OAP 120: Option Trader Success – Why Some Traders Are Frankly Always More Profitable

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Over the last 10+ years I've seen thousands, and coached hundreds, of traders navigate the markets. And if you study option trader success long enough (and geek out about it as much as I do) then you'll quickly come to realize that success is nothing more than a persistent person with great habits and a clear mind. Today's show focusing on why I believe some traders are frankly always more profitable than others while re-visiting six key areas that differentiate them. I encourage you to take a close look at this list we present today and see what areas you might be able to improve on moving forward. Honestly, the perspective I get from running Option Alpha continues to be one of the driving forces for me to keep pushing forward on all fronts with this platform and community, because I can quickly learn and adapt what works and what doesn't to my own trading style by watching and listening to other people. My hope is that today's show does the same for you and helps encourage you to keep pushing forward.

Key Points from Today's Show:

  • When it comes to successful and profitable traders, they have similar traits. 
  • Successful trading involves a lot of mindset shifts, and systematic trading strategies. 

Profitable Trader Traits: 

1. Never Stop Playing the Game

  • Really good traders never stop playing the long game.
  • They recognize the longevity that is required to be in the business. 
  • Their perspective is so long term that they are not phased by any short term movements in the markets. 
  • Understand that you become more and more successful the longer you stay involved. 
  • Every single trade that you make gets you one step closer to solidifying that positive expected return. 
  • You have to have your focus on staying in the game, staying active, and making more trades. 

2. Never Let Setbacks Set You Back

  • Really good traders and investors never let setbacks actually set them back. 
  • They recognize that setbacks are part of the system and the process. 
  • This creates a constant forward motion; the idea that when you fall, you get back up and at least you fall forward.
  • Learn from your setbacks, recognize what happened, try to make a change, or just keep moving forward.

3. Seek Constant Improvement

  • Great traders still seek out ways to improve their strategies, despite their high level of understanding. 
  • They recognize that you are never done learning, and you can always learn from someone else. 
  • Markets are constantly changing, so your education as a trader never truly ends. 

4. Accept What You Can't change 

  • Successful traders have a philosophy where they realize that there are things you cannot change. 
  • Black swan events are unpredictable by their nature, so it is better to accept them than to try and predict them. 
  • The market moves are also unpredictable, which makes it essential to stick to your strategies.

5. Build Good Habits Versus Bad Habits 

  • Habits can be either good or bad; your mind has no way of determining whether it is a good or bad habit. 
  • Your mind is programmed to reduce its own strain, so it builds habits and routines. 
  • You literally have to force your mind and body into the right habits long enough until they become routine. 
  • It takes a lot of cognitive effort to rewire and reprocess your habits. 
  • As a trader, you have got to build good habits so you can rely on them to do the right thing.

6. Recognize the Importance of Systems

  • Good traders recognize the importance of having a system in place; that there is a reaction to every action that happens. 
  • Systems create a lot of efficiencies, at the risk of being perfect.
  • Where systems fail is that they don't allow you to be absolutely, emphatically perfect.
  • However, when you need those systems they have to be there and ready to function and move with the market. 

Auto-Trading Software:

  • The auto-trading software goes hand-in-hand with setting up a system for trading. 
  • With auto-trading software, the goal has always been to remove our own emotion from the market and make ourselves more systematic and much faster. 
  • The software allows you to build out your own trading system, all within one complete auto-trading bot.
  • This bot can then be shared with others in the community. 

Option Alpha Podcast Show Notes[FREE Download] Podcast Show Notes & Transcript PDF: No time to read the show notes right now? We've made it incredibly easy for you to save time by giving you instant access to the complete digital version of today's show. Click Here to Download Your FREE Copy

Free Options Trading Courses:

  • Options Basics [20 Videos]: Whether you're a completely new trader or an experienced trader, you'll still need to master the basics. The goal of this section is to help lay the groundwork for your education with some simple, yet important lessons surrounding options.
  • Finding & Placing Trades [26 Videos]: Successful options trading is 100% dependent on your ability to find and enter trades that give you an "edge" in the market. This module helps teach you how to scan properly for and select the best strategies to execute smarter option trades each day.
  • Pricing & Volatility [12 Videos]: This module includes lessons on mastering implied volatility and premium pricing for specific strategies. We'll also look at IV relativeness and percentiles which help you determine the best strategy to use for each and every possible market setup.
  • Neutral Options Strategies [7 Videos]: The beauty of options is that you can trade the market within a neutral range either up or down. You'll learn to love sideways and range bound markets because of the opportunity to build non-directional strategies that profit if the stock goes up, down or nowhere at all.
  • Bullish Options Strategies [12 Videos]: Naturally everyone wants to make money when the market is heading higher. In this module, we'll show you how to create specific strategies that profit from up trending markets including low IV strategies like calendars, diagonals, covered calls and direction debit spreads.
  • Options Expiration & Assignment [11 Videos]: Our goal is to make sure you understand the logistics of how each process works and the parties involved. If you don’t feel confident in the expiration processes or have questions that you just can't seem to get answered, then this section will help you.
  • Portfolio Management [16 Videos]: When I say "portfolio management" some people automatically assume you need a Masters from MIT to understand the concept and strategies - that is NOT the case. And in this module, you'll see why managing your risk trading options is actually quite simple.
  • Trade Adjustments/Hedges [15 Videos]: In this popular module, we'll give you concrete examples of how you can hedge different options strategies to both reduce potential losses and give yourself an opportunity to profit if things turn around. Plus, we'll help you create an alert system to save time and make it more automatic.
  • Professional Trading [14 Videos]: Honestly, this module isn't just for professional traders; it's for anyone who wants to have eventually options replace some (or all) of their monthly income. Because the reality is that mindset is everything if you truly want to earn a living trading options.

Option Trader Q&A w/ Tom

Trader Q&A is our favorite segment of the show because we get to hear from one of our community members and help answer their questions live on the air. Today's question comes from Tom, who asks:

have been trading options for 2-3 years now. I was wondering if you would trade the move on Nvidia today? It fell $14 a share and I'm thinking it will recover based on past experience.

Remember, if you’d like to get your question answered here on the podcast or LIVE on Facebook & Periscope, head over to OptionAlpha.com/ASK and click the big red record button in the middle of the screen and leave me a private voicemail. There’s no software to download or install and it’s incredibly easy.

PDF Guides & Checklists:

  • The Ultimate Options Strategy Guide [90 Pages]: Our most popular PDF workbook with detailed options strategy pages categorized by market direction. Read the whole guide in less than 15 mins and have it forever to reference.
  • Earnings Trading Guide [33 Pages]: The ultimate guide to earnings trades including the top things to look for when playing these one-day volatility events, expected move calculations, best strategies to use, adjustments, etc.
  • Implied Volatility (IV) Percentile Rank [3 Pages]: A cool, simple visual tool to help you understand how we should be trading based on the current IV rank of any particular stock and the best strategies for each blocked section of IV.
  • Guide to Trade Size & Allocation [8 Pages]: Helping you figure out exactly how to calculate new position size as well as how much you should be allocating to your each position based on your overall portfolio balance.
  • When to Exit/Manage Trades [7 Pages]: Broken down by option strategy we'll give you concrete guidelines on the best exit points and prices for each trade type to maximize your win rate and profits long-term.
  • 7-Step Trade Entry Checklist [10 Pages]: Our top 7 things you should be double-checking before you enter your next trading. This quick checklist will help keep you out of harms way by making sure you make smarter entries.

Real-Money, LIVE Trading:

  • EWZ Iron Butterfly (Closing Trade): After nearly pinning the stock at our short strikes, and thanks to the volatility drop, we netted a $600 profit on this iron butterfly trade.
  • VXX Short Call (Closing Trade): One of the most consistent and profitable options trades we can make is shorting pure volatility with VXX and today we closed this naked short call in VXX after a couple days for a $420 profit.
  • DIA Iron Condor (Adjusting Trade): This neutral iron condor in DIA is need of a quick adjustment early this week as the market continues to rally. In this video, we'll discuss why I'm adding an additional put credit spread while also choosing NOT to close out of our current put credit spread due to pricing reasons.
  • COP Short Put (Closing Trade): These single short puts in COP acted as a great hedge for our other bearish bets in oil this month and helped smooth out our returns after we closed them for a nice big profit.
  • TSLA Put Debit Spread (Closing Trade): Although many people thought we were crazy for getting bearish in TSLA this pre-earnings put debit spread trade made us $200 today. After the huge run up from $140 to $260 and getting some technical sell signals, we were pretty sure this stock would pull back.
  • MON Iron Condor (Closing Trade): Following a huge drop in implied volatility we worked hard to close this MON iron condor trade adjusting the order multiple times to fill before the end of the day.
  • IBB Call Debit Spread (Opening Trade): We'll show you how I started searching for a new bullish trade and eventually found a low volatility trade in IBB looking for a move higher to hedge our portfolio.
  • TLT Iron Butterfly (Closing Trade): Following the Brexit vote TLT and bonds traded in a nearly $8 range really quickly - even still the drop in implied volatility helped generate a $330 profit for us.
  • XBI Call Debit Spread (Closing Trade): Got lucky picking the exact bottom for our entry in this call debit spread for the XBI biotech ETF which ultimately was closed for a profit of $165 today on the rally higher.
  • COH Iron Butterfly (Earnings Trade): Shortly after the market open we close out of our COH earnings trade for about a $160 profit, leaving just 1 leg on to expire worthless.
  • EWW Debit Spread (Closing Trade): Using some of the technical analysis signals we discovered in our backtesting research, we were able to make a quick $130 profit on this bearish EWW debit spread trade.
  • IBM Iron Condor (Earnings Trade): Shortly after the market opened you'll follow along with me as we watch volatility drop and liquidity come into the market before closing out the position for $250 profit.
  • SLV Short Straddle (Opening Trade): Using our watch list software we decided to continue to add to our existing SLV short straddle position with a new set of strike prices reflective of the move lower in the ETF recently.

Thank You for Listening!

I'm humbled that you took the time out of your day to listen to our show, and I never take that for granted. If you have any tips, suggestions or comments about this episode or topics you'd like to hear me cover, just add your thoughts below in the comment section.

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About The Author

Kirk Du Plessis

Kirk founded Option Alpha in early 2007 and currently serves as the Head Trader. In 2018, Option Alpha hit the Inc. 500 list at #215 as one of the fastest growing private companies in the US. Formerly an Investment Banker in the Mergers and Acquisitions Group for Deutsche Bank in New York and REIT Analyst for BB&T Capital Markets in Washington D.C., he's a Full-time Options Trader and Real Estate Investor. He's been interviewed on dozens of investing websites/podcasts and he's been seen in Barron’s Magazine, SmartMoney, and various other financial publications. Kirk currently lives in Pennsylvania (USA) with his beautiful wife and three children.