plan.

John Kmiecik, Market Taker Mentoring