SAM

WORKBOOK

with Allison Ostrander and Kody Ashmore

(512) 266-8659
[email protected]
simplertrading.com
SAM WORKBOOK
TABLE OF CONTENTS

Allison Ostrander, Director of Risk Tolerance ................................................... 3

Allison’s Top 3 Ways to Recycle Risk .......................................................... 4
Allison’s Strategy Risk Gauge...................................................................... 12
The 25% Rule..................................................................................................... 14

Kody Ashmore, Director of Weekly Options Strategies .................................. 16

Kody’s Top Three ............................................................................................. 17
Kody’s Strategy Risk Gauge ........................................................................ 22

Signs You Are Falling Into the “Dark Side” ........................................................ 25

Should I Take Profits?............................................................................................... 24

Allison’s Morning Routine ....................................................................................... 25

Allison’s Weekly Routine .......................................................................................... 26

Creating a Trading Plan around kids (or a job) ............................................... 27

Allison’s Rules for Cost Averaging ........................................................................ 28

ALLISON OSTRANDER
Director of Risk Tolerance

“When you look at the finer details of an options

strategy, you will see abundant opportunity while
maintaining your Risk.”

Allison is an integral part of the Simpler Trading family,

where she continues to grow as a trader and shares over
a decade of options trading experience and knowledge
within our community.

Her experience in trading and teaching others how to

trade shines through in her videos and blog posts. She has
experienced and seen other traders go through the ups
and downs of trading. Her goal is to help traders minimize
the downs, so their ups can outshine their accounts. Allison
can explain complex trading strategies and chart patterns
with ease. Her unique view of how to look at capital risk,
charts, and the option chain can give any trader a new
perspective on investing.

3
ALLISON’S
TOP 3 WAYS TO RECYCLE RISK
I have been through both the ups and downs on my trading journey. The one thing that I
have learned through my downs (or as I like to call the “Dark Side” of trading) and while
educating others is this:

If you do not have a proper understanding of risk and cannot determine your risk tolerance
for your trading style and your account, you are much more likely to sink the boat.

It is easy to watch traders load into a trade for a few different reasons, some of which include:

1. They have been on a winning streak and can’t imagine themselves losing on a trade.
2. They want a big win and therefore Risk more than they should.
3. They have no concept of the capital Risk involved in the trade.
4. They have had a losing streak and think one big win can make it up, trading off
“hopium” instead of the technicals.

This can cost a trader dearly, and sometimes even their full account can be blown out.
Traders who understand risk tolerance may not see the big lotto win every trade, but you
will not find them with 0 as their account balance. Once I had the concept of risk down,
I found it easier to sleep at night. I was never over-investing in my account and I always
had cash-buying power available to me. Understanding the risk tolerance for my trading
style and account kept me from taking significant losses because I only risked what I was
willing to lose on a trade. I kept in mind how much capital I used in my open trades versus
what I still held in cash. To continue, I will review a few of my favorite trade ways while
keeping risk in mind Remember, I always keep in mind Recycling Risk back into my account
while locking in profits.

4
1) Overnight Profit Strategy - Amazon
Amazon (AMZN)
One of my favorite ways to trade is from my Overnight Profit Strategy. This was a strategy I developed
while on maternity leave with my first child, and I did not have the time to look at charts and take
care of a newborn. This is an excellent strategy for traders who may not have the time to sit in front
of their computers for the entire market session. This strategy appeals to traders who want to keep
risk low, a clear set of rules for entry and exit, and to be in and out of trades in less than a week. In
December, AMZN was in the process of consolidation. For traders who use a trend, this was probably
a very frustrating time to sit on your hands and wait for the overall bigger trend view to form. With the
Overnight Profit Strategy, however, you can still find short-term signals and in turn, trades to take during
this consolidation. On December 4th on the daily chart, AMZN started to print a bearish divergent bar.
A bearish divergent bar is a sign that we may see a lower low within the next 3 bars (in this case, 3 days
because we are looking at a daily chart). With this signal printing into the close, I decided to open a low-
risk, 5-point, long debit put spread for a total net debit of 1.62. The total risk per contract was $162.00,
and the profit potential was $338.00 (or 3.38 per share). This creates an excellent risk-to-reward setup.

The next day, AMZN followed through on the bearish divergent bar and created a lower low, allowing
the long debit put spread to be closed for a $3.30 net credit. This action locked in a quick $1.68 profit
per contract and was a 103% return on my capital risk. Keep in mind the initial risk on this trade
was only held overnight, and I took profits the next day, recycling the capital back into my account.
Trading vertical spreads instead of long calls or puts is a great way to reduce overall capital risk and
create a tremendous risk-to-reward scenario. The Overnight Profit Strategy is a great way to take
these low-risk vertical spreads and keep them as short-term trades, locking in profits along the way.

5
2) Compound Breakout Tool - Visa
Visa (V)
In V, we saw an excellent setup form on a daily chart with bullish divergent bars, bullish signals on the
compound breakout tool, and an overall bullish trend as it moves into the earnings announcement.
I had decided to jump into a long call for a run-into-earnings trade. I opened the Jan31 197.50 Call
for a debit of $2.53. As V continued to move higher, I wanted to protect my profits, so I decided to use
the Profit Recycling Strategy. To protect my profits and keep a trade in my account, I looked to sell to
open the Jan31 200 Call for $3.60 credit. This trade turned my long 197.50 calls into a long debit call
spread (Jan31 197.50/200 call). The credit from the 200 call option was greater than the original debit,
giving this spread an overall net credit of $1.07. This means in the worst-case scenario, if this spread
expires out-of-the-money, I still walk away with the $1.07 as a profit. If the spread moves entirely in
the money at expiration, it gives me an extra 2.50 profit potential, making my max profit 3.57. Taking
this action was also a positive capital move for my account and recycled the risk into my account.

As V continued higher, I again protected profits turning my now Long Debit Vertical Spread into a
Butterfly. To turn the trade into a butterfly, I opened the Jan31 200/202.50 call short vertical credit
spread for a net credit of $1.99. Taking this action turns my trade into the Jan31 197.50/200/202.50
call butterfly with a total net credit of $3.06. Worst-case scenario: if my butterfly closes out of the
money (or in the money) at expiration, the trade will have a $3.06 profit per contract. If the trade
pins at 200, the max profit potential is $5.56. Taking this action is once again a capital-positive move
for my account. In the end, I closed out of the butterfly for an additional .60 cents of profit per share.
My total profit on this trade to $366 per contract with an initial risk of $253, for a whopping 145%
return on risk.

6
3) Profit Recycling Strategy - SPX
S&P 500 Index (SPX)
This Profit Recycling strategy of legging one options strategy into another is also an excellent way
to protect capital when making intraday trades, especially those with smaller accounts. Recycling
your capital by legging into verticals or butterflies allows you to trade with intraday movements
without being flagged as a pattern day trader. This year has allowed for some crazy intraday moves
where 100-point daily ranges on SPX almost seem routine, providing excellent opportunities to
take advantage of the spikes in premium and volatility, working in my favor to recycle profit. Even
in this market where premiums can sometimes cause long calls and puts to be expensive, I can
still go out of the money to find options within my risk tolerance to play directionally. Between the
volatile daily ranges and the spikes in premium, it can still allow for some great wins. I ended up
profit recycling a long put at 1:56 PM and turned the trade into a Debit Broken Wing Butterfly. This
locked in a $7.50 profit per contract (A 1000% return on risk in a worst-case scenario), all without
triggering the pattern day trading rule. The benefit of SPX is that it is a cash-settled index with 0DTE
or daily expiration contracts. This means I can let my bonus trade go into the close without the risk
of assignment and still set myself up for a bonus profit that I wouldn’t have if I purely day traded.
For this bonus trade, I locked in an additional profit of $5.00 per contract. I only used $75 of risk to
initiate the trade and profited $1,250 per contract for a return of 1666%. I always want to be mindful
and stay within my risk tolerance while taking advantage of the volatility and premium spikes that
can occur.

7
4) Profit Recycling Strategy - SPCE
Virgin Galactic Holdings Inc. (SPCE)
The easiest way to recycle risk into your account is to take the profits you hold on a long option and
close them out. Sometimes you cannot leg into a vertical spread or butterfly for a guaranteed profit.
Remember that the easiest way to recycle capital into your account is to close the long strike for
an overall profit. SPCE is a great example where I entered a long call, obtained a nice profit, and
decided to protect my capital by just closing out of the trade and locking in the profit.

The option chain allowed me to use the Profit Recycling Strategy because of the volatility SPCE
sees as it moves into earnings. I decided to protect profits and capital by closing the trade. In SPCE,
I have jumped in and out of several calls, locking in total profits of $8.80. The most recent trade
I took in SPCE was the Mar20 $30 calls. I was in for a $3.55 net debit and closed out at $6.70 net
credit, locking in a $3.15 profit and creating an 89% return on risk.

8
5) Compound Butterfly Strategy - SPX
S&P 500 Index (SPX)
This year, in particular, has seen a lot of volatility and crazy swings up and down within the market
in a matter of days if not hours. This can make it hard to be directional, especially in the short term,
as the moves can quickly go against you. Sometimes these significant moves can cause you to
close a trade, only for it to reverse and move back in your favor. One way I have been trading this
volatility, without the stress of being correct in direction, is with the Compound Butterfly Strategy.
I teach traders how to use this strategy to combine different types of butterflies to create high-
probability trades. This has been an excellent strategy for SPX due to volatility and daily expirations.
This is a strategy I have done much of this year in the Profit Recycling Mastery. It has helped reduce
the stress of wondering if the market is gapping up or down instead of just looking to see if the
underlying price reaches my level. Frequently, I use this strategy to take profits on one side of the
trade, and I end up being net positive with no risk on the table. However, due to the volatility in
this market, there is often the opportunity to take profits on both sides. Here is an example of the
Compound Butterfly Strategy. In this example, I opened two broken-wing debit butterflies, one on
the call side and one on the put side, for a total capital risk of $2.60 per contract.

The next day when SPX popped up, we ran right into resistance levels that looked like they may hold,
so I took off the call side for an overall profit of $1.15 per contract. This doesn’t completely cover the
risk and lock in a profit on the put butterfly as I would normally prefer. Still, the technicals showed
a strong possibility of a reversal, so I decided to go ahead and protect capital on the call side.

The following day (and the day of expiration), I was correct about the reversal in SPX. With the
volatility that came into play, the underlying price moved nicely in the money of the butterfly,
allowing me to close the put butterfly for a $6.85 profit per contract.

9
I locked in a profit of $800 per contract, which was a 307% return on the total risk of $260. This is a
great way to keep risk relatively low but with a high probability of one, or both sides, allowing for
an overall profit on the trade.

10
6) SPX Lotto Trade - SPX
S&P 500 Index (SPX)
Another strategy I have used this year is the “SPX Lotto Trade.” In this strategy, I’m looking for a trade
into the close of SPX using same-day, 0-day expiration. I refer to this as a lotto trade because I often
let this trade cash settle to avoid the day trading rules. This means I am at the whim of the market
into close and any last-minute moves that could cause my trade to expire worthless. This strategy
has a much better win rate for those not limited to day trades. However, I am still profitable with
this strategy because of my strict focus on risk. I am very strict about how much capital I will put
into these trades. Often, I find myself leaning towards using broken-wing debit butterflies to keep
capital costs low. This allows for excellent profit potential and provides little forgiveness if markets
are volatile and price moves against the trade. The great thing about this strategy is that I only need
to focus on the market for the last hour to 40 mins. The trade will either work or not, and it leaves
me the rest of my day free to do whatever else I need to do. Here’s an example of this strategy on a
trade I took in my $500 Challenge Account. I opened this trade for a $1.30 net debit on a 10/5 debit
broken wing butterfly. All technical indicators were showing a potential move higher into the close,
with a potential target in line on the 1-hour chart.

Like many of my other SPX Lotto Trades, I let this one cash settle, and it ended up cash settling right
by the target, for $983 per contract. Taking into consideration my cost basis, this gave me a $853
profit per contract, which is a 656% return on my risk. By focusing on my risk and keeping it low, and
at the same time allowing for a nice profit potential, I am able to let my winners offset my losers,
even when I let the majority cash settle.

11
ALLISON’S
STRATEGY RISK GAUGE
Allison is a more conservative-style trader who likes to focus on growing small accounts by
recycling the Risk Capital. Allison enjoys intraday-style trading and longer-term swing trades.
Allison believes that no matter what kind of market we’re seeing, there is a strategy that can be
used to grow your account. Allison has built out her trading toolbox to succeed no matter what
the market throws at her. She watches the charts and options chain throughout the life of the
trade until the capital risk has been covered or the trade is closed out.
Trading Style: Conservative intraday trading (no round-trip trades) and swing trading.
Account Goals: To have an overall positive growth in the account each month and stack the
profits to continue to grow the account safely.
Overall Acceptable Account Risk: Allison has her own 25% rule she goes by for her accounts.
This is where Allison does not put any more than 25% of the account into new trades. 25% of the
account is used to open multiple new trades as setups present themselves. This does not mean
that all 25% of the account goes into just one trade.
Allison takes another 25% of the account and leaves it as management for any new trade she
may open or get behind on. Once again, this 25% is to be used not just on one management trade
but for multiple management actions if needed for multiple trades. This leaves the remaining 50%
of the account untouched.
By doing this, she knows she will always have money and cash-buying power available,
preventing her from overextending her account.
In the worst-case scenario, if she loses 25% of her account on new trades and 25% on
management trades, she still has 50% of her account left. From there, she can look back at her
trading plan to see where she may have made mistakes or overextended her account.
Then she can look at the original 50% left and take 25% for new trades and another 25% for
managing those trades. This leaves 50% of the remaining account that is to be untouched until
her account is back to the original balance.
This strategy for risk management has benefited Allison and allowed her to be profitable. You,
too, should consider what strategy you can employ to protect your hard-earned capital.
Strategy Rules - Risk Taken Per Set Up: Strategy is determined by the chart and the intraday
movements of price volatility of the underlying asset. As for the capital risk of each trade, refer to
the 25% rule above.
Methodology: Charts are essential to the method. Allison would not know which strategy would
be appropriate in the given market without charts. After identifying the market type, Allison
will go to the option chain and use a strategy that works with that chart. She will continue to
use the option chain and strike price manipulation to cover risk, lock in further profits, or take
management action on a trade that may have moved against her. Ideally, she will continue to
do this to lower or completely cover the capital risk used to initiate the trade.

12
 Options Strategy Allison's Key Strategies
Most Risky

When Allison sees a nice setup for a longer term swing trade, she will
look to buy and hold a Long. Allison has been using Long Calls and
Puts more recently to Profit Recycle, but the reason she says it is the
Riskiest is because a straight Long Call or Put has no “forgiveness
8 Long Call / Put
factor” if the underlying price does not move in the trades favor. This
can also sometimes be the most capital cost depending on the delta
and strike. This is why when Allison trades this she is always focused
on the cost and will often times go out of the money to keep risk low

These can be great for Non Directional Markets where you still want
Double Calendar/ to take advantage of the short strikes credit. These trades can get
7
Diagonals pretty costly determining the Net Debit and Strikes, and Allison will
look to trade these in lower Volatility.

These are great directional trades that allow for a bit more
movement in the tick between your short and long strike. Diagonals
6 Calendars/Diagonals
can typically be more expensive than Calendars and both do better
in Lower Volatility.

There are many different types of Butterflies that Allison trades, and
most can allow for a great risk vs reward scenario. The risk on this
strategy (depending on the type of butterfly) is that you want the
underlying price to be near the pin strike at expiration. This means
5 Butterflies
you need to not only get the strike placement right but also the timing
for expiration to really allow the theta decay vs intrinsic value to work
in your favor for a great profit, which can make this a bit riskier if the
strike placement or the expiration is off.

This is a great strategy to harvest profits on Intraday Movements.

This legging in strategy has some Risk at the entry of the trade,
however, with this strategy Allison will always cover the 1st half of
4 Profit Recycling Strategy the trade with a “profit recycle cover order” to reduce or completely
cover the Capital Risk. This can be a great strategy for small accounts
to avoid the pesky day trading rule, and works great when Volatility is
starting to rise or is higher than normal.

These are directional trades with a great Risk/Reward potential

3 Call/Put Credit Spreads depending on the set up. I find they also work great for smaller
accounts and as swing trades you hold onto for several days.

Great Non Directional Trades that typically have a better Risk/

Reward potential compared to straight Call or Put Credit Spreads.
2 Iron Condors
This is a great strategy for growing small accounts, or when the
market is consolidating.

These are directional trades that also can have a great Risk/Reward
Least Risky

potential and can be very low Capital Risk to the account. Allison
Call/Put ATM or OTM Long
1 will typically use this strategy in line when using the Leg in Intraday
Debit Vertical Spreads Strategy. These are great for growing smaller accounts and can be
used as swing trades.

KEY: ITM: In the money | OTM: out of the money | 1 SD: one standard deviation | 2 SD: two standard deviations

13
THE 25% RULE
A method of setting up risk guidelines for your Trading Account. The account is split into
3 different percentage amounts:

New Trade Management of Untouched

Setups Trade Setups Funds

This is the ratio I stick with especially when trading smaller accounts, but you can adjust this to
fit your trading account and style (i.e. if you have a larger account you may split it into 15%, 15%,
and 70%).

THE FIRST 25% OF THE ACCOUNT IS ALLOCATED INTO NEW TRADE SETUPS.
This does not mean that all 25% of the account goes into just one new trade.
This amount of capital is split into multiple new trades (i.e. if your First 25% is roughly $5,000, then
you may split it into 5-20 new trades).

THE SECOND 25% OF THE ACCOUNT IS ALLOCATED INTO MANAGEMENT

OF NEW TRADE SETUPS.
Once again, this does not mean that all 25% of the account goes into management for just one
new trade. This capital should be allocated to allow for multiple management actions in case
several new trades do not follow through after the entry.
Depending on your how your New Trades are doing, you may find yourself not touching this
capital often.

THE REMAINING 50% OF THE ACCOUNT IS LEFT UNTOUCHED.

It may feel like money left on the table, but there are pros to considering this action (or lack of):
• You always have cash buying power available to you (capital might be needed
to buy back trades like credit spreads).
• You always have capital you can pull out - this is good for income traders who
may have had a down week, or if an emergency comes up.

14
WORST CASE SCENARIO
You lose the First 25% of your capital on new trades that did not work out and you lose the
Second 25% because your management actions did not work out either.
This still left 50% of your account untouched. At this point you can re-evaluate your trading plan
and see where there may have been mistakes or where the trade may have been over extended.
Once you determine where you may have gone wrong in your trading, and you are ready to
jump back on the horse, you still have the original 50% of your account available to you.
Take this original 50% and split this amount into 25%, 25%, and 50%.
You’ll continue to trade with this fraction until you bring the account back to the original 100%

ADJUSTING 25% RULE

One way the account could be split up is 15% for new trades, 15% for management, and 70%
of the account left untouched. As you build up your trading experience and trading plan,
you can always adjust this amount back to 25%, or continue at an amount you are comfortable
with Risking.

15
KODY ASHMORE
Director of Weekly Options Strategies

One would consider Kody a “Jack of all trades” While in high

school, he enlisted in the United States Marine Corps as a
rifleman. While in the USMC, he did two tours to Iraq, went
through various courses, and obtained several awards
and medals. After leaving the USMC, Kody went to school
to become a Paramedic. After becoming a Paramedic,
he worked as a field medic, paramedic instructor & even
flight medic. Kody then combined both professions and
started working as a tactical medic for the United States
Government in various “High Threat” locations. While Kody
was overseas, he wanted to find a way to use his money to
make money. After all, he had his first child on the way and
wanted to find a way to make a decent living with his hard-
earned cash.

He started with day trading, but with laggy & slow internet,
he learned that day trading would be impossible to pursue
overseas. That’s when he decided to learn about swing
trading options. What drew Kody to swing trading options
was the ability to manage risk based on position size & the
low capital requirement to make substantial gains. After
mastering swing trading, he sought to become a Prop
Trader for a firm to leverage his capital. In 2016, Kody started
trading with firm capital and has continued doing so. Since
Kody’s main goal was to produce weekly income, short-term
trading has always captured his attention. Kody seeks to pay
himself weekly while managing risk.

16
KODY’S TOP THREE
1) Unusual Dark Pool Volume + Unusual Option Activity +
Technical Setup
Dark Pool Volume: Multiple blocks of +429k share transactions occurring near the $38.50 zone.
Unusual Option Activity: Twitter call volume was 3x normal with the May 44 strike continuously
being purchased above the ASK.
Technical Setup: Price reclaimed the weekly support zone & the 50 SMA on above average volume.
Position: TWTR May OTM $44 Calls for 1.32 Risk at stop loss level is $500 & max risk
Apr 14th 38/ 36 Put Credit Spread is $1,500
for 0.70 nq t2 filled 13579.25

Twitter call volume 3x normal, May 44 strike leads. Shares near $37.90 with 107k calls changing
Market
13:28:43.000 TWTR hands vs 28k puts including a $1.20 sweep buyer of 7500 May 44 calls to open a new position 16%
Color
above spot

Twitter call volume 3x normal led by May 44 strike buyer. After a breif high near $39.20 in the
opening minutes shares are down 93c, or 2.4%, near $37.90 with 107k calls changing hands vs Market
13:26:55.000 TWTR
28k puts, including a sweep buyer paying $1.20 for 7500 May 44 calls to open a new position Color
struke 16% above spot.

1850 TWTR Apr22 36.5 Puts 1.08 (CboeTheo=1.06) ASK [MULTI] IV=51.6% ISO - OPENING
12:05:40.206 TWTR Sweep
TWTR=37.76 Ref

10:38:16.132 TWTR 454k TWTR 38.54 FINRA-ADF Above Ask! - Qualified Contigent Trade/Contingent Trade Block

7500 TWTR May22 44.0 Calls 1.203068 (CboeTheo=1.16) Above Ask! [MULTI] IV=51.6% ISO -
10:33:12.057 TWTR Sweep
OPENING TWTR=38.10 Ref

10:20:23.304 TWTR 429k TWTR 38.78 FINRA-ADF Above Ask! - Qualified Contingent Trade / Contingent Trade Block

Unusual
09:45:07.000 TWTR 4x market weighted volume: 30.7k=339.7k projected vs 72.2k adv, 96% calls, 3% of OI
Volume

17
TWTR Daily Chart – May 15th, 2017
Bloomberg • 4 hours ago
Price spiked up after news came out that Elon took
a large 10% stake in Twitter. Price spiked up over
Elon Musk joins Twitter ‘s
target - locking in profits.
board of directors after taking
The Result: Closed out the long calls for $6.30, 9.2% stake in the company
a 377% gain, and closed the credit spread for $0.10, Trending with Musk
or 85% of credit received.

18
2) Consolidation pattern with prints
Facebook (META) – Sept, 13th 2022
META had a low base breakdown pattern with recent dark pool levels as price consolidated.
As price was closing below $157.
Position: October 21st 140/ 155 put debit spread for 3.59.

19
The result: The position had no exit signal the entire way down, resulting in the position expiring
at max profit via same day substitution. This trade was sold for $11.41 or a 218% gain.

3) Scalping ATRs for Income

Papa John’s (PZZA)
One of my favorite income trades is what I like to call “scalping ATRs”. This trade setup involves
entering a trade when price is near the +/- 21 EMA, buying a credit/debit spread with 10 -14 days
to expiration (DTE) . For this trade to be profitable, price needs a move to the +/- ATR level to
achieve an +80% return.

20
The result: The setup played out, and I closed the position for an +80% return in a few days.

21
 KODY’S
STRATEGY RISK GAUGE
Trading Style: Swing Trader - Directional + Income
Account Goals: +2% per week
Overall Acceptable/Recommended Account Risk: Kody never risks more than 1 - 3% of NLV
per trade.
Strategy Use + Risk Taken Per Setup: Kody risks the same amount on EVERY TRADE.

OPTIONS STRATEGY KODY’S KEY STRATEGIES

Most Risky

If there is significant dark pool volume with a technical pattern that

Buy OTM calls/puts/ debit
4 offers a great risk to reward. Kody will do an OTM debit spread with
spread the intent of holding for a larger move with a great risk to reward.

If there is a Weekly squeeze firing and a daily squeeze gearing up to

3 Buy ITM Calls/Puts fire, in an outperforming/ under performing sector - Kody will buy
calls/ puts.

Buy delta 60/30 When placing income trades - Kody will buy a delta 60 call/put
2 debit spread and sell the delta 30 call/put if he can nail the entry at the 21 ema &
(Scalping ATRs for income) looking to lock up profits at +70/80%
Least Risky

When there is no squeeze present. Kody will place an Iron Condor

1 Iron Condor that is 10 - 14 DTE while making the position as wide as the expected
move.

22
Signs You Are Falling Into the “Dark Side”

 o you find yourself stressing over a trade that has barely moved and
D
there is still time till expiration?

Do you find yourself stressing over a trade you just got into?

 o you find yourself staying up at night to watch futures, even though

D
you do not have a trade in futures?

 o you find yourself staying up at night to watch overseas markets,

D
even though you do not have a trade in said market?

 o you find yourself on “hopium” where you are hoping a trade will
D
work out rather than following your trading plan?

 o you find yourself too nervous to get into what you have classified
D
as a “great technical setup” in the past?

Do you continue to cost average a trade that has broken technicals?

Do you find yourself risking more than your risk tolerance?

Do your emotions guide your trading rather than the technicals?

Is your account at risk of being blown up?

 oes it ruin your week and affect your daily life and others when you
D
take a loss?

 oes taking a winner get you rushed into more trades when there
D
is no setup?

Do you lose track of how many trades you have open?

 o you find yourself trigger happy getting into the trades, but have a
D
hard time identifying when and then following through on pulling the
trigger to close out?

Remember, both the highs and the lows of trading can lead you to the Dark Side of trading.
Once your emotions (good or bad) start to control the trading plan you have set up for yourself,
it is easy to lose sight of things like Risk and find yourself blowing up your account. Having a
Jedi mindsight, and even emotion on the winners and losers, can help keep you on the right
side of your trading plan.

23
Should I Take Profits?

There are always a few things to consider when you debate about taking profits:

• Is there still time on the trade until it expires?

• Will theta decay start to hurt your trade if it’s a long call or put and
your expiration is close, or does your trade benefit from theta decay
like a credit spread?

• Are the technicals still valid with room for continuation?

• Does everything still look valid on the chart as when you first got into the
trade and is there room for the move to continue to work in your favor?

• Do I have multiple contracts where I can take some off here and leave
runners going?

• If you do have multiple contracts and you decide to take some off the table,
do the profits from those closed contracts cover the risk on your runners?

• Is it at my overall profit target?

• Was this the profit you had in mind with your trading plan when first putting
on the trade?

Ultimately though the main question I always find myself asking when I debate about taking profits:

• Would I be more upset taking the profits here and it continues to move in my
favor?

OR

• Would I be more upset about not taking profits here and the move reverses
turning the trade from a winner into a loss?

24
ALLISON’S
MORNING ROUTINE
Check premarket to see how all open trades are looking prior to market open.
• If any trade is jumping nicely into a profit, then I will set a potential closing order
and keep an eye on it right as the bell rings.
• If any trade is moving against me, then I will note it to see if it is breaking technicals
and my trading plan to see if I need to take management action at open.

Check premarket on the indexes to see how the overall market is going to open vs
my technicals.
• This can sometimes affect individual trades or trades I have on the indexes like SPX.

Check to see how any of my “Watchlist trades” are opening up in premarket vs the
technicals.
• If a trade I have been watching is getting a trigger for a potential entry at open I
may want to have my trade idea and plan ready to implement at market open.

Get all my alerts set up for trades I am in or I am watching.

• This keeps me attentive if the price starts to break for or against me on a trade and
can notify me quickly even if I am focused on something else.
• This keeps me from missing profits, management action or potential entries on
setups I have been eyeing.

Get my notes all together in my trading journal as well as what my game plan is for today.
• If it is a big gap open, it may set up for more volatility and could be a good
contender or an intraday setup.
• If the market opens flat and lacks ranges, I may want to focus on my current
watchlist for swing trades and scans.

Review my Weekly Game Plan.

• If there is a major market moving event like FED, it is good to know if that is
happening that day and at what time.
• To be aware if it is something like a quad witching expiration that can affect how
the market and options trade.
• To make sure that I am keeping in line with my Trading Plan.

Do my mental “meditation” to get myself in the right state of mind for when the market opens.
• This could be getting myself a cup of coffee, doing a proper meditation to clear my
mind or playing with the kids a little before the market opens.
• Whatever can help take out any emotion I may be feeling going into the trade day
and keep me in a Jedi mindset at the market open.

25
ALLISON’S
WEEKLY ROUTINE
Check any trades that I hold vs the technicals on the chart and my trading plan for that setup.
• Checking things like, how much time is till expiration, is the chart pattern still valid.
• Making notes on what action I will take if the trade moves in my favor and if it
moves against me, and what each of those scenarios look like on the chart.

Check any trades on my short term watchlist.

• For trades that are still setting up but look valid, I will keep them on the short term
watchlist for that week.
• For any trades that look like they are breaking the chart technicals I was watching,
take them off the watchlist.
• Have a general idea of the strategy I want to implement on trades that remain on
my short term watchlist.

Check to see if any major market mover announcements are coming up during the week.
• This could be any sort of news like Jobs reports, FED, and/or earnings
announcements.
• Check how the overall indexes look both on a Daily Weekly and Monthly chart to see
how the technicals look.
• Are we in an overall Trend?
• Do the time frames match up on trends or are they different?
• Are there any long term support or resistance levels that the underlying price could
run into this week to be mindful of?

Go through the account to see how many trades I have on vs the capital I want implemented.
• Do I have a lot of trades or capital engaged to where I want to be mindful about
how much more I put into new trade ideas?
• Do I have only a little capital invested, to where I want to focus on getting some new
setups into the account?
• Having a good idea about how much Risk I want to put out there for the week
across multiple trade ideas.

Do scans to see if there is anything else setting up I want to add to my short watch list.
• I will check these across Daily Weekly and Monthly time frames if it is anticipated to
be a longer term swing trade.
• Understand what options strategy I may want to implement if the trigger is
activated for the next week.

26
Creating a Trading Plan around kids (or a job)

• Figure out when you find yourself • Consider downloading your

trading the most? brokerage platform’s app on your
phone so you have easy access to
• Do you like to catch trades at the
take a quick peak when you are out
open for a quick intraday win or
and about.
theta decay setup?
• Find time outside market hours (like
• Do you prefer to set up swing trades
at night or on the weekends) to do
into the close of the market?
your trading routines.
• Find strategies that work well for you
• This means time taken to evaluate
when you are able to be attentive to
your current open trades as well as
the market.
scan for new ones if you are unable
• If you like to intraday trade and are to during market hours.
available at the open or close, then
• Figure out what days you may do
you may find yourself sticking to
better on with trading.
intraday trades during that time of
day solely. • JC for example usually doesn’t open
swing trades on Monday because he
• If you have limited time, then you
feels he can get into the swing trade
may consider a strategy that focuses
at a better cost typically Tuesday or
on either overnight or swing moves
later in the week.
that don’t take up a lot of your time
during market hours. • Some trades avoid trading Fridays so
they don’t give up their gains made
• Create a trading plan around the
during the week.
times you are available and that still
fits within your risk tolerance. • Keep track of everything in a trading
journal.
• When you are away from the
computer setup alerts so that you • This can be hand written or on the
can be notified when a trade is computer.
moving in your favor or against you.
• Having a trading journal is important
• If a trade is moving in your favor you for all traders, but it definitely
may just set up GTC orders to close benefits traders who are not in front
the trade out at an intended profit of their computers all day.
target.
• This will allow you to keep track of
• If a trade is moving against you then things that are working vs what is
have a plan in place for the action not so you don’t repeat the same
you will look to take if the alert is mistakes.
triggered.
• This can also help you identify what
• Have a way to get alerts and/or keep type of market you are in and when
track of your trades on the go. it is shifting from one market type
into the next, volatile, consolidating,
trending, etc.

27
ALLISON’S
RULES FOR COST AVERAGING
Do the technicals on the chart still match up with your trading plan and original entry for
the trade?
• If it doesn’t, then I do not cost average, this would be like trading off “hopium”
and giving the market makers more money.
• If it does then I move onto question 2.

Is the trade worth 50% or less than the original capital risk put out there?
• If the trade still has a lot of the original value left on the trade then I do not cost
average, because it will not make a significant impact in my opinion.
• Note building into a trade is different from cost averaging. Building into a trade
means you are not at your full risk tolerance for the trade idea. Cost Averaging
means you have the full capital risk that you intended to have out there and are
dipping into the “management” side of your account to bring down the net cost
basis.
• If the trade is worth 50% or less than the original risk being held then I go onto
question 3.

Am I ok putting more capital into this trade with the possibility of still taking a 100% loss on
the trade idea, and in turn losing more money?
• If I am uncomfortable with the idea of losing more money then I do not
cost average.
• If I am ok adding a bit of additional capital and all the other criteria above
matches, then I will look to cost average.

It is important to remember that cost averaging means you are adding more capital risk into
a trade idea that is “falling behind” and therefore have more to lose. Cost Averaging can be
beneficial to bringing down the overall net cost and in turn allowing the underlying price to
not move as dramatically to get back to break even or profitable. However, you should be
very strict about when you decide to cost average as it is one of the fastest ways to blow out
an account when you don’t have proper rules in place and are in turn throwing money at the
market hoping the trade idea will come back in your favor. Always go into any trade with the
idea you could lose 100% of your capital and then work it from there.

28