Shorten Your Trading Time Horizon

on 05 13, 2010

After the market drops like it did last week, the one thing that a trade has to do it become protective.  By this I mean that you have to assess your portfolio as to what can happen.  I have been saying it for weeks that you need to have protection for your portfolio.  You can watch the video on how to do this if you want.  The next thing a trader needs to do is to adjust their time horizon while in a trade.  When volatility spikes like it did, we will most likely see some more spikes in the near future.  It is kind of like an earthquake, there are always a few after shocks.  The goal is to be protected if something does happen where things drop again, that you can profit or protect yourself.  If you shorten your time frame, you are looking for profits and taking losses quicker then you normal.  Keep a careful eye on key support areas in the market and sectors of your stocks.  The next thing I do is adjust my premium positions to be more aggressive.  If I have stocks that I think are going to sit still over the next few months, then rather then just selling front month upside calls, I may go out a a few months to sell a closer to the ATM.  This gives me  more premium if the market goes lower.  In the example below,  XOM, rather then selling the June 67 call on the Bid for $0.58, someone may want to sell the Oct. 65 calls which are $3.6 Bid.

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