thinkMoney - Summer 2016 32

June 2016

In this issue:

  • Three Things That Keep Traders Awake at Night (and How to Put Them to Bed)
  • Happy at the Bottom Party at the Top
  • Volatility Rules, Not Size
  • The Myth of Delta Neutral (and Other Greek Tales)

Don't Forget Your Helmet

 • JUST WHEN YOU THINK you’ve found your springtime groove, summer will be here before you know it. So before you trade in your keyboard for a fishing pole, be sure to pack your favorite trading books and some back issues of thinkMoney for easy reading while you’re sleeping among the bears. Although there is no strategy in this magazine that will help you confront the fuzzy, warm-blooded kind, there are plenty of ways to prepare ahead of the next market correction.

First, smart traders tend to focus more on managing risk rather than predicting direction. But regardless of your approach, to err is human. Whether you’re betting on up, down, or whether Bey and Jay will last the year, you’re going to be right sometimes and wrong at other times. No matter what your trading size, there may be times when you have positions open overnight and stay up all night worried sick about how the market might open the next day. That’s never a good thing, but there may be ways to avoid it. “Three Things That Keep Traders Awake at Night” on page 16 suggests some risk-management techniques to consider that might cure trading insomnia.

The better you’re able to manage your risks, the more aggressive you can become without breaking the bank. Dynamic collars  are a strategy that many professional traders use—and you can, too. “Happy at the Bottom, Party at the Top” on page 20 might make you think differently about how to build a stock position without depleting your cash, and without regard to a stock’s direction.

And speaking of parties, remember those college frat houses and sororities with Greek names on the door? They may have just meant letters then, but for options traders, they have a whole different meaning. The ≠≠article “The Myth of Delta Neutral (and Other Greek Tales)” on page 30 demystifies some of the misconceptions options traders have about the greeks and shows you what they really mean.

When it comes to trading, there is no shortage of losers. You can, and will likely be, one of them from time to time. That’s got nothing to do with your charming personality. It’s just the nature of trading. And in preparing for the inevitable, sometimes your best defense is you.

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