
Start Here
Platform

Tour
Bots 101How it worksLive demo
Tools
Automated tradingOptions backtestingWatchlist scannerPrivate community
Use cases
New investorsStock tradersActive tradersPassive investorsSwing tradersAlgorithmic traders

Templates
By trade type
Stock trading botsOptions trading bots
By strategy type
Bullish options strategiesNeutral options strategiesBearish options strategiesHedging strategies
By style
Active and high frequency botsEvent-based botsTrend trading botsMomentum trading botsStatistic and probability-based botsTechnical analysis botsEarnings strategy bots

Integrations

Pricing
Education

Courses
Overview
By experience
Beginner
What is an options contract?Stock trading vs. options tradingOptions contract specificsCall vs. put options basicsBuying options vs. selling optionsOptions profit and loss diagramsOptions pricing tablesOption moneyness (ITM, OTM, and ATM)Options pricing and the "Greeks"Options expiration and assignmentWhat's our "edge" trading options?Single vs. multi-leg options strategiesSmall account options strategies
Intermediate
Fearless, confident options tradingHistorical volatility vs. implied volatilityPredicting market movesTrade size and capital reservesPortfolio balance and beta weightingHow to choose the best options strategyHow far out to place trades?Strike price anchoring with probabilitiesTips on getting your trades filledAdvanced and contingent orders7 step options trade entry checklist
Advanced
Developing a daily trading routineHow to avoid "Black Swan" eventsAdjusting and hedging option tradesExiting options trades automaticallyOptions strategies we don't adjust (and why)Big picture adjustment strategyWhen to adjust or notAdjusting straddles and stranglesAdjusting credit spreads, iron condors, and calendarsSmarter stop-loss ordersBuilding a diversified options portfolioRolling options trades for duration and premiumOptions expiration week position checklistDealing with stock assignment and dividendsHow to free up trading margin and cash
By subject
Options basics
Why options vs. stocks?What is an options contract?Smart use of leverageOption strike priceOption premiumOption expirationOption contract multiplierProfit and loss diagramsLong call option explainedShort call option explainedLong put option explainedShort put option explainedATM, ITM, and OTM optionsCash vs. margin basicsHigh probability trading definedHow to buy a call optionHow to buy a put optionSingle-leg vs. multi-legWhat is the VIX?Is fundamental analysis dead?
Entering and exiting trades
Game of numbers7 step entry checklistStrong liquidity examplesPicking the next directionScanning for tradesOption pricing table basicsSetting up your trade tabPinning your probability of profitUsing delta for probabilitiesBuy to open vs sell to openBuy to close vs sell to closeMarket, limit, stop loss orders5 types of contingent ordersLimit ordersMarket ordersLimit on close ordersMarket on close ordersAdvanced contingent ordersTaking profits before expirationMechanics of rollingConsider future events
Options expiration
Options expiration explainedWhat is the Options Clearing Corporation (OCC)?Physical vs. cash settlement optionsAmerican vs. European style optionsWeekly options expirationWeekly expiration tags/codesOptions assignment processOptions exercise processTrading timeline (duration)
Bullish options strategies
Bull put spreadBull call spreadLong callShort putBull call backspreadPut broken wing butterflyCall calendar spreadPut diagonal spreadCustom naked putCovered callSynthetic long stock
Neutral options strategies
Short straddleLong straddleIron condorsShort strangleLong strangleIron butterflyUnbalanced iron condors
Bearish options strategies
Bear call spreadBear put spreadLong putShort callBear put backspreadCall broken wing butterflyPut calendar spreadCall diagonal spreadCustom naked callCovered putSynthetic short stock
Portfolio managmeent
No guaranteed tradesDon't do something, sit thereAccount size adjustmentsAvoiding stock market overloadStocks, indexes, & ETFsMonitoring positionsCreating automatic alertsIndividual stock betaPortfolio betaBeta weighting your portfolioUncorrelated industries/sectorsSystematic vs. unsystematic riskEfficient portfolio frontierLimiting undefined risk tradesEconomic calendarConcept of legging
Options pricing and volatility
How to find option price quotesUnderstanding the mathIV vs. IV percentileProbability of profit vs. probability of touchOption probability curveBid-ask spread definedIV expected vs. actual moveThe "Greeks"Fatal pricing errorsInverse ETFsOptions parity
Adjusting trades
#1 adjustment for any tradeWhen to adjust a tradeSingle options trade vs. overall portfolioCall spread adjustmentsPut spread adjustmentsShort strangle adjustmentsIron condor adjustmentsShort straddle adjustmentsCalendar spread adjustmentsDebit spread adjustmentsButterfly adjustmentsUsing stop lossesDelta hedgingRolling positionsPairs hedging

Strategies
OverviewLong callLong putShort callShort putCovered callCovered putProtective putCollar strategyLEAPSBull call debit spreadBear call credit spreadBull put credit spreadBear put debit spreadLong straddleShort straddleLong strangleShort strangleCall calendar spreadPut calendar spreadIron condorReverse iron condorIron butterflyReverse iron butterflyCall butterflyPut butterflyStrapCall diagonal spreadPut diagonal spreadCall ratio spreadPut ratio spreadCall backspreadPut backspreadLong box spreadShort box spreadReversalStock repair

Topics
OverviewAsset allocationAutomated tradingBehavioral financeBondsBrokersCandlestick patternsChart patternsDay tradingDividendsEconomic indicatorsEconomicsETFsEquity investmentsExercise & assignmentFinancial analysisFinancial historyFinancial marketsFinancial modelingFinancial theoriesFundamental analysisFuturesInvesting basicsInvestment accountsInvestment taxesInvestor biasesMarket holidaysMarket hoursMarket indexesMarket indicatorsMomentum tradingOptionsOptions pricingOptions settlementPortfolio managementRisk managementStocksStock marketSwing tradingTechnical analysisTechnical indicatorsTrading commissionsTrading platformsTrading psychologyTrend tradingGlossary
Resources

Workshops

Podcast

Blog
Support

Help Center
Overview
Getting started
What is a bot?Creating a bot
Using the bot wizard
Automation typesAutomation editorBot dashboardBot positionsBot logTemplates and cloningKey conceptsSafeguards and limitsPower of botsBest practices
Bot automations
What is an automation?Scanner automationsMonitor automationsEvent automationsEditing automationsReusing automationsCopying automationsOrdering automationsUsing custom inputsBot level inputsAutomation statusesAutomations library
Bot actions
DecisionsOpen positionClose positionNotificationsLoop symbolsLoop positionsBot tagsPosition tags
Bot examples
Genesis 1.0 botGenesis 2.0 botGenesis 3.0 botTrend trading with stocks botPortfolio trend trading botTrend trading with options botMultiple moving averages botTechnical swing trading botTrend and momentum botWeekly credit spread botRecurring iron condors botThe "Honey Badger" botHybrid spreads botHigh IV rank iron condor bot
Decision recipes
Comparing underlying symbol priceEvaluating symbol typeEvaluating underlying symbol OHLCComparing underlying symbol propertiesEvaluating underlying symbol performanceEvaluating underlying symbol standard deviationComparing underlying symbol price to an indicatorComparing multiple underlying symbol indicatorsEvaluating underlying symbol implied volatility rankEvaluating underlying symbol earnings reportingEvaluating underlying symbol price probabilityEvaluating underlying symbol probability within rangeEvaluating bot propertiesEvaluating bot available capital for opportunitiesComparing bot position count to position typeComparing bot position count to underlying symbolEvaluating bot position count to position type and underlying symbolEvaluating bot last position activityEvaluating bot last activity with underlying symbolEvaluating bot position activity historyEvaluating bot position activity history with underlying symbolComparing bot active orders statusComparing bot active orders status with underlying symbolEvaluating bot position availabilityEvaluating bot tagsEvaluating opportunity availabilityEvaluating opportunity return expectationsComparing opportunity attributesComparing opportunity leg attributesComparing opportunity bid-ask spreadEvaluating opportunity probabilitiesEvaluating position performanceComparing profit target to trailing valueComparing position time to expirationComparing position durationEvaluating position underlying symbolComparing position propertiesComparing position leg propertiesEvaluating position typeEvaluating position sideComparing underlying symbol price to position legEvaluating position tagsEvaluating underlying symbol indicator propertiesComparing multiple underlying symbol indicator propertiesEvaluating MACD technical indicatorComparing Bollinger Bands to symbol priceEvaluating stochastic technical indicatorComparing VIX propertiesEvaluating market time of the dayEvaluating days of the weekEvaluating bot switches
Position statement
Activity summaryPosition detailsTrade detailsOpened positionsClosed positionsCanceled positionsOverride positionsExpired positionsPosition historyManually open positionManually close positionImport position
Order pricing
SmartPricingFinal price settingsPosition summaryOrder detailsWorking ordersManual override
Bot templates
Creating new templatesUpdating existing templatesDeleting templatesSharing templatesUpdating shared templatesTemplate best practices
Cloning bots
Cloning existing botsCloning from templateCloning from shared template
Troubleshooting
Using bot logsTesting your botsNot enough capital warningDaily position limit warningTotal position limit warningPricing anomaly warningMissing or invalid input errorDaily symbol limit errorExcessive errors failsafeOverlapping strikes failsafePrice exceeds strike-difference errorOptions expiration protocolDuplicate orders errorOptions approval level errorBot event loopsStock splits and corporate actionsSupported browsersSupported countries
Community forum
Community guidelinesCrafting your introductionSending group messagesSending private messagesAttaching bot templatesReceiving bot templatesAttaching automationsReceiving automationsFollowing tradersPosting publiclyEditing posts and messagesSubscribed discussionsUsing bookmarks
Using backtester
Running a new backtestBacktesting results summaryModifying existing backtestsMy backtestsInstantly create bot from backtestBacktesting research databaseTop backtestsBacktesting errors
Account settings
My profileTrading accountsConnecting to TDAmeritradeConnecting to TradeStationConnecting to TradierIncompatible accountsPassword managementSession timeoutTwo-step authentication
Technical docs
Infrastructure and securityAutomation structureAutomation behaviorData feedsOrder handlingTrade enforcementsBroker rejection errorsBot limitationsProfit and lossFair value pricingDecision propertiesDecision calculationsParameter selectionCalculating probabilityPlatform indicators

Contact
Send FeedbackReport IssueEmail Us
Option AlphaOption Alpha

LoginSign Up
ResourcesPodcast

Why Some Option Trades “Explode” in Your Face & What to Do About It

Ever feel like some of the options trades you make blow up in your face? Here's why it happens and what you can do about it.
Why Some Option Trades “Explode” in Your Face & What to Do About It
Kirk Du Plessis
Aug 20, 2018

Have you ever had the feeling that some of your trades explode and turn into "massive" losing positions? They just never seem to go the way you thought it would and demand or steal your attention, right? Well, there's likely a couple of reasons why this happens, and it goes back to some of the most basic principles of options trading. In today's podcast, I'll walk through the psychology behind many of these "bad trades" and offer a strategy to help manage them.

Overview:

  • Traders get so wrapped up in these trades that are big losers or that are completely going against them. 
  • Their perspective is skewed, focusing on any trades that are moving into losing positions. 

Spilled Milk

When a young child is learning to use a regular cup, they spill their cup of milk, which goes everywhere, all over themselves and all over the table. But, in perspective, spilling the small cup of milk is not nearly as bad as spilling the entire gallon of milk! That would be a major catastrophe. However, spilling a cup of milk for a young child is a big deal because they were in charge of this small cup of milk, which is now spilled all over. What your child will see as a massive failure may not actually be that big of an issue to you as an adult.

  • In many cases, people behave very much like children when it comes to investing and trading. 
  • Many traders' psychology has not yet developed to the point of being a mature investor and trader in the market. 
  • People get stuck in the same childish psychological ways of focusing more attention on trades that are losing.

The Middle Child Syndrome

  • Often the middle child feels left out and seeks unnecessary extra attention to compensate for their feeling "left out." 
  • In trading, people often get middle child syndrome with a trade that goes bad.
  • When a trade starts to go bad, it's like none of the other trades exist; it's like they're in a vacuum, 100% focused on the thing that's going wrong. 
  • Markets are truly the ebb and flow of greed and fear.
  • When you have a position that goes against you, immediately, your human instinct for fear kicks in. 
  • You start focusing just on that trade, and it's like nothing else exists.

Here are four steps we can take to avoid these issues and manage positions moving forward.

1. Position Size

  • Position sizing is the number one thing you can do to be successful.
  • Try to hit single, after single, after single; stop swinging for home runs. 
  • If the trade is a big loser, it means your position size is too big.

2. High Number of Trades

  • Frequently, people are not trading enough. 
  • When you don't have the confidence to continuously enter trades, you might run into a series of trades that are just bad trades, a sequence of returns that just don't work out that well. 
  • When you increase your number of trades, you find that those bad trades start to average out. 
  • Having a lot of trades helps break the sequence of return risk.

3. Don't change the swing of your .300 hitter.

  • Don't change the core fundamentals of what you know to be successful.
  • Just because you had a losing trade doesn’t mean you should change anything. 
  • Recognize and anticipate that you will have losing trades.
  • Don't adjust everything you've done just because one or two trades "blew up in your face."

4. Adjust, Roll, or Close the Position. 

  • You can do a lot with a trade that is going against you.
  • Granted, you should be more patient rather than more anxious to adjust.
  • Making adjustments later in the expiration cycle is generally better than making adjustments too early. 
  • If the trade is 30-60 days out, your default answer should be to simply do nothing. It is way too early in the expiration cycle to try to anticipate what's going to happen. 
  • This takes a lot of patience and understanding that the markets are dynamic and fluid, and anything can happen in a 30-day time period. 
  • When you get 1-2 weeks from expiration, you want to start making adjustments, rolling positions, or simply closing the position and taking the loss.

Conclusion:

  • This whole conversation around focusing too much on losing positions is straightforward to correct: entry, frequency, the mechanics of trading, and not taking full losses whenever possible. Control what you can control and forget the rest!
  • If you take all these precautions, no trade can ever "explode in your face" to the point where you have a mental breakdown. 
  • You will have positions that go against you, and you will have trades that end up being losers--that's just part of the business.
  • Understand how to move away and remove your emotions from that environment and manage the whole portfolio.
  • At the end of the day, if everything else is profitable, one losing trade really does not matter. 
  • Often that losing trade added balance to your portfolio, allowing it to be profitable.
Expiration
Portfolio Management

4.8 (1.1k Ratings)
Subscribe Now

No-code, fully automated trading for stocks and options.

HomeAboutLegalStatusContact
©2022 Option Alpha. All Rights Reserved. Patent Pending USSN 63/118,547