Your Trading Business Plan

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Moses Willis
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1 Your Trading Business Plan Dale Brethauer Trader, Hedge Fund Manager, Mentor Options Infinity, LLC. Trader s Expo Las Vegas November 2009 Modified Oct 2013

2 In Jack D. Schwager s book, Market Wizards, he says, Trying to win in the markets without a trading plan is like trying to build a house without blueprints costly (and avoidable) mistakes are inevitable. A trading plan simply requires combining a personal trading strategy with specific money management and trade entry and exit rules.

trading plan is like trying to build a house without blueprints costly (and

3 Elements: Goals Affirmations Trading Strategies Trading Rules Trade Size Expectations Portfolio Structure Learning Curve

4 Goals Set a specific monetary goal, i.e., $60,000 per year or $5,000 per month Realizing you will not obtain that monthly - but, the average will be that amount.

5 Affirmations (Example) Focused Affirmation for Oct 2013 based on a $30,000 portfolio I will be a consistently successful trader - Goal: $1,500 per month, which I will consistently build to $5,000 in 10 years requiring a $100,000 portfolio - I will trade Monthly Theta, Weekly Option Squeezes and Directional Calls and Puts

which I will consistently build to $5,000 in 10 years requiring a $100,000

6 Trading Strategies RSG Directional Calls and Puts based on the trend (Regression Channel) and the Ready, Set and Go presented by the Daily version of the Weekly MACD Theta Iron Condor on the RUT placed once per month Weekly Options Placing Strangles when there are scheduled events and squeezes based on the Bollinger bands

MACD Theta Iron Condor on the RUT placed once per month Weekly Options Placing

7 Directional Rules 10/13 ENTER with 100 day option 10% ITM Over extended on Regression Channel (+/-1 or +/-2) Stochastic in direction of potential trade Money Flow Index coming off a top or bottom and converging with price RSG with Daily Stochastic May add more positions on measured moves EXIT Stop at (30%) Fibs at (161% or 261%)

Flow Index coming off a top or bottom and converging with price RSG with Daily

8 Trading Rules - Theta Put on position (56 30 day until expiration) RUT/AAPL/GOOG/PCLN Iron Condors or Vertical and Leg In (based on Aroon) Sell put and call on near term delta Buy protection 10 points above call and 10 points below put example, 3/9/2011 $810 buy 900 Apr. call sell Apr. call sell Apr. put buy Apr. put Credit $2.15 * 100 * 1 contract = $215 potential profit Margin Required 10 point between option spread * 100 * 1 contract = $1000

10 delta Buy protection 10 points above call and 10 points below put example, 3/9/2011 RUT @ $810 buy 900 Apr.

9 Trading Rules Weekly Options For: NFPR -Unemployment, and Housing Starts (FAS Only) Open Strangle ~ 3:30 ET When filled place STOP limit order to 50% of fill price Close at Fib level, or.. Close ~3:00 ET the next day For: FOMC and Minutes (FAS Only) Open Strangle ~10:00 ET that day When filled place STOP limit order to 50% of fill price Close at Fib level, or.. Close ~3:00 ET the next day For: Volatility Squeeze (GDX and FAS) On 1 hour chart look for squeeze Check for trend Place Straight Call or Put or Strangle When filled place STOP limit order to 50% of fill price Close at Fib level, or Trailing STOP

. Close ~3:00 ET the next day For: FOMC and Minutes (FAS Only) Open Strangle ~10:00 ET that day When filled place STOP limit order to exit @ 50% .

10 Trade Size

11 Trade Size Based on a $30,000 portfolio RSG - $1,000 per trade Theta - $10,000 margin Weeklies - $1,000 per trade

12 Realistic Expectations - RSG Trading Account Size: $20,000 Trade Size: $2,000 Executed trades per year: 87 Expected Returns per Trade: [(Profitable percent times reward)-(losing percent times risk)] times trade size Expected Returns per Trade [(.4*.36) (.6*.15)] * $2,000 $108 Expected Returns per Year $108 * 87 = $9,396 (47% return/year)

reward)-(losing percent times risk)] times trade size Expected Returns per Trade [(.

13 Realistic Expectations - Theta Trading Account Size: $10,000 Trade Size: $10,000 Executed trades per year: 12 Expected Returns per Trade: [(Profitable percent times reward)-(losing percent times risk)] times trade size Expected Returns per Trade [(.84*.105) (.16*.085)] * $10,000 $740 Expected Returns per Year $740 * 12 = $8880 (89% return/year)

14 Realistic Expectations - Weekly Options Based on 2012 Results Trading Account Size: $25,000 Trade Size: $1,000 Executed trades per year: 60 Expected Returns per Trade: [(Profitable percent times reward)-(losing percent times risk)] times trade size Expected Returns per Trade [(.50*$0.75) (.50*$0.40)] * $1,000 $175 Expected Returns per Year $175 * 60 = $ % Update 6/13

percent times reward)-(losing percent times risk)] times trade size Expected Returns per

15 Expectation Summary: based on a $30,000 portfolio RSG - $9,396 per year Theta - $8,880 per year Weeklies - $10,500 per year > 100% per year

16 Portfolio Allocation Stock w/protection 70% of Portfolio Weekly Options Stock w/protection Theta 10% of Port. ITM Options 20% of Port. Based on $300,000 Portfolio Stocks w/protection: $210K ITM Options: $60K Theta: $30K

17 Learning Curve (Remember to take some out to pay yourself) Starting Point July 2012 $30,000 portfolio Goal : $1,500 per month Ending Point July 2022 $100,000 portfolio Goal : $5,000 per month

FINANCIAL ENGINEERING CLUB TRADING 201

FINANCIAL ENGINEERING CLUB TRADING 201 STOCK PRICING It s all about volatility Volatility is the measure of how much a stock moves The implied volatility (IV) of a stock represents a 1 standard deviation