thinkMoney - Fall 2015 29

September 2015

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 Volatility or Bust

• TO SAY THE LAST quarter was a wee bit volatile is an understatement. If you woke up around 9:30 ET on August 24th and checked your TD Ameritrade Mobile Trader app before getting up (you know you do), you weren’t the only thing falling out of bed. So did the market with a swoon not seen since 2008. But of course, as a trader, you didn’t see fear, you saw an opportunity, right? After all, without a little movement, there’s not much to trade. So selling volatility, without regard for stock prices when the CBOE VIX spiked over 50, would’ve likely been a good move for you if you bet to the upside.

This highlights an age-old argument about which is more important to get into a trade: stock price or volatility. In “Settling a Market Grudge Match” (Page 16) we’ll discuss some strategy selection techniques
that should make you think twice about ignoring volatility once
and for all.

And should you have been lucky enough to make a profit that day, you might have been asking yourself, “Is there more?”, or “Should I wait to sell?”, turn to “How to Hold ‘Em. How to Fold ‘Em” on page 20. There’s more to exiting a trade than merely getting out. In fact, you could say there’s an art to it, whether you’re in a winner or a loser, particularly if you want to try to squeeze more juice out of your winners. Or if you just want to fix your losers. Speaking of selling volatility, if you’re looking to maximize the potential of some defined-risk, short strategies, there’s a little trick to turning their risk/reward profiles on their heads, without entering the world of unlimited risk. Turn to page 24 for more.

While the swoon of 2015 may have lasted a mere few days, it should serve as a not-so-gentle reminder that complacency has no business in the stock business. You never know when the next ball will drop, but by focusing on strategy selection, exit plans, and money management, you’ll be ready for the next time you get kicked out of bed.

Happy Trading,
Kevin Lund
Editor-in-Chief, thinkMoney

 

In this issue:
• Volatility vs. Stock Price
• How to Exit a Trade
• Short Spread Secrets
• Tips for Non-Traders