I'm on vacation for a couple of weeks. However, other than a time or two when I've deliberately planned activities away from my office during the trading day, it would be difficult for anyone to determine much difference in my routine.
That's because I'm only taking a vacation from live trades, a working vacation of sorts. I am spending this two-week period pretending I'm on vacation, setting contingent or conditional orders to trigger even though I'm watching the charts. You might think that this has nothing to do with you, either sitting and watching the charts unfold or working at a job in which you can watch the charts. However, all too often, we writers have heard tales of those who couldn't adjust or exit at the planned price point because they'd just been called to the school to pick up a sick child or because the boss insisted that they fly out immediately to meet with a new prospect. Because I spent years writing live market commentary for the Market Monitor portion of our site, watching the markets day in and day out, I never developed the mindset that I could set alerts and conditional or contingent orders when I needed to be away. I always wanted to watch how the trading day unfolded, compare the price action with the volatility indices' action, and work the trade myself to get the best fill.
But it is more than possible that setting conditional or contingent orders when you're calm and thinking rationally about the markets is okay and perhaps even preferable in some cases. It's perhaps a little obsessive for me or others of you like me to think we have to watch the charts minute by minute. Perhaps such a sharp focus contributes to a stressful atmosphere that in turn prompts emotion-based actions. Never getting away from the markets at all certainly hampers the balance and sense of perspective that it's imperative to have when approaching our trading lives.
In certain cases, such as trying to work a complex order, it's probably best for me to set an alert and try to get to the computer to work that order. If, however, my next adjustment is to buy a back-month long call or put in a liquid vehicle, then I don't really need to work that trade. I can let the conditional or contingent order fill once the trigger conditions are met. I can have a life away from the computer. I just need to practice setting those orders and managing trades via those orders. I need to determine whether, if I'm going to be away and a butterfly is close to an adjustment point, I really need to move one of the spreads out or whether I can put on a back-month long call or put until I can get back and work the trade that moves one of the spreads out. You might think I don't need to take a vacation from live trading to do that, but you'd be wrong.
Think-or-swim Trade History:
Why does my Trade History show a RUT AUG 760 call bought and sold within a minute's time? That would be because, at about 10:28 am, just before that buy order triggered and filled, I'd set a conditional order to buy that call if the RUT reached a certain price. I had decided that my paper trades for this working vacation would be trades that I wouldn't ordinarily try in live trading. Therefore, my paper trade was a six-contract iron condor that was opened with the absolute values of the deltas of the sold call and put in the 0.15 range (or 15, if your broker quotes it with the 100 multiplier applied). That's higher than the 0.10 I typically use.
To set contingent or conditional orders, I'd gone through a long process. First, I'd laboriously figured out what price the RUT would likely be before the absolute value of the deltas on the sold options rose to .25, and then I'd figured out what the delta of the whole position would be at that point. I still wasn't through. Then I'd calculated which back-month call or put would hedge half the delta risk of the whole position. Finally, I'd set conditional good-till-cancelled orders to buy a long put or call, depending on which side was being threatened, when the RUT hit the respective prices. I'd checked those orders once, twice, three times to make sure they were okay. Then I'd sent the orders in, only to have the conditional order on the call side trigger and fill immediately.
Seems I had a little typo I hadn't noticed. I'd typed in the RUT's current price, not the price I'd intended to type in as the trigger. No matter how many times I'd read the order, I'd read in what I thought I'd typed, not what I had typed. My attention was focused on whether I had correctly chosen "at or below" or "at or above" the trigger price, apparently, rather than closely enough on the price itself.
I had to sell that call immediately. That won't happen again.
A day or two later, though, the correct trigger price was actually hit. I was sitting at the computer, deliberately letting the conditional trade trigger rather than pulling it and trading the option manually in some attempt to get a better fill. (I'm competitive, wanting a better fill even in a paper trade.) At least one of my calculations had been spot on. When the RUT's price hit the trigger point, that sold call's delta was indeed almost exactly -0.25. I'd figured out that part of the trade correctly. However, buying the AUG 760 didn't half the delta risk. It was a little light, I thought, and so I went in and manually traded a vertical, rolling the AUG 760 to an AUG 730 for a debit.
In both cases, I caught the mistake immediately because my attention wasn't split between live trades and paper trades, with the paper trades likely to suffer negligence if I also had a live trade needing adjustment. In the first case, all it cost me was an extra commission, and, in the second, an extra two commissions. However, extra commissions do add up, especially in market conditions such as these when you're sometimes forced to adjust more often than you normally would.
If I hadn't been sitting at the computer on my working vacation, the results might have been worse than a few extra commissions. I needed to watch carefully, to see if the orders I was setting filled as expected and performed as expected, too.
Eventually, I had to reposition that entire iron condor, rolling up both the call side and the put side. That was a trade adjustment best made by working the order rather than a conditional or contingent order. That hedging call position I had let trigger eased the debit I took closing down the original iron condor. I waited a day to reposition. When that was done, I spent about an hour setting conditional orders on the replaced iron condor as well as on an OEX broken-wing butterfly that's a bearish speculative trade, and a neutral SPX calendar. Each conditional order required that I spend some time on TOS's analytics page or that of another proprietary program I sometimes use. Freeware OptionsOracle allows traders to try out the same sort of adjustments, too.
Why am I doing all this so laboriously if I sit at the computer all the time? The reason is simple: I'd like to have a real vacation sometime! When you're trading strategies that may take several weeks to unfold, you may anticipate that you'll be out of all trades before a planned vacation, operation, or other event, only to find that you're stuck in one or two of them. In addition, I'd like to detach myself more from the emotions of trading. In certain cases, studying price or profit/loss charts when markets are closed and emotions less involved then setting appropriate orders might be best.
For those of you who are think-or-swim (TOS) platform experts, you may be wondering why I'm going to so much trouble to figure out where the underlying might be when the absolute value of a sold put or call's delta reaches 25. For those who are not TOS clients and may not know, TOS offers delta-based alerts and trade triggers. I can just set up a trade that triggers when that delta reaches 25, and I don't have to guess where the underlying might be.
If I'm placing a trade on TOS, I don't have to calculate it, that is. Not all my trades are placed on TOS, and my other platform does not provide for delta-based trade triggers. I need the practice for two reasons. By doing so, I gain an instinctive recognition of when a trade might be getting into trouble, built from hours of watching how it behaves at several levels. I can also use this practice to set better trade triggers on all my platforms.
I've made other mistakes these last two weeks while I've been on a working vacation, but I've learned a lot about how those trades trigger, and the kinds of errors that are typical for me. When an order I had painstakingly set up one day had mysteriously disappeared the next, I taught myself to pay special attention to whether I've set the order as a day order or as a GTC (good till cancelled) order. I'm slow, too, spending thirty minutes the first day setting a conditional order that took me about ten minutes to calculate a few days later and which will likely take only moments to calculate in the future.
In the meantime, I've also set up those other trades I mentioned. One was an OEX broken-wing butterfly started at such a negative delta level that it amounts to a bearish speculative trade. It was meant to be a trade I wouldn't often use but which I wanted to try. I deliberately set up a calendar trade in a time period in which I thought volatility might narrow, and that hurts a calendar. I wanted to manage these and other such trades under trying market conditions. My working vacation accomplished more than one goal.
It accomplished another. Market action has been so unpredictable, with daily moves exceeding one-standard-deviation moves so often, that the atmosphere is not a good one for the type of trading that I do. With my preferred type of trading style, it's okay if markets stay within a tight range or even trend up or down, as long as they trend at a slow to moderate pace. The biggest difficulty, however, is the frequency with which the markets have gapped up or down in the morning. Underlyings that gap up or down a standard deviation or more at the open keep me from making effective adjustments to my trades. As the trading day ends one day, I might be forced to adjust for a too-steep climb, only to wish I hadn't done so the next morning, when markets gap down. Working with these conditional stops and unfamiliar trades has kept me from straying from my considered-and-thought-about intention to stay out of the markets for a couple of weeks, until a direction had been picked.
I'm accomplishing something important to my trading future while taking a working vacation. And I am working, hard and frustratingly sometimes, at setting up these conditional or contingent orders on each side of every trade I place, readjusting them as necessary. In fact, I'm working quite hard at this working vacation, but I sure am sleeping better at night than I would be if these were live trades.
What's the takeaway for you? This wasn't meant to be just a boring recounting of my last week or two. I've mentioned before that you don't have to feel as if you're wasting time when market conditions aren't conducive to trading, whether you're a day trader or a trader of the slowly evolving trades that are my current preference. In fact, you can be proactive about it and elect to take some time off to practice new skills, new trade types and new option strategies. You can spend an entire week reading our newsletter and listening to archived CBOE webinars, thinking about the different strategies available to you and considering whether you need to make a change. You can pull up the freeware OptionsOracle, if you don't have TOS or OptionVue or another analytics-type platform, and set up a trade that you intend to get into trouble. Then you can throw up every type of adjustment combination you can devise, even ones that don't seem to make sense. You aren't under the same time crunch as you are with live trades, so you can experiment. You can determine how they impact the profit/loss or risk analysis chart. Sometimes the best thing you can do for your trading future is stop trading . . . at least live and at least for a little while.
Part of my intentional testing this week has required me to actually leave the house with alerts and conditional orders set, letting them trigger if conditions are met. I'm in training to get some perspective, get a life. That training has required me to jog beyond the time that the markets opened, go for brunch at a local restaurant with my husband, and even shop for a new mountain biking helmet, all during market hours. It was tough (in truth, it was for someone used to being honed in on every five-minute candle), but I did it. Before I get all misty-eyed about these efforts, however, I do have to warn that conditional or contingent orders aren't appropriate for all trades or all market conditions. The flash crash? I shudder to think of the fills some people might have gotten or the needed fills they didn't get, for that matter. Do you think a conditional order to buy back a bull put credit spread got a good fill if set at market? Do you think it likely got a fill at all if the order was set for the mid-price between bid and ask? That's why I'm experimenting with how I handle these orders. Go and do some experimenting of you own, if you haven't already.