Most traders are locked in a world of two dimensional trading. They learn cool new trading techniques, spend hours in analysis and then finally bite the bullet and launch their brilliant trade. Their hopes and dreams are set adrift with their beloved trade. If it works out, they are happy. If it crashes and burns, they are heart broken and sulk around their office for days. Not only is this the model for most private traders, it is also the model for most all of Wall Street. Half of the brilliant minds drafted by Wall Street are focused on direction. The directional trading can take many forms. Maybe it is the simple picking of winners and losers or it could be picking undervalued stocks. Either way a directional bet is being placed. The other half of the brilliant minds are quants focused on complex mathematical and statistical risk analysis. Can you say Collateralized Debt Obligations? It may seem complicated on the surface but, at the end of the day, it is the same two dimensional view of the markets. Indeed, the market does reward the trader who picks the right direction. So, why not bow at that alter? Right?
Well, there might be another way. You could expand your lizard brain to include the possibility of adding another dimension to your trading. Because options are such a flexible trading vehicle, we can use a strategy where the profits are made from the way we manage the trade instead of from being a brilliant trade picker and executing at the perfect moment. With a well-designed options trading strategy, we can start with a reasonable options trade structure and then simply adjust the position as the market moves. The initial structure is chosen to be adjustable. Too many options strategies simply are not very adjustable right from the beginning. We don’t have to pick the direction; we just react to what the market is doing at the moment and adjust accordingly. If our profit objective is reasonable, this proactive management will produce a profit that is ripe for the picking in very short order.
So what’s it gonna be? Trading in two dimensions like everyone else or upgrading your paradigm to include a third dimension?
“The answer is out there, Neo, and it’s looking for you, and it will find you if you want it to.”
- The Matrix
