As traders generally want to be in control over our strategies, our risks, and our profits. But there's a fine line between sensible management and over-management and it can greatly impact our P/L over time. I've previously written how we target 50% of the premium received for many of math-based trading strategies. There are definitely benefits to making adjustments to your trades, but we have to be careful to not let emotions or fear hinder our profits. This issue comes up all the time, and I've found myself guilty of it too! I'll be posting a trade review this week to demonstrate what I'm discussing this week (I'll add the link here after it goes live on Friday.) Why do we let this happen? More importantly what can we do to stop doing this: acknowledgement and identifying we are doing this is the first step! Many times over management occurs when we morph our math based option trades into day trades, not in the conventional sense of opening and closing trades within a single day, but making changes to our targets based on candles, others opinions or news. Let's say, for instance, you've sold a put on an underlying asset with the intent to hold the position for a month. But then we see a huge candle on the daily chart and you find your trade 30% profitable, or a loss of 75%. Instead of letting your Good-Til-Canceled (GTC) order close at 50% profit as you initially planned, you're tempted to close it early, or even worse you get shaken out of a trade for a loss only to watch it turn profitable after you exit. Lets consider some of the reasons we shouldn't exit our trades early: 1. You are less Profitable over time: While closing early might lock in some profit, it might also limit the full potential of the trade. Remember, your strategies are based on math, probabilities, and systematic edge. Cutting them short could mean leaving money on the table. 2. Allow time to fix losing trades: A strategy that looks like it's losing today may be profitable tomorrow as the market ebbs and flows. Exiting a losing trade early could mean you're denying the trade the opportunity to become profitable. Always stick to your pre-defined trading plan 3. The ‘Missed Move’ Regret: Markets fluctuate and an early exit might lead to regret if the underlying asset moves in the direction that would have led to a full profit on your trade. 4. Distortion of Probabilities: Math-based options trading is a game of probabilities. The premature closing of trades can distort the mathematical edge you've built into your trading plan. While it's important to give your options trades the necessary room to breathe, there are few times when closing a trade early or managing it proactively makes sense. Here are a few situations: 1. Your Target Profit is Reached Early: Some traders add different targets for the first day or two of a trade. If you reach your profit target immediately, it might make sense to close the trade and lock in gains (For example: 25% in a day). This allows you to redeploy your capital on another trade, maybe in the same underlying. 2. Significant Market Shift: If there's been a significant shift in the market or the specific underlying asset that alters your original trade thesis, it makes sense to adjust or close the trade early. This might be a major news event, an unexpected earnings report or an accounting irregularity. 3. Risk Management: If the potential loss on a trade is approaching your predefined risk tolerance level, it might be wise to close or adjust the trade early. This is a key aspect of effective risk management and why we encourage you to trade small. You do not want a single bad trade to significantly impact your account as preserving your capital is as important, if not more so, as making profits. 4. Expiry is Near with High Gamma Risk: As options get closer to expiration, the rate of change of their price (Gamma) can significantly increase, making the position riskier. If your option is near the money close to expiration, it may be better to close the position to avoid the potential for large swings in profit and loss. This is why we propose rolling or closing options at 21 DTE. 5. Dividend Risk: If you're short a call option and the underlying is due to pay a dividend, there's a risk that you'll be assigned early by call owners wanting to capture the dividend. If the dividend is substantial, it may be worth closing or adjusting the position to avoid early assignment. Here are a few strategies to resist the urge to over manage: 1. Stick to Your Plan: Your trading plan is your roadmap. Stick to it, including your pre-determined profit targets and stop levels. 2. Trust in the Math: Remember, your strategies are built on statistical edge. Trust in the math and let the probabilities play out. 3. Diversify: By diversifying your trades across different underlyings or strategies, you reduce the temptation to over-manage any single trade. 4. Have Paytience: Patience really does pay off. Options trading is not a sprint, it’s a marathon. Cultivate the patience to wait for your strategies to unfold. Remember, losses are a part of trading, GKT is here to help you learn, adapt, and improve your strategies. Discipline and paytience are virtues in trading. Trust in your plan, trust in the math, and give your trades the room they need to breathe and deliver profits. As we often say here at Good Kids Trading, "Plan your trade and trade your plan." Don't forget to join us in our Discord community to share your experiences and learn from others. Stay tuned, trade wisely, and let the math work in your favor. Happy trading Good Kids!

Have you ever thought about how your brain can trick you into making poor trading decisions? I know my brain plays tricks on me all the time, and there is actually scientific research to prove this isn't just our imagination. Cognitive biases are a common problem for traders of all levels. What is it?? A cognitive bias is a mental shortcut that leads to inaccurate judgments. These shortcuts may be helpful in some situations, but they also tend to lead to errors in our trading. There are many different cognitive biases but the most common include: Overconfidence bias: This bias leads traders to overestimate their own abilities and make riskier trades than they should. Your put sale strategy is doing so well, you start feeling like your an expert. You might even start to think you've got this market thing down. Be careful though, because overconfidence can make you underestimate the risk involved in trades. Remember, no strategy works all the time, even if you feel like you can't lose do not take outsized risks because even the pros have losing months or even years. Confirmation bias: This bias leads traders to seek out information that confirms their existing beliefs and ignore information that contradicts them. Do you have that underlying that you just love? If we're honest most traders do. Confirmation bias happens when you are bullish on a particular stock so you pay more attention to indicators or patterns suggesting that the stock will rise (like an uptrend, strong earnings, or bullish candlestick patterns) so overlook indicators, news, or any analysis that suggests the contrary. Loss aversion: This bias makes traders more likely to hold onto losing trades in the hope of recouping their losses. Here's a fun fact: We hate losing more than we love winning. Captain Obvious here I know... But that's loss aversion you might hold onto a losing trade too long, hoping it'll turn around, or sell a winning trade too quickly, fearing a loss. This is why you have to set targets and stop losses BEFORE you enter the trade. Cut your losses when you planned to cut your losses! Don't let a small loser turn into a bigger loss because you are afraid to lose. Losing is normal in trading, just win more than you lose by taking high probability trades! Herd mentality: This bias leads traders to follow the crowd, even if they don't believe that the crowd is right. If all your buddies jumped off a bridge, would you? Hopefully not... In the market, it's easy to follow the crowd. Especially if you were waiting for the bottom, and the market takes off without you. Rarely have I seen people who YOLO in because everyone else is already in work out in their favor. Just remember, the popular choice isn't always the best choice. GKT enjoys the contrarian view of lets buy when people are selling, and lets sell when people are buying. Hindsight bias: This bias leads traders to believe that they could have predicted past events, even though they actually couldn't have.This one holds a special place for me. I see so many experts who look back and talk about how easy trades are AFTER the fact they say things like "I knew that would happen!" This is hindsight bias, and it can make you underestimate or overestimate your own trading prowess. Reality check: predicting market movement is tough. Don’t let hindsight influence your your confidence in either direction. It's fine to look at the past, learn from past trades and update your plan. But people who describe hindsight trades afterwards are everywhere, don't become one of them. Focus on now. Gambler's fallacy: This bias leads traders to believe that past events affect future outcomes, even though they don't. Just because you've had a string of losses, it doesn't mean you are due for a win. This is known as the gambler's fallacy. However, the market is not a casino. Each trade is independent of the previous trades. There is no such thing hot streaks" or "cold streaks." Do not let emotions, or dopamine hits turn your trading into a pull of a slot machine's handle. Stay mechanical in your trading, and trade your plan! Recency bias: This bias leads traders to believe that whatever is happening now will keep happening, even though it may not. Just because your favorite stock has been climbing doesn't mean it won't plateau or drop. Calling tops or catching falling knives is tough. It's ok to take trades, just have rules and exit strategies. You miss 100% of the trades you don't take, just remember whatever is happening now doesn't have to continue. Some things to consider to overcome cognitive biases include: Be aware of your biases: The first step to overcoming cognitive biases is to be aware of them. It sounds obvious, but this is actually overlooked! Once you know what your biases are, you can start to watch for them and take steps to avoid them. Use a trading plan: A trading plan helps you stay disciplined and avoid making emotional decisions. Use risk management techniques: Risk management helps you to limit your losses and protect your profits. Get feedback from others: Getting feedback from other traders can help you to identify and correct your biases. Have you heard about our GKT Discord? Cognitive biases are a major obstacle to successful trading. By just being aware of your biases and taking steps to overcome them, you will improve your trading results. If you want to discuss cognitive biases in trading more join the GKT Discord. We have a community of traders who are all committed to helping each other become better traders. Happy trading Good Kids!

When it comes to options trading, there's one word that trips up many traders: Overconfidence. I've seen so many put sellers get overly confident and get in trouble by over leveraging. Overconfidence creeps in subtly just as you're starting to enjoy the profits of selling puts; one successful trade leads to another, and then another. The money starts to flow in, and it can feel a lot like free money. You start thinking, "I can't lose... I've got this down! Instead of selling 1 put I should sell 10!" That's when overconfidence shows its true colors. At Good Kids Trading (GKT), we're all about trading small, trading often, and trading mechanically. I've seen how a simple rule break can lead to an overleveraged position and, inevitably, a disastrous outcome. Options trading has a reputation for being dangerous, and overconfidence is one of the reasons why options can be labelled risky. But it doesn't have to be this way. When you're selling puts and the profits are piling up, it's easy to forget about the risks. The math looks so appealing - if there's a 98% chance of a trade working out, why wouldn't you ramp up your contracts? But there's a flip side to that coin: the 2% chance it doesn't work out is real. It's important to remember that these chances, no matter how slim, are still real. When a black swan event happens, and the market moves well past any standard deviations that's the 2% of the 98% of probability of profit. When a trader feels invincible and on a winning streak, this is how they find themselves in deep water. They're selling 10 puts where they were once selling just 1, and one outside move in a single day, they're underwater. The profit-to-risk ratio becomes skewed, and what seemed like a surefire strategy becomes a quicksand trap where you risk getting margin called. So, how do we avoid falling into the overconfidence pit? First, by sticking to the plan - trading small. This means keeping your contract numbers low and consistent, resisting the temptation to up the ante when things are going well. We trade small to ensure we're never carrying too much risk on any single trade. Second, by trading mechanically. This involves a consistent, disciplined approach to options trading that takes the guesswork and emotion out of the equation. We place our trades based on defined criteria and manage them systematically. Overconfidence is a heady feeling. It's the thrill of a winning streak, the belief that you're invincible. But in the options trading world, overconfidence is the enemy. It's what leads traders to break their rules, take on too much risk, and eventually get burned. So, remember, the goal of trading is not to win every single trade but to have a consistent process that will lead to profitability over time. Our mantra "trade small, trade often, trade mechanically" is based on experience. This disciplined approach helps prevent the overconfidence that leads to ego taking over and causing overtrading. If you're looking for a community where you can learn more about options trading, discuss strategies, and stay accountable to your trading plan, consider joining our GKT discord. Here, we're all about learning, growing, and keeping each other in check - so we don't fall prey to the overconfidence trap. Remember, in options trading, it's better to be consistently good than occasionally great.

Theta decay might sound like a different language or some obscure concept, but let me tell you – it's been my best friend in options trading world. In fact, theta decay is the primary source for paying my monthly bills! It also funds my wildest dreams and adventures! Let's talk about what theta decay is and how it has transformed my life and freedom, but more importantly how it can transform your options selling experience as well! So, what is theta decay? Explained in the most simple terms (which is really all I ever do) it's the rate at which an option loses value as time passes. If you have sold an option, you want it to lose value. If you sell a put and collect $100 and you can buy it back to close the trade for $5 that is the greatest gift. You just made $95 in passive income. Combining theta decay with high volatility allows us to collect premium as time passes and the option's value dwindles. Now, how has theta decay become my BFF in life and options trading? Well, it all started when I began selling premium and using theta decay to my advantage. By strategically selling options with high extrinsic value (the portion of an option's price not attributed to intrinsic value), I've managed to generate a steady stream of income that not only covers my everyday expenses but also funds my most epic experiences. Take, for example, my last vacation on Royal Caribbean. I sold RCL put options, and as time ticked away, theta decay worked its magic, allowing me to collect premium as the options lost value. Before I knew it, I had enough cash to set sail on the adventure of a lifetime, all thanks to my dear friend theta decay! But that's not all. Remember that swanky Airbnb I stayed at during my last getaway? That's right – theta decay was there for me, too. By selling ABNB put options, I was able to fund my entire vacation and explore new destinations in style, all while profiting from the relentless march of time. And it doesn't end there. Theta decay has even helped me embrace a healthier lifestyle. I recently bought a cold plunge pool by selling put ratio spreads, turning my options trading profits into a fantastic addition to my daily wellness routine. So, how can you harness the power of theta decay and turn it into your BFF, too? Here are a few tips to get you started: Focus on selling options with high extrinsic value. As time passes, the extrinsic value will decay, allowing you to collect premium and potentially buy back the options at a lower price. Sell options with a shorter time to expiration. Theta decay accelerates as the expiration date approaches, so selling options with 30-45 days until expiration can maximize your theta decay profits. Keep an eye on implied volatility. Options with high implied volatility typically have higher extrinsic value, making them prime candidates for selling premium and profiting from theta decay. Manage your risk. Selling options comes with inherent risks, so always have a plan in place to protect your account and ensure you can continue to reap the benefits of theta decay. In conclusion, theta decay can be a game-changer in your options trading journey, transforming your financial life and funding your wildest dreams. By embracing the power of time and mastering the art of selling premium, you can turn theta decay into your ultimate BFF and live life on your terms. Join the Good Kids Trading (GKT) community today, and we'll help you navigate the exciting world of options trading, combining our core principles of trading small, trading often, and trading mechanically with the magic of theta decay. Together, we'll make theta decay work for you, funding not only your necessities but also your most fabulous adventures!

Today I'm discussing a topic that's been crucial to my success as a trader – patience. But let's add a little twist to this virtue and call it 'paytience' (this is totally not my idea, I wish I was that clever!) Why is patience called 'pay'tience? Because in trading, patience really does pay! We've all heard the saying "patience is a virtue." When it comes to options trading, paytience is more than just a virtue, it's a strategy we promote at Good Kids Trading (GKT). It might sound like the opposite of what you want but we want to turn the exciting world of options into a boring income stream! Excitement and emotions sometimes pushes traders towards making hasty decisions fueled by emotions, most notably fear and greed. That's where the art of paytience comes into your trading plan. GTK believes in trading small, trading often, and trading mechanically (I know this is in every article I write, but it really is the best way to be a successful trader). This means letting go of that itch to react impulsively to every market move. Instead, allow our math-based strategies to do their work over time. Remember we’re playing the game of statistics here. Like a well-aged wine, many options strategies need time to mature to offer the most satisfying return, don't be tempted to exit at the worst possible time. Don't let emotions take over! We deal with high probabilities. My strategies are structured in such a way that the statistics are on my side. This is comforting! I keep my plan so simple that I know exactly what will happen no matter which way the underlying moves. Knowing that I have a high probability of profit allows me to be 'paytient' and keeping it simple allows me to stay committed to my strategy, even when the market feels like a wild roller coaster. With paytience we set our Good-Till-Cancelled (GTC) orders and then let them do their job. We don't need to glue our eyes to the screen, biting our nails with every price movement. Instead, we can trust in our plan, knowing that our GTC orders are lying in wait, ready to pounce when our profit targets are hit. Paytience also frees me up to focus on other important aspects of my life. I spend time with friends and family. Using my time in a more meaningful way without the stress of watching every single tick of a stock chart is important to me. Keep in mind though that paytience isn’t about inaction. It’s actually about measured action. It's not about waiting aimlessly, but waiting with a purpose. You shouldn't break your rules and double down on losers, or let a loser get out of control. GKT paytience is about having faith in your trading plan and the methodical math-based approach to trading that we preach and practice here at GKT. Options trading is as much about mastering our emotions as it is about understanding the markets. That's why, in the race to financial freedom, slow and steady often wins the race. So remember next time you find yourself hovering over that 'buy' or 'sell' button, take a moment, take a breath, and ask yourself: Have I practiced paytience today? Join the Good Kids Trading (GKT) community today, and we'll help you navigate the exciting world of options trading in a boring way! Yes, you really do want boring at least with most of your portfolio.

Today is Friday May 26th, 2023 and it's 21 days away from the regular June option expiration. What a great time to discuss a core principle of math-based options trading: why we typically roll our option trades at 21 Days to Expiration (DTE). I will be rolling a lot of my positions today! You might be wondering, why 21 days? Is this some sort of magic number? Well, not exactly magic, but there is a method to the madness. Several studies conducted have shown that the risk-reward profile of a trade changes significantly as we approach the expiration date. This shifting risk profile is primarily due to an increase in what we call 'tail risk.' Tail risk, in "simple" terms (this sounds more complicated than it really is), represents the potential for an investment to move more than three standard deviations from its current price. If you aren't familiar with the Bell Curve here is an image: As we get closer to the expiration date, the potential for large, sudden price swings increases, making the position riskier. Now, while we at GKT appreciate a good thrill now and then, we also value the importance of managing risk effectively in our trading strategy. So, where does the 21 DTE come in? Well, these studies found that the tail risk starts to escalate significantly around 21 days before expiration. Essentially, the 21 DTE mark serves as a tipping point, where the risk of holding the position starts outweighing the potential rewards. So, how do we manage this risk? That's where the art of 'rolling' options comes in. At 21 DTE, we typically make a choice: either we close the trade, or we roll it forward in time. This decision is based on a variety of factors, including the trade's current profitability and the overall market conditions. Remember to follow your trade plan, it keeps emotion out of this decision! Rolling the trade technically involves closing the current position and opening a new one in a later expiration cycle. This allows us to reduce the risk associated with the current trade while maintaining a similar market position. This normally results in an additional credit so you continue to benefit from theta decay! In essence, we are managing our trades and mitigating risk by adjusting our positions before the tail risk can bite us. It's all about staying one step ahead and proactively managing our trades, ensuring our portfolio remains healthy and robust. Of course, like with all trading strategies, it's important to remember that there are no hard and fast rules here. The 21 DTE strategy is a guideline that works well for most of our trades, but every situation calls for its own unique assessment. That's why at GKT, we encourage trading small, trading often, and trading mechanically. This approach gives us the flexibility to adapt our strategy based on the unique circumstances of each trade while sticking to our core risk management principles. Remember, it's not just about making profitable trades, but about managing our risk along the way.

This is an exciting article to write for several reasons. The biggest reason is that the art of selling a put has generated tons of money for GKT traders. It is also an extremely simple strategy! Because selling a put is an option trading strategy in itself, we will discuss it briefly in this article. However, this article will focus less on the nuances of this strategy but primarily will provide a foundational understanding of what happens after a put is sold. Just in case you missed it, or if you aren’t really sure what a put option even is, check out this article which gives a big picture overview of options trading as a whole. But first… a quick review! Put Options Explained The put option gives the buyer the right to sell 100 shares of stock at the strike price on or before the expiration date to the put option seller. The buyer can choose to execute this right at any point in time up to the close of the market on the expiration date. The seller of the put option is obligated to buy the shares if this happens. The put seller simply has no say in the matter. Biggest Mistake with SELLING Put Options The biggest mistake with selling put options is forgetting the obligation that you signed up for. Read the section above again if you don’t know what I’m talking about. If the buyer of the put chooses to sell you shares, your broker will automatically buy them for you with your money and will send you an email afterwards to let you know. People make this mistake when they become too greedy or overly confident that they’ll be correct. It takes exactly one extra keystroke to sell 10 put options than it does to sell 1 put option. If you sell one put at a $30 strike, you need to be mentally prepared to spend $3,000 to buy 100 shares of stock in the worst case scenario. If you sold 10 puts, you’d need to be ready to spend $30,000 dollars. Don’t let this scare you though! GKT would be doing you a massive disservice if we didn’t warn you about the risks that come with a trade. You should also keep in mind that I said selling puts consistently generates a lot of money for the GKT community as a whole. Selling a Put Option Example If you are not totally scared off at this point, and good on you that you aren’t, we will break down selling a put using an example. This image is from the tastytrade broker but all brokers should look somewhat similar. In this example (which is used for illustration purposes only and should not be considered trade advice), SPY was trading at $411.83 and we decided to sell one of the 400 puts in SPY in the May 19, 2023 expiration cycle. When you sell a put, you collect the premium which in this case was $3.20 per share or $320 dollars total. When traders talk to each other they may say, “I’m short the 400 SPY put in May for $3.20.” Check out this article if you need a refresher on going short. And now we wait. While we are waiting… Worst Case Scenario when Selling Puts In our example we sold the $400 SPY put. Regardless of how unlikely it may be, SPY’s price can theoretically fall to $0 per share. If this were to happen, the put option buyer would force us to buy 100 shares of SPY at $400 a share. At this point we would spend $40,000 to buy something totally worthless. Again, this is the WORST case scenario but you should always know the risks you are taking with each trade. How do Short Puts Make Money? Put option sellers make money when: The stock’s price goes up Time passes The stock becomes less volatile. Put Option Sellers Make Money as Price Goes Up When we opened the trade, SPY was trading at $411.28 per share and we sold the $400 put. On May 19th, if SPY closed at $400.01 or higher, it wouldn’t make financial sense for the put option buyer to sell shares at $400 when they could sell those shares for $400.01 or higher. Our put option would then expire worthless and we would keep the entire $320 of premium we collected by selling the option. Astute readers, like you, probably caught the misleading title of this section. Put option sellers will definitely make money if the price goes up. AND they can also be profitable even if the price goes down, so long as the price at expiration closes above the sold strike! I hear you asking, “Are you telling me that if SPY went down to $0.00 then back up to $400.01 at expiration, we’d keep the $320 in premium?” My answer is 100% ,“Yes!” but you’d probably be incredibly sick to your stomach along the way. As the price of SPY falls, the put option buyer’s trade starts working and all the mechanics that make their trade profitable explain why your trade would be losing. Only one of you two can win on this trade after all is said and done. Briefly, they can sell you shares at the strike price and immediately buy them back for less than what they sold it for. If you didn’t catch that article, check out the basics of buying a put option for a full explanation of this concept. Put Option Sellers Make Money as Time Passes This title is not misleading at all. The literal passage of time decreases the value of an option. Compare our example to this picture. Both pictures show a put sale at the 400 strike in SPY. Our initial example sold the 29 days to expiration (DTE) option and this picture sold the 14 DTE option, which is roughly half the length of time. For you math sticklers, it is 51.72% less time. Notice how the price of this put sale trades for $1.53, which is highlighted in the green box. This is roughly half of the price of the initial example, which was $3.20, or a 52.5% reduction in the premium. This example highlights the time component of options pricing. Simply stated, the more time left in the option, the more value it retains. As time passes, the amount of time left on the contract decreases, which in turn decreases the value of the contract. Some really smart people who are really good with a calculator created a formula to quantify how much an option’s value will decrease with each passing day. This value is called Theta and is represented by the blue box in the picture above. Theta = Time Value In this example, the option’s price should theoretically decrease by $0.12 over the next 24 hours. Time value is only one variable in the option pricing formula. The price of the stock and volatility are also variables within that same formula. Stock price and volatility are never constant in the real-world which is why Theta is a theoretical value. The biggest take home here is that put option sellers, and option sellers in general, benefit from the passage of time because the time value included in the option’s price will decrease. Put Option Sellers Make Money with a Decrease in Volatility The third way for put option sellers to make money is with a decrease in the volatility of the underlying stock. Option Volatility Explained Option volatility is a fancy way to say “uncertainty.” To illustrate this concept, think about your average trip to the grocery store. Each time you go, you pretty much know how much a box of cereal, loaf of bread, can of soup, etc., costs. Sure it may go up or down a few pennies, maybe even a nickel, before you notice. The consistency of price allows you to be pretty certain of the value of the product. When it goes on sale, you don’t hesitate to buy it. The volatility of price in your average grocery store is low. Now imagine a grocery store where the price of items changes massively every visit. One time a dozen eggs costs 20-30% more than it did previously. The next time, the price of eggs falls 50%. Now fresh produce is up 25% and that carrot is worth its weight in gold. I can’t speak for you, but I would probably take my business elsewhere because I couldn’t handle the price swings. This would be a highly volatile grocery store. In the stock market, volatility is correlated with uncertainty in the future price. Blue chip dividend stocks like Coca-Cola (KO), Procter & Gamble (PG), and Wal-Mart (WMT) more or less chug along. Every now and then they will have a big price swing, but these swings typically correspond with broader market movements, like the COVID crash in March 2020. As a result, people more or less “know” what they are getting into. A low volatility stock’s price movement is about as exciting as a children’s roller coaster. Highly volatile stocks like Tesla (TSLA), Square (SQ), and most of your growth focused companies are similar to the adrenaline pumping roller coasters with the mechanical ratcheting sound as you go up, fast drop, and some combination of loops and spins to follow. Good news one day sends the price soaring and mediocre news can plummet these types of stocks. Sometimes, good news can drive the price down and bad news sends the price up. No one said the market was rational. Keeping with the roller coaster analogy, no stock’s volatility is ALWAYS high or ALWAYS low, just as there are faster and slower parts of every roller coaster. Eventually the stock’s volatility will work its way back to its “normal” just as a rollercoaster always returns to the start. Option sellers try to take advantage of times of increased volatility. When volatility is high, the price of the option is also high. When volatility decreases, the price of the option similarly decreases. Option sellers want to sell the option when volatility, and therefore the option price, is high with the intent to buy it back when volatility, and the option price, has decreased at some point in the future. How To Manage a Short Put When you sell a put, you have no say over whether or not the buyer will exercise their right to make you buy shares. Unless the sold put is extremely in the money (ITM) and close to expiration, or a dividend is coming, the likelihood of the buyer exercising their put is very low. I’ve said it once and I’ll say it again, you should be mentally prepared to buy the shares at the price you sold the strike from day one! How to Manage a Short Put that is Profitable This is the most ideal and hopefully the most common scenario that you’ll find yourself in. You sold the put then time passed, price went higher, volatility decreased, or some combination and now the put is worth less than what you sold it for. Congratulations on your winning trade! The easiest thing you can do is buy back the put for less than you sold it for. At GKT, we tend to close out winning sold puts at 50% of the credit received. We use Good Till Canceled orders, or GTC’s, to do this for us automatically. In our example where we sold the 400 SPY put for $3.20 expiring on May 19, 2023, we would typically set a target to buy it back for $1.60. There are times where we may deviate from this course and hold for more or bail out for less. There are times where we even cut our losses and run! You can and should write a trading plan to help you guide this decision. How to Manage a Losing Short Put Managing losing trades is one of the most important parts of investing in the stock market. I hate to break it to you, but you will find yourself with losing trades. In fact, you’ll find yourself with a LOT of losing trades. Some traders wipe out all of their gains, and sometimes more, with their losses. Profitable traders expect to have losing trades and they have a plan to help them lose as little as possible. With short puts you have a couple management options available. There isn’t one right answer for every situation and you should be familiar with each option Close the option for a loss. Although this doesn’t sound fun, sometimes it is best to just cut and run before the losses get bigger. Some people are only comfortable losing so many dollars on a given trade. If that number comes up, they exit the trade and move on. This is a very sensible way to keep losses small. Roll the option out in time. Rolling an option just means closing out the current trade and opening up a new one in the same underlying. To roll a short put, you’d buy it back and then resell it again. When managing short puts, you’d most commonly roll out in time. We initially sold the $400 SPY put in May, so we could buy it back and then sell the $400 SPY put in June. Typically, rolling out in time will result in a net credit. You may buy the option back for $2.00 and would sell the $400 put in June for $3.00, resulting in a $1.00 credit. Roll the option out and down. In this scenario you are rolling out in time like we just described but now you are trying to roll the strike down. So you’d roll from the $400 SPY put in May to the $395 SPY put in June. Again, you’d ideally like to take in a net credit. Since you are lowering your risk by decreasing your strike, the credit may be small. If you try to roll too far down, you’ll see it starts to cost a debit. We generally try to avoid paying a debit because it takes away from the profit potential of the trade but sometimes it is necessary. Wait. Waiting is a tough thing to do when you are staring at a loser in your account. As I’m writing this article, I have two short put losers in my account. Given my plan and where I am in the trade, I plan on waiting for time to pass and hoping for a favorable move in price. No one knows what the future will bring, but at minimum time passing is certain and I will collect some Theta. As we outlined above, as time passes, the option gets cheaper from that one perspective. Price falling can certainly outweigh the benefits of time passing which is the biggest risk with this style of management. Summary This article provides an overview for selling a put option and outlines some of the fundamental concepts. This article also gives a taste of the strategy of selling a put. For the final time in this article, the most important thing to remember with selling a put is that you have to be prepared to buy the shares at the strike price. It is really easy to sell more puts than your account size can handle. As long as you manage the risk inherent with selling puts, this can be an extremely powerful tool for building wealth. Feel free to leave any questions in the comments below. If you want to see how GKT sells puts in real time, join our discord community today!

Embrace the unexpected – that thought is in the back of my mind for every trade I make. This is not scary to me anymore because I know how to manage my trade no matter what happens. It's important to accept that losing trades are part of the process, matter a fact it was almost one of the key pillars of: trade small, trade often, and trade mechanically that we stress here at Good Kids Trading (GKT), but I didn't want you close the webpage as soon as you saw that we setup losing trades all the time. GKT breaks the mold of other groups, we talk about losses all the time. Why let the fear of losses hold you back? Instead, let's dive into the trader's mindset and learn how to turn those setbacks into valuable lessons for long-term success. Losses are inevitable in options trading just like every other style of trading. There's no magic formula or secret strategy to eliminate them completely as described in the 10 lessons I learned from trading options: There is no holy grail where you will win EVERY trade, I don't care what you read, hear or say everyone loses just not everyone talks about it. However, by focusing on high probability trades, you can optimize your winning chances and minimize the impact of losses. The key is to embrace the concept of "trade small, trade often" – and if you use probabilities and statistics you should win more than you lose! By keeping your position size small, you spread your risk across a larger number of trades, ensuring that a single loss won't devastate your account. When it comes to trader psychology, losses can be challenging to accept. But remember, trading is a numbers game – and embracing this fact can help you develop the mental resilience required to succeed. Instead of dwelling on individual losses, focus on the bigger picture: your overall trading performance. As long as your winning trades outnumber your losses you're on the right track. Recognize that losses offer valuable learning opportunities. If you are not reviewing your losing trades you are missing a great opportunity to learn! Analyzing your losing trades reveals areas for improvement, from your trading strategy to your risk management. Use these insights to refine your approach and increase the probability of future success. Treat losses as stepping stones on your journey to becoming a more skilled options trader. There is amazing value in reviewing losing trades. By following a trading plan, you minimize emotional decision-making and ensure that your trading strategy remains consistent, even in the face of losses. Mechanical trading also allows you to stay disciplined and focused on the long-term goals, rather than getting swayed by short-term market fluctuations. Stop fearing losses and instead embrace them as an essential part of your options trading journey. They are learning opportunities and they are normal. By trading small, trading often, and trading mechanically, you'll build the resilience and discipline required to succeed in the long run. Remember it's not about avoiding losses; it's about learning from them, evolving, and ultimately becoming a better trader. Trading in a community of likeminded people is far more fun, educational, and profitable! Join our discord today: www.goodkidstrading.com/join

Sometimes to become 'good' at something, you have to embrace being 'bad'. This might sound counterintuitive, so let me explain. This weekend, I had the opportunity to attend the Bad Traders Tour in Atlanta. I had the chance to meet some of the TastyTrade personalities, to me these are the hero's in the world of math based options trading. It was a unique chance to pick their brains, and believe me, it was as enlightening as it was entertaining. The cool thing about Tasty is the personalities you see on youtube are just as genuine and friendly in person as they appear virtually. They actually care about their customers and it really shows! I enjoyed meeting Dr. Jim before the show, he has a knack for making complex trading concepts feel like a walk in the park. We discussed how his famous slogan "for every gimmie has a gotcha" applies to all aspects of life not just trading. He mentioned he has his daughter saying this already as well! His official talk discussed working in a restaurant, it wasn't the Bonefish Grill tho. No spoilers here Dr Jim... I won't discuss how they just ran out of the strawberry surprise for dessert... He reminded us that every opportunity or advantage we get often comes with a hidden cost or challenge. The key: being prepared for the 'gotcha' while enjoying the 'gimmie'. Then there was Liz and Jenny, the dynamic duo whose on-air banter is as educational as it is fun. Their back-and-forth, their questioning of each other, makes them relatable and provides a real-time learning experience for all of us. It's like eavesdropping on two expert traders discussing strategies and then getting to pocket the nuggets of wisdom they drop along the way. Both of their talks were great! Such good mindset nuggets were shared. Julia covered some topics from her book specially around black swan events, Jermal dropped some knowledge about his time working at a prop firm and even his experience as a lyft driver! But of course, they saved the best for last. Enter Tom Sosnoff, a powerhouse of option trading know-how with an unmatched passion for the game. Tom brought a whole new perspective to what makes a 'bad' trader. Spoiler alert: we actually want to be 'bad' traders in some ways... After talking about how horrible the food was in Atlanta (health wise, not taste wise) Tom was open about his past, discussing the bad business deals he's made and the importance of pushing forward, no matter what. He stressed that we learned from our losses, but also reminded the crowd that many of us aren't taking enough risks. We're held back by self-limiting beliefs, scared to embrace losses and 'bad' trades as progress towards bigger goals. This hit me hard. How often do we let the fear of failure stop us from even trying? But here's the thing: in trading, and in life, it's those very failures, those 'bad' trades, that help us learn, grow, and improve. They're not setbacks; they're stepping stones to success. If you get a chance you need to attend the Bad Traders Tour. It's a fun few hours of learning, laughter, and some serious food for thought. You might even meet some new friendds! It reminded me that it's okay to be a 'bad' trader, to take risks, and to make mistakes. After all, that's how we grow, right? So let's embrace being 'bad' traders at Good Kids Trading. Let's push past our self-limiting beliefs, and yes let's take risks (don't forget risk management tho), and see every loss as an opportunity to learn. Because, as the TastyTrade personalities reminded me, that's the real secret to success in options trading. Let's be 'bad' together and see where it takes us. Join us on Good Kids Trading Discord, and let's shake things up a bit.

If you're trading with a small account and ready to take your options trading to the next level this blog post is for you. I'm discussing specific strategies and trading plans tailored to small accounts, while embracing the Good Kids Trading (GKT) principles of trading small, trading often, and trading mechanically. Our discord community is a great place to learn more, join today, it's free! Let's explore some approaches to help you grow your small account and thrive in the world of math-based options trading. When trading with a small account, it's essential to focus mainly on risk-defined strategies that limit your potential losses. By capping your potential downside, you protect your account and ensure that you can bounce back from a losing trade. Yes, you are also not going to make as much profit as you would with undefined risks trades, but GKT stresses the importance of risk management! Ensure that your position sizing aligns with your risk tolerance and account size, and always use stop-loss orders or understand the max loss before entering the trade! Vertical Spreads One of the most effective strategies for small account traders is vertical spreads. By simultaneously buying and selling options with different strike prices, but the same expiration date, you can limit your risk while still having the potential for profit. Vertical spreads, such as bull put spreads and bear call spreads, allow you to trade directionally while keeping your capital requirements low. Trading Plan: Identify an underlying stock with a clear directional bias. At GKT Sell an out-of-the-money (OTM) put option while simultaneously buying a further OTM put option for a bull put spread, or sell an OTM call option while buying a further OTM call option for a bear call spread. Monitor your position and adjust as needed to maintain your risk profile. Iron Condors Iron condors are a popular strategy for small account traders looking to profit from range-bound markets. This neutral strategy involves selling an OTM call and put option while simultaneously buying further OTM call and put options. The goal is for the underlying stock to remain between the short call and put strike prices, allowing you to collect the premium from both sides. Trading Plan: Identify a stock with low implied volatility and little expected price movement. Sell an OTM call and put option, then buy further OTM call and put options to define your risk. Monitor the position and adjust as needed to maintain a neutral stance. Calendar Spreads Calendar spreads involve selling a near-term option while simultaneously buying a longer-term option with the same strike price. This strategy takes advantage of time decay, with the goal of profiting from the faster decay of the near-term option. Trading Plan: Choose a stock with a stable price outlook and identify a strike price close to the current trading price. Sell a near-term option and buy a longer-term option with the same strike price. Monitor the position for changes in implied volatility and price movement, adjusting as needed. Covered Calls For small account traders who own stock, covered calls can be an excellent strategy for generating additional income. By selling a call option against your existing stock position, you collect premium income while agreeing to sell your stock at the strike price if the option is exercised. Trading Plan: Identify a stock in your portfolio with limited upside potential. Sell a call option with a strike price above the current trading price and an expiration date that aligns with your outlook. Monitor the position for changes in price movement and consider rolling the call option if necessary. Cash-Secured Puts Cash-secured puts involve selling a put option and setting aside the cash needed to purchase the stock if the option is exercised. This strategy can generate income and potentially acquire stocks at a lower cost basis. Trading Plan: Identify a stock you're interested in owning at a lower price. Sell an OTM put option and set aside the cash needed to purchase the stock if the option is exercised. Monitor the position and consider rolling the put option if necessary. Scaling into Trades Scaling into trades is a technique that involves gradually building a position by entering multiple smaller trades instead of a single large trade. This approach allows you to manage risk and improve your average entry price, especially during volatile market conditions. Trading Plan: Identify a stock or options position that you want to establish. Instead of entering the entire position at once, divide your capital into smaller portions and enter multiple trades at different price levels. Monitor the overall position and continue scaling in as the market moves in your favor or provides more favorable entry points. By combining these strategies with the core GKT principles of trading small, trading often, and trading mechanically, you can effectively grow your small account and navigate the world of math-based options trading. Remember, the key to long-term success is staying disciplined, managing risk, and continuously learning from your experiences. And don't forget, joining the GKT Discord community can provide invaluable support and guidance as you embark on your trading journey. Join us today – we can't wait to see you succeed!

In the fast-paced world of trading, it's easy to fall into the trap of feeling like you need to trade all the time. At Good Kids Trading (GKT), we emphasize the importance of trading small and trading often, but there's a fine line between staying active in the market and making bad trades out of boredom, emotion, or for the sake of trading. Today I'll discuss how to combat the urge to trade constantly and how I focus on quality over quantity to set up better trades rather than just more trades. The first step in finding the right balance between trading often and trading mindfully is to understand the difference between the two! When we say trade often this means taking advantage of opportunities when they arise. Your trades should meet one or all of the following criteria: you have high probability of profit, you see technical patterns that make you feel confident in your thesis, or there is enough premium to justify the trade (good risk to reward). Trading mindfully ensures that you don't force trades or enter positions out of boredom or impatience. Here are some tips to help you strike the right balance: Develop a solid trading plan: Having a well-defined trading plan helps you stay disciplined and avoid making impulsive trades. Outline your entry and exit criteria, position sizing, and risk management rules to ensure that you're only entering trades that align with your strategy. Having an exit plan before you enter a trade is a must. Be selective with your trades: Focus on high probability trades that meet your specific criteria. It's better to make fewer, high-quality trades than to enter multiple lower-quality trades that don't align with your strategy. Schedule regular breaks: Give yourself time away from the market to recharge and maintain perspective. Taking regular breaks can help you avoid burnout and stay focused on the bigger picture. It sounds counter intuitive but taking breaks even if it's just for a few hours really resets our perspective. Analyze your trading performance: Regularly review your trading history to identify patterns and areas for improvement. This can help you refine your trading strategy and ensure that you're focusing on quality trades. Stay engaged with a trading community: Surround yourself with like-minded traders who share your commitment to trading small, trading often, and trading mechanically. A supportive community helps you stay disciplined and accountable in your trading journey. Join our discord today: www.goodkidstrading.com/join Remember, the goal is to focus on quality trades, not just more trades. Trading mindfully means recognizing that sometimes the best trade is the one you don't make. It's essential to maintain discipline, stick to your trading plan, and avoid making trades out of boredom or impatience. Finding the right balance between trading often and trading mindfully is crucial for long-term success in the options market. By focusing on quality over quantity, you'll be better equipped to identify high probability trades and optimize your overall trading performance. And always remember, at GKT, our goal is to trade small, trade often, and trade mechanically – but that doesn't mean forcing trades that aren't there. It's all about striking the right balance for sustainable success. We practice these concepts every day. Plus, trading in a community of likeminded people is far more fun, educational, and profitable! Join our discord today: www.goodkidstrading.com/join

As options traders, we spend a considerable amount of time researching and planning our entry points. But what about exits? I see so many traders who focus on when to get in and forget to focus on when to exit, it's important to remember that successful trading isn't just about perfect entries – it's also about knowing when and how to exit a trade. At Good Kids Trading (GKT), we believe in trading small, trading often, and trading mechanically, and exit strategies play a vital role in our approach. So, let's dive into the importance of exits in options trading and how they can make or break your trades. First, it's essential to recognize that options trading is different from trading shares. Options move differently than the price of the stock. Options expire so the length of time on your options and the volatility of the options you are trading matters. Market conditions change rapidly, and having a well-defined exit strategy allows you to adapt and react quickly. By establishing your exit criteria before entering a trade, you can minimize the impact of emotions and avoid making impulsive decisions that could lead to losses. There are several exit strategies to consider when trading options, and each comes with its own set of advantages and challenges. Here are a few popular strategies to help you optimize your exits: Profit targets: Set a predetermined profit level at which you'll close your trade. This helps you lock in profits and avoid holding onto a trade for too long, only to see potential gains evaporate. GKT traders often target a certain percentage such as 50% and set GTC orders. Stop losses: Stop losses on options are a little different than shares. As previously mentioned options might trade more exaggerated than the shares so it's possible you can get stopped out then you watch the trade hit the target without you. Establish a maximum loss threshold at which you'll close your trade. If you setup trades that have a small debit you may not even need a stop! See my article on trading without stops. Time-based exits: Close your trade at a predetermined time, regardless of profit or loss. This can be particularly useful when trading options with time decay, as it ensures you don't hold onto a losing trade for too long. GKT is a proponent of closing many of our trades within 21 DTE, but depending on the strategy we may trade closer dated options. Technical indicators: Use technical analysis tools to identify exit signals, such as trend reversals or support and resistance levels. Option Greeks: Monitor option Greeks, like Delta, Theta, and Vega, to determine when it's time to exit based on changes in the option's risk profile. Now that I've discussed various exit strategies here are some ideas to incorporate exits into your options trading plan: Plan your exit strategy before entering a trade: I can't stress this enough know when you are going to get out for a profit AND for a loss! By establishing your exit criteria upfront, you'll be better prepared to manage risk and make informed decisions during the trade. Stay disciplined: Stick to your exit plan, even when emotions run high. Remember, consistency is key when it comes to successful options trading. Follow your plan, edit it later, but don't let emotions dictate your exit. Monitor your trades closely: Keep an eye on market conditions, option Greeks, and any other relevant factors that could influence your exit decision. Be flexible: While discipline is essential, it's also crucial to remain adaptable. If market conditions change or new information emerges, be prepared to adjust your exit strategy accordingly. For me personally if there is ever mention of accounting issues, I always exit the trade. Learn from your exits: Analyze your trade exits to identify patterns and areas for improvement. Use this information to refine your exit strategies and optimize future trades. To recap: it's not just about entries – exits can make or break your trades. Keep risk to reward in mind by giving equal attention to both entries and exits for all your trading strategies, you'll be better equipped to navigate the dynamic world of options trading. Remember, at GKT, we believe in trading small, trading often, and trading mechanically, and a well-defined exit strategy is a critical component of our success. Trading in a community of likeminded people is far more fun, educational, and profitable! Join our discord today: www.goodkidstrading.com/join