Wonder how a pro options trader sorts different trades?
Strategic vs Tactical
Like w/most things in life, no one-size-fits-all approach
Using both strategic & tactical is KEY to your PnL
& allowed us to turn bullish stocks while holding an overall bearish view
➠ NIMBLENESS PAYS OFF
Markets are an infinite game of expansion & contraction
Asset valuations continuously growing & weakening
Driven by a complex array of factors
Amid this waxing & waning, you must be agile enough to hold a long-term strategic view
While simultaneously trying to tactically capitalize on moves that differ from your original trade thesis
So, now you may be looking for the #ELI5 (explain like I’m 5) difference btw tactical & strategic approaches.
I got you
➠ CHESS VS CHECKERS
Strategic investing can be like playing chess
You think ahead & carefully plan your moves
Whereas tactical investing can be more like playing checkers
React to what’s happening that moment
Strategic positions are the foundational assets you want to hold over a long time
Tactical positions are overlayed on top, allowing you to keep on your foundational positions
Thus, no need to sell in the face of the first downward price pressure
So, as part of our approach, we continuously looking for opportunities to improve the performance of our strategic, long-term investments.
But w/short term POV
This is what taking a tactical approach is all about
These tactical moves may be based on what you observe happening w/the asset @ hand
Or what you feel is coming down the pipeline.
A benefit of being in tune w/markets you’re already invested in for the long term
➠ CHANGES IN SKEW
Now, you may be wondering about what we said earlier on turning tactically bullish
We think after a phase of lower valuations in #stocks, might be time for a bounce in #SP500
Let’s dig into some evidence
➠ DOWNSIDE PROTECTION GETTING CHEAP
$SPX consolidating near recent lows
#Dollar retreating from recent highs
& we are seeing downside protection cheapening up again.
Tends to be a sign investors are monetizing hedges.
#Skew has dropped back considerably.
Seen from the SDEX Index –
(h/t @themarketear )
Could be sign that a tactical rally is due in stocks.
➠ BEARISH EXHAUSTION IN FIXED STRIKE VOLS
Over last few days, SPX has chopped near recent lows of 3950.
A key support zone, technically speaking.
So you’d expect #vols & skew to remain firm until we move from this inflection point.
However, we’ve seen fixed strike SPX surface showing downside fear diminishing
Why’s this happening?
➠ MONETIZATION OF HEDGES
𝞂 Likely for 1 of 2 reasons:
1) Monetization of hedges
2) Dealers marking down their #puts that have been taken short w/put skew not realizing
All in all, this type of price action makes us tactically more bullish & suggests may be some upside coming
… that’s a wrap!
Hope this was helpful to understand how to use both strategic & tactical styles.
What does your trading style look like?
Let us know in the replies!
#options #trading #tactics #optionstrading #OptionStrategy
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