Trend following traders consider price breakouts to a N-Day high a long entry signal and breakdowns to a N-Day low an exit or signal to checklisf. Days until Expiration: 45 days to 35 days. These are both important questions that should be answer ed prior to entering into a new trade idea. Enter your email and get the weekly newsletter If you have any tips, suggestions or comments about this episode or topics you'd like to hear me cover, tradung add your thoughts below in the comment section.




At Trqding Bob's Money, we focus on 4 proven income generating Options strategies that Pit Traders have been using for many years. We are not creating or testing any new techniques. These are strategies that have proven the test of time in all kinds of Market conditions. Because Options are more complex than stocks and because the rules on how to trade these strategies are only known to a small group, there are many companies who ttrading money teaching others how to trade these strategies.

This grading we can learn about Options and how these strategies work before we put our hard earned investment money to work with Options trading. Options trading isn't for everyone, but people that have Stocks or Mutual Funds in their portfolio are already exposed to more statistical risk than most of our Options strategies. Ruled Uncle Kptions Money, we focus on providing the Tools needed to easily trade and monitor these Income Generating Options Strategies.

Successful Investing requires a disciplined approach and cool decision making in all Market conditions. The strategies we trade at Uncle Vor Money have been used by the Pros in the business since Options trading started in the 's and have been fine tuned by thousands of Professional Options Traders in all types of Market conditions. The Checklists that we use at Uncle Bob's Money are derived from guidelines that have evolved based on all of that trading experience, and they give us that extra edge and a higher optinos of profit.

Market Conditions change, and sometimes they ruules change fast. Each Option strategy checklisy its own set of rules for both finding good trades and for monitoring the trade we are in. The checklist is an exclusive feature of Uncle Bob's Money and it is critically important to profitable trading. The norm is for "Options Gurus" to trade their strategies in all Market conditions.

People pay the Gurus to trade, and so they trade, and they trade in all market conditions. When those trades end up being losers because of volatile Market conditions, the Gurus will very calmly explain how the Volatility changed or how a certain Technical Analysis Fibonacci retracement, Ichimoku Cloud going red, etc. We do things differently at Uncle Bob's Money.

We trade to make a profit. We don't trade for the sake of trading, and we aren't interested in hearing vhecklist detailed technical analysis postmortem of why they lost money. Checklits want to trade when the market conditions indicate that we have a high probability of making a profit, and we want to sit with our money in cash when the market conditions indicate it is not a good time to trade these Options strategies. One of the key values of a subscription at Uncle Bob's Money is exactly because we show when trqding stay OUT of the market.

Same profit in the other months in this example, the only difference is that we make NO trades in the 4th month. Using the Checklist to know when to stay out of the Market is one of our secret tools for maximum profits. The Trade Finder Checklist constantly analyzes the key market indicators for each strategy that we trade at Uncle Bob's Money. Experience has shown that when we trade outside of the checklist parameters, our probability of profit goes down.

The checklist keeps our trade selection disciplined so that we only enter trades that have the greatest probability of checolist. Each strategy that we trade at Uncle Bob's Money has an ideal time when to enter the trades. Remember the Greek "Theta" which was the TIME gauge for Options; we saw that when the Expiration of the Option is more than 30 days away the value of the Theta is trasing small. Theta is how much the price fr the Option will go down after 1 day has passed assuming that the price and volatility of the underlying foe not change.

The idea with our Income Generating Options trades is to be close enough to Expiration that we can profit from the bigger changes in Theta. If we trade Options that have an Expiration too far in the future, we expose ourselves to risk without getting the benefit of Theta change profit. This is why the Options that we trade are rules for trading options checklist around 1 month away from Expiration: exactly when the Theta change starts to increase significantly.

The 'ideal' trade day is only a suggestion, and shouldn't be viewed as the only day to checklit. If we see a good trade opportunity and it is in the correct time range, we checklsit take that trade. Days until Expiration: 35 days to 25 days. Ideal Trade Day : 30 days before Expiration CALENDAR STRATEGY. Days until Expiration: 55 days to 35 days.

Ideal Trade Day : 30 days before Expiration DOUBLE DIAGONAL STRATEGY. Days until Expiration: 45 days to 35 days. Ideal Trade Day : 40 days before Expiration On the bottom of the Trade Finder, we provide a convenient Trade Calendar so we can see the Optimal trade range for each Strategy on a Cuecklist. We can use rupes Trade Calendar to schedule when we will look for Options trades.

The income strategies we trade depend on the Market price of the underlying staying within a 'normal' or calm range. There is no guarantee of what will happen in the future, as a very calm market can become extremely volatile when something drastic happens in the news, and likewise a volatile market can suddenly become fairly calm when a series of good 'news' hits the streets and the checklst market optiona rise traxing.

However, we do know that there are periods when the market is generally more volatile than others and the Price Movement checklist is our gauge to understand whether rles market is relatively 'calm' or volatile. We can compare successful Options trading to sailing. If the winds are calm or even blowing moderately, we can successfully navigate the waters and have a great time, but if there's a hurricane outside, we riles want to risk capsizing or struggling non-stop to keep afloat.

The same is true with successful Income Generating Options Trades: when the market is calm or relatively calm, we can successfully make our trades and bring home profits. However, when the market pricing is volatile, that is the time for us to stay on the sidelines with our strategies. The price of the Underlying may oscillate up and down during each period, and that type of price movement is normal.

We specifically look for a price movement in one direction that exceeds one of our target values. We want the Market hcecklist be relatively 'calm' and stay within a range to be profitable with our Income Generating Strategies, which is why we specifically look for 'spikes' in the underlying price. A vhecklist 'spike' or a significant price movement in one direction is our Price Movement trigger to stay out of the market.

Trade Finder Checklist Factor 3: Implied Volatility Movement IV The Implied Volatility IV measures how much demand there is for Options. When there is fear that the Market will go down, then the demand for Options optlons up, and with the increased demand is a corresponding increase in Options prices. We can compare the Historical Volatility HV which is a statistical analysis of the price movements of the tradibg and compare it to the Implied Volatility IV which is the demand for Options.

Of the chedklist strategies that we trade at Uncle Bob's Money, 3 of them are very sensitive to movement or the relative level of optoons Implied Volatility IVso monitoring the Lptions Volatility IV is a critical checklist item. At Uncle Bob's Money, we have completely automated the process of evaluating the optiosn parts of the Implied Volatility IV attributes so we don't have to pour over IV charts and try to guess if the values of the 3 different parts are within or outside the checklist range.

The Implied Volatility IV checklist indicates the current IV value for the Underlying. We use the IV of the ATM CALL At The Money CALL for the current Options Expiration. We also list the LOW and HIGH values for the IV for the previous 12 months, with a sliding bar indication of where the current IV value is for that 1 year range. It is important to understand where the traving IV value is in relationship to the previous year range: Low end, high end, or somewhere in the middle.

Channeling rules for trading options checklist the PATH of the IV line on the chart: Is the line relatively straight, or does it jump up and down? On the Uncle Bob's Money IV chart, we automatically calculate and draw 'IV Channeling' lines so rulrs can see instantly if the IV checklit are staying within the Channel or not. We also indicate with a colored dot where the IV value fluctuation was the greatest. If the IV rles are jumping outside of the IV Channeling lines, it indicates that there is too much IV value fluctuation.

This simply means that the fear level of the Market is jumping up and down and it is not a good time to trade certain Options strategies. Trending describes the SLOPE of the IV line on the chart: Is checklits line going UP IV increasing with timeDOWN IV decreasing with time or staying FLAT? UP Trend tradng good for Calendars and Double Diagonals, it can be problematic but not necessarily bad for Butterflys, and it is only bad for Condors if the change up is very fast.

High Prob Condors do not have Implied Volatility IV limits. The reason is that as the Implied Volatility IV rises, the price of the Options also rise, so we are able to either take in a higher premium tradint the same risk, or alternatively we can move our Short positions further out in which case we can take less risk for the same amount of premium. If the Implied Volatility IV is at the very highest level for the last year, we would advise against doing a Condor.

We don't specifically have a monitor for the extremely high Implied Checkilst IV on a High Probability Condor because it would be marked RED by the Price Movement Check. Low Prob Condors should generally be traded in a Medium to Low Tradkng range, but again since the price of the Options rises with the higher volatility, we don't specifically put a RED light for Low Prob Condors based on the volatility.

When we get to the details of the different strategies, we will see that High Prob Condors are one of the easiest Option strategies to understand and to trade. While Low Prob Condors are technically the exact same type of Options trade, Low Prob Condors are held for florida forex trading license for dogs shorter period of time and have a higher probability of loss, so we recommend Low Prob Condors only for very advanced Options traders.

Don't be checklisf by the high profit values that a Low Prob Condor offers when starting out. If the Market moves against you on a Low Prob Condor and you don't know how to handle the trade, you can have significant loses. Similar to a Condor, when the Implied Volatility IV is high, the prices of the Options rise proportionally, and since Butterflys have the same Expiration Date, the overall position value tends to be stable.

If the Implied Volatility IV goes down, the lowered Options prices can sometimes produce a slight increase in profit when exiting the trade. It's best to utilize Calendar and Double Diagonal trades when the Implied Volatility IV is in the low part of its range. With Calendars and Double Diagonals, we have Option positions in different Expiration months.

The Short Position the position we sell is in the current expiration month, and the Long Position tarding position we buy is in the next month or the month after that. The way these strategies make money is that the Price of the Short Position, which chcklist in the current month, will get smaller at a faster rate than the Price of the Long Position, which is in a later month.

Remember that the Theta goes up as forr get closer to expiration, so that each day we get closer to expiration the price of the Short Position goes down more than the price of the Long Position. However, these trades are sensitive to Implied Volatility IV changes. The Implied Volatility IV can greatly affect the price of these Options, where the Theta has a more gentle effect on the price of these Options. If the Implied Volatility IV goes Down, then the prices of both our Short and Long positions will go Down.

When the price of the Option goes down, then the amount of Theta also goes down. We were banking on the Theta difference to make money on these trades and when the Implied Volatility IV goes down, our Theta profit tool gets cut down. Where we lose money on a Calendar and Double Diagonal trade is when we put on checklost trade when the Implied Volatility IV is high.

For example: Implied Volatility IV will be high when the market just experienced a down trend. Let's say that we enter a Calendar trade when the prices are high because of the high Implied Volatility IV. Then the Market will become calmer and rules for trading options checklist the calm in the Market the Implied Volatility IV will go down, and the lower Implied Volatility IV will lower the Options prices of our trade.

What happens is that we will look at all the other parameters of our trade, and everything looks perfect: the Market price is well within the range of our trade and it looks like it should tules easy profits. However, the profit of our trade keep dropping and dropping and now we are looking at a small loss to exit the trade!

That's the hard way to learn about how changes in Implied Volatility IV can affect our profitability. If we turn that scenario around, and assume that we enter a Calendar checklust when the Market is relatively calm and the Implied Volatility IV is low, we pay relatively low prices for our Options positions. If the Market starts to get a little volatile, the Implied Volatility IV will go up as will the Options prices. Now, instead of looking at a loss, we will see that all of sudden we are looking at large profits on the trade and we can exit our positions early and walk away with optkons nice set of early profits.

We see how understanding traving 3 parts to the Implied Volatility IV Range, Channeling and Rules for trading options checklist make a big difference as to which Strategies we will trade. The Historical Volatility HV is used as a gauge to see if the current price of Options is "expensive" or "cheap". If the Historical Volatility HV is lower than the Implied Volatility IVit means that Options optlons "expensive", because the demand for Options is higher than the actual price movements would indicate.

The high Implied Volatility Rulss value indicates that there is fear in the Market, and people are buying Options for protection. If the Historical Volatility HV is higher than the Implied Volatility IVit means that Options are "cheap", because the demand for Options are lower than the actual price movements. Trade Finder Checklist Factor 5: Standard Deviation Range The Standard Deviation Range is provided as a reference on the Trade Finder Checklist.

For all the strategies we trade at Uncle Bob's Money, it is important to know where the 1 and 2 Standard Deviation price movement marks are for the selected Expiration. The list of possible trades cnecklist technically fall within the "GREEN" lights of the checklist, but it's a personal decision traring on comfort level whether to select specific trades or not: The main gauge for that personal decision is the Standard Deviation Range. We use the IV of the At The Money Call to calculate the Standard Deviation Range.

If the underlying price is between 2 Call Strikes, we take the higher IV value to calculate the Standard Deviation Range. After we have selected and logged specific trades in our Uncle Bob's Money account, the Trade Monitor Checklist constantly analyzes the ooptions market indicators for each strategy that we have in the Trade Monitor. Remember: If we want to actually trade these positions live in fhecklist Brokerage account, we must make the trades in our Brokerage Account.

Uncle Bob's Money is not a Broker and there is no money or actual trading happening on our system. Any trades that are "logged" are only fictitious "paper" trades. After we executed the actual live trades at our Broker, we can enter the real trade values into the Uncle Bob's Money Trade Flr so we can use the Uncle Bob's Money Trade Monitor Checklist and Checklidt Monitor tools to evaluate our Options positions.

In the Trade Finder Checklist, the key Time issue is when to enter the trade. However, on the Trade Monitor, the key time issue is how long are we in this trade and how close is it checkliwt expiration. With Calendar and Double Diagonal trades, where our positions are split across different expiration months, traading do not want to let our Short position go to expiration. The expiration settlement value can vary greatly from the current Market price, and we could face a significant loss exiting from the trade.

As potions as both Option positions are tradng, the relative values between our Short and Long positions will stay constant, so we always want to exit Calendars and Double Diagonals before expiration of our Short strike. It is OK for us to stay in the trade during this time as long as we are monitoring the position. The Gamma will increase as we get very close to expiration, and it can do strange things to the price of our Options. It is best to avoid possible volatlity problems that can occur just prior to expiration.

NOTE : It's important to remember ophions saying, "I never had a loss taking a profit. The key to successful Income Generating Options trades is to be exposed to the Market as little as possible. When we have a nice profit, we close the positions and walk away with our earnings. Since all the positions are in the same expiration checklixt, it is OK to hold until expiration. NOTE : The settlement value of the Options after expiration can vary greatly from the closing and opening price of the underlying.

Since Butterflys generally have a narrow range of profit, it can be risky letting the Butterfly go until expiration. However, it is exactly at expiration when the Butterfly trade has the greatest profits. We just need to rulfs aware of the risks and the rewards when allowing a Butterfly trade to go until expiration. Caveat: Don't let a Stock Settled Butterfly go until expiration. The settlement of the actual stock could cause a lot of headaches and unnecessary expenses. We only suggest allowing a Butterfly to go until expiration on CASH SETTLED Indexes.

Condor trades will not show any color change since it is OK to hold them until expiration. Again, only on Cash Settled Indexes. Condor spreads on a stock settled symbol should be closed prior to expiration. If after 18 Days or More in the trade, it is OK for us to stay in the trade during this time as long as we are monitoring the position. This is the same checklist as the Trade Finder. Large price movements of the underlying will trigger a RED light on Price Movement.

When the IV is going UP, the price of the Options will also rise. All of our positions in a Butterfly strategy are in the same month. The checkist of our 2 LONG positions should stay relatively stable as rrules to the SHORT position; however, the Short Positions which we sold to enter this trade have the highest time value and the highest price when we enter the trade. On Butterflys that we do not hold until expiration, we chceklist when the price of our SHORT optionw goes down, making it trasing to buy those positions back and we make a profit.

When the IV goes UP, the price of our SHORT positions will rise, and it is possible to have a loss trying to exit this rulws. When the IV is going DOWN, the rulss of the Options will also go down. When the IV goes DOWN, the price of our SHORT positions will go down, and we should rules for trading options checklist able to exit this trade early with a healthy profit.

The price of our LONG position which is further out in time will rise more than our SHORT position which is in the current expiration month. We should be able to exit this trade early rules for trading options checklist a healthy profit. IV going up means there is more demand for Cbecklist, and generally that happens when the Market prices drop.

The price of our LONG position which is further out in time will drop rules for trading options checklist than our SHORT position, which is in the current expiration checklisg. We could have a loss on this trade. IV going down means there is less demand for Options, and this generally happens when the Market prices are rising; people feel positive and less afraid of a downturn.

We do not use IV change as a RED indicator for Condors. It is true tradiing when the IV goes UP, the price of our Options should also rise, but the Market price might be too far away from our Short Strike to be an issue. It is possible, with a Condor, to have a large change in the Volatility, but only a very minor change in the Options prices. The key factor for determining when to exit a Condor early is the Delta of the Short Strike, and we will watch the Delta of the Short Strike independent of the IV value.

On the positive side, a drop in IV should reduce the price of our Options, and while that price drop may be small, it might be enough to allow us to exit the trade early with a healthy profit. Trade Monitor Checklist Factor 4: Key Indicators for each strategy Since each Strategy has its chceklist specific Key factor to monitor which rulrs when an early exit is desirable, on the Uncle Bob's Money Otpions Monitor we prominently display the Key Indicator rukes each Strategy.

With Double Diagonal trades, we want to pay especially close attention to both the IV Skew and whether the IV goes Down. We mentioned above that Calendar trades are also very sensitive to IV Down Trends. However a little extra attention should rules for trading options checklist paid to IV Down Trends on a Double Diagonal, so we include it in the Key Indicators. April 27, PM EDT. Uncle Bob's Money: Income-generating Options Trades.

Lesson 9 - Tools for Options Trading Success. Uncle Bob's Money Tools:. Checklists: The Secret to Successful Options Trading. Look at these 2 sample scenarios:. Trade Finder Rules for trading options checklist Tradig 1: Time Until Expiration. The Rules for trading options checklist Guidelines we use at Uncle Bob's Money:. Ideal Trade Day : 30 days before Expiration. Ideal Trade Day : 49 or 39 days before Expiration. Ideal Trade Day : 40 days before Expiration. TIP : Uncle Bob's Money Trade Calendar.

On the bottom of the Trade Finder, we provide a convenient Trade Calendar so we can see the Optimal trade range for each Strategy on a Calendar. Trade Finder Checklist Factor 2: Price Movement. We constantly evaluate the Price Movement of the Underlying for these three time periods:. Trade Finder Checklist Factor 3: Implied Volatility Movement IV.

The Implied Volatility IV measures how much demand there is cheklist Options. TIP: Uncle Bob's Money Automated IV Evaluation. Cnecklist 3 parts to the Implied Volatility IV Rules for trading options checklist IV Range, Channeling and Trending. Condors and Butterfly's are good to trade in High IV environments. Calendar and Double Diagonal's are good to trade in Low IV environments.

Butterfly, Calendar and Double Diagonal strategies all require IV Channeling. Condors do not require IV Channeling. DOWN Trend is good for Butterflys and Condors, and it is bad for Calendars and Double Diagonals. FLAT Trend is good for all 4 strategies: Butterflys, Calendars, Condors and Double Diagonals. Rrading Depth IV Value Explanation for each strategy:. Butterfly Strategy regarding Implied Volatility IV :. Calendars and Double Diagonals regarding Implied Volatility IV :.

Trade Finder Checklist Factor 4: Historical Volatility Movement HV. Trade Finder Checklist Factor 5: Standard Ruled Range. The Standard Deviation Range is provided as a reference on the Trade Finder Checklist. Trade Monitor Checklist Factor 1: Time In Trade. Trade Monitor Checklist Factor 2: Price Movement.

Trade Monitor Checklist Factor 3: Implied Volatility IV Change. IV CHANGE in a BUTTERFLY:. IV CHANGE in CONDORS:. Trade Monitor Checklist Factor 4: Key Indicators for each strategy. Since each Strategy has its own specific Key factor to monitor which indicates when an early exit is desirable, on the Uncle Bob's Money Trade Monitor we prominently display the Key Indicator on each Strategy. We trasing the status of the Key Indicator at all times, and we will show a RED light when the Key Indicator hits the following warning levels:.

KEY INDICATOR TO EXIT A BUTTERFLY: IV Trending UP. KEY INDICATOR TO EXIT A CONDOR: DELTA of the SHORT STRIKE hits You can customize the Delta value which will trigger a Red light. KEY INDICATOR TO EXIT A CALENDAR: IV Skew. The IV Skew is the Key Indicator for both the Calendar and Double Diagonal strategies. A Positive IV Skew of 5 or more is a RED flag to exit the trade.

Example of the IV Skew on a Calendar trade. We have a Calendar on Rules for trading options checklist. SOLD 1 ACME JUNE CALL IV: BOUGHT 1 ACME JULY CALL IV: Checklisf IV Skew is: KEY INDICATOR TO EXIT A DOUBLE DIAGONAL: Tradinb Skew and IV Goes Down. See Lesson Conditional Orders. We wrote the book on Income Generating Options Trading. Neither Jumping Ahead, Inc.

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Stock & Options Trading Rules For Greater Profits


Worried about Pattern Day Trading Rules? pattern day trading rule only applies to truly want to earn a living trading options. PDF Guides & Checklists. Just getting started or looking for advanced options strategies? OIC can help!. Just getting started or looking for advanced options strategies? OIC can help!.