For those of you tuning in for another detail-filled episode of options pricing education, I regret to inform you that we're going to take a big detour today. But before you tune out and head over to another section of the site, let me attempt to grab your attention by offering this teaser:
What I'm going to cover here today if far more important to your long term trading success than any "how to" or "detailed analysis" treatise I could write.
Let me start out by covering a bit of recent history in my life. The past 7 trading days prior to today have been very good to the Phillips family. I have been very focused and trading hard on an intraday basis, and the results are there in my trading account. As yesterday's session wound down, I was contemplating my recent trading results and my prospects for further gains for the remainder of the week. I still had a couple of open positions with significant profits in them and then I remembered something I learned in my childhood, that variety is the spice of life. In this profession, which requires intense focus for discrete periods of time, I think many of us fail to truly understand the meaning of that simple saying.
Let me explain. I work very hard at this profession every day of the week, both in writing content for the newsletter and researching and executing trades on my own behalf. My wife is extremely patient, listening to me rant about the fools I see on CNBC, tolerating my late-night sessions in the office, catching up on research and answering reader emails, while she often goes to bed alone. That is the price she is willing to pay for the lifestyle that trading can provide for our family over the long haul.
In terms of priorities, nothing is more important to me than providing my family with the financial security that they deserve, balanced of course with the necessary investment of time that keeps the family unit tight-knit and growing. Sometimes that means putting the work side of the equation on hold in order to spend quality time with the ones I love. It is all about evaluating the rewards and opportunity costs of each and every decision.
That brings me back to yesterday afternoon. With large profits in my account over the prior 7 days and the likelihood of a light and choppy trading environment today and Friday, I made the decision to close out all my open trades and go into the holiday (beginning today) completely flat. This isn't related to any fears about a terrorist act. It is just an evaluation of the opportunity cost of being in a trade over the Weds-Sun time period. I don't know about you, but I have a hard time doing anything but watch the markets when I have money at risk in a trade. So if I had trades open, it is a foregone conclusion that I would have spent the day watching the market. But that isn't the choice I made. Instead, I chose to be out of the market, both physically and emotionally and make a deposit in a different account.
As I mentioned above, my wife puts up with a lot in terms of my attention being devoted elsewhere on a daily basis. Since I decided to be out of the market, I was free to devote a weekday completely to what she wanted to do. She loves the game of golf, so before she got home yesterday, I called the local course and got a tee time for 7:30 this morning. We got up, had a leisurely breakfast (without the distraction of my computer or CNBC) and headed off to the links. It was a nearly perfect day, warm with a slight breeze and we both enjoyed our outing immensely. We finished up just in time to head off for a relaxing lunch at a local café before I took my wife out for a bit of shopping -- her second favorite pastime. We spent a bit of money, but mainly just enjoyed each other's company.
After returning home, she decided to lay down for a nap with the family pets while I typed up this article. As soon as I'm done with it, we're piling into the car and heading down to Anaheim, so that we can spend all day tomorrow at Disney's California Adventure. She has been begging me to take her there for the past few months and this seems to be as good a time as any. We'll return on Friday, just in time for me to do my writing for the weekend and then we're planning on spending a couple of relaxing days with her parents.
So why do I bother to tell you all this and what in the world does it have to do with trading? EVERYTHING! To all you macho guys out there, how long do you think you can successfully trade without the unwavering emotional support of your spouse? Trust me when I say "not long", especially when you have a few less-than-stellar weeks. It is critical to keep your spouse believing that your trading is a benefit to your life, not just something that takes you away from her. This applies to the female traders as well. You know how much time it takes in this business to be consistently profitable. If you're lucky, your significant other understands this, but it sure wouldn't hurt your cause to occasionally close down the computer and give them some undivided attention doing something that THEY enjoy.
If this sounds like Family Counseling 101 instead of Options 101, I hope you understand that the two are inextricably linked. Without harmony in the overall household, it is very hard to properly focus your attention on profitable trading, and the current market is particularly unforgiving of distractions.
So let's come back to the title of my article. Yesterday, I chose the OPTION of exiting the market for a few days, giving up the opportunity to scalp a few more $$ of profit ahead of the weekend. What did I accomplish by investing my time somewhere else besides the markets? I have one very happy wife, and that will likely pay dividends from now until Labor Day. What did it cost me? Not much, from the looks of the day's market action. There were a couple of quick swing trades available, but nothing earth-shattering in my opinion. And I certainly didn't miss my MOCO opportunity, by any stretch of the imagination. And the odds of missing anything substantial on Friday are even lower, as volume will likely be very light.
I took advantage of a period of time when the markets were unlikely to provide solid trading opportunities to enhance the balance in my life, and that will find me ready to run with either the bulls or the bears next week, feeling refreshed after a 5-day mini-vacation. Had I chosen the other option, I may have made a bit more money ahead of the weekend, but I guarantee that I wouldn't be as ready for battle when Monday rolls around.
Hopefully my little story has helped you to see that index and equity options are not the only ones that are critical to our trading success. Take advantage of ALL the options in your life and I think you'll see a benefit to both your trading success, as well as your overall quality of life.
Have a safe and happy 4th of July