A “stop loss” is exactly what it sounds like; it’s a “good ‘til canceled” order which dictates an exit from your position if it’s reached your maximum risk limit. Seems like a reasonable thing to use, yes? 
 
Well, yes and no. And I suppose “it depends” as well. 
 
There are some applications of using Stop Loss orders that are non-negotiable. Futures trading is a great example of a non-negotiable use of stops. 
 
Typically when you are trading futures contracts in a directional manner, you will use a “bracket order” which defines your “take profit” exits as well as your “stop loss” exits. Done correctly, it’s a simple, linear relationship which allows you to define your maximum trade risk before entry. They are “set it and forget it” simple. 
 
So far, so good. Futures contracts don’t have any variability to them (like implied volatility) thus they are the perfect linear trading instrument. 
 
Where we get into complications is when we’re trading options, and especially spreads. It’s not hard to set up a “take profit” limit order to close down your trade when the result is positive. In fact, we recommend using them. Where it all goes awry is when we try to dictate a “stop loss” exit using options. 
 
I certainly found this out the hard way many years ago when I just casually added some “max debit” stop orders on some credit spread positions. I was horrified to see that they filled for max debit with the price of the index HUNDREDS of points away! There was no way that they should have filled, but they did. 
 
Remember that a stop order is a “MARKET” order and the “market” for an option or a spread can vary by an unbelievable amount depending on what is happening in that exact second in the market. And also understand that each option is its own little “micro-market” with supply and demand constraints, and a bid/ask spread which can move an unbelievable amount. 
 
If you decide to use stop market orders on your credit spreads, it’s only a matter of time before you too will endure a “rite of passage” and be stopped out prematurely on a trade, possibly at a much greater debit than you expected. 
 
So what is the answer? There are three different ways that you can solve this dilemma: Mental Stops, Conditional/Stop Limits, and Trade Structure. 
 
Mental Stops are exactly what they sound like; YOU make the decision when to exit, based on whatever criteria that you pre-determined at the onset of the trade. This requires TIME and ACCESS to be effective. As an example, I sell naked puts on the Micro Emini S&P500 futures contract on TastyTrade. They do not allow me to set a stop loss order, although they do allow me to set a profit-target limit order. I just have to keep tabs on the desired max debit limit, and execute an exit if it hits that level. It’s a bit of a challenge with an instrument that trades 24 x 5, but one that I’m willing to undertake. 
 
For those of you using spreads, you can consider a STOP/LIMIT order if you broker allows it. You will define the STOP price at which the online broker is triggered into a “stop” condition, where it then passes the ability to exit the trade into a LIMIT order. The STOP fires, and then the broker will close down the trade at NO MORE than the LIMIT order specifies. This prevents an inflated exit, however there is the risk that you might not exit at all if IV spikes and exits immediately inflate. These types of exits are necessary for traders who might have primary responsibilities OTHER than trading during the day, like a stay at home Mom or an office worker. 
 
My favorite solution is Trade Structure to enact risk management. Set the reward-to-risk of the trade such that even a full loss is within your limits, and let the price do what it will. No stop required. 
 
Whatever solution that you choose, remember the First Rule of Risk Management: set your exit BEFORE you enter the position, not after. 
 
In your corner……..Doc Severson

If you are looking for a consistent daily system done LIVE with you from the best mentor in the business, check out Doc's Daily Live Trading Room

​Markets change seasons like the weather; clearly we’re in a different type of market “character” than we were a year ago. And just like how you have to wear different clothing in the different seasons of weather (flip-flops in January is a risk), you need to be able to match your strategies to match the current Market. 

So what is the weather like today in the Market? Even after dropping 100 points off of the recent highs on the S&P500, the character has not changed…yet. We’re still seeing “quiet/trending” behavior with relatively docile intraday volatility, and very low IMPLIED volatility. 

Because of this, we generally want to establish a LONG VEGA position. Is this a reference to a really bad Chevrolet from the 1970’s? Nope…”vega” means the sensitivity to changes in implied volatility. With implied volatility being low, the odds favor it RISING at some point, so we want to be trading positions that gain value if implied volatility rises. 

This is why we’re trading time spreads like Campaign Diagonals right now. In fact, we’ve been trading them since late August, and it’s been our simplest, most successful strategy in the live trading room since that point. The other thing that I like about them is the “don’t care” mentality towards day-to-day price movement. I really don’t care what happens overnight, because the position is self-hedged to a degree, whether the price goes up or down. So no more worrying about an overnight black swan event. 

Now certainly, if this little pullback turns into a bigger one and we see implied volatility spiking again, we’ll look to place SHORT VEGA trades like iron condors and credit spreads. Until that point, the weather is just fine for our campaign diagonals! 

Make sure that you’re adjusting your strategies to work with the current market. 

In your corner……..Doc Severson

If you are interested in learning more about these strategies, Go LIVE with Doc every day trading them in the 12 Minute Trading Live Trading Room or Get the Campaign Cashflow Masterclass!

The 2023 Year in Review Event was the best we've ever done.  The engagement was fantastic with such great questions and comments, and we really hit the mark with what we shared on how to win and make money in 2024.  Doc's strategy overview and breakdown was awesome!

We also announced multiple new Masterclasses, new strategies, and some very special offers including a Masterclass for FREE - but you will need to act quickly because it all goes away on Sunday, January 28th at Midnight!  Here are answers the questions we received about the specials and offers at the event.  

• First, the FREE $100 a Day Masterclass is only available through Sunday at Midnight using the coupon code provided on the event page at www.12MinuteTrading.com/2024.  So take advantage!
• Second, the special one-time $59 offer for the Campaign Cashflow Masterclass ends on Sunday at Midnight as well.  But, if you sign up for the 12 Minute Trading Live Daily Trading Room service with Doc, you get the Masterclass for free.  All you have to do is sign up by Sunday, or as a current student, upgrade to the annual plan, and our team will add the Masterclass to your portal.  As a reminder, the price of the service is going up on February 1st, so this is your last chance to lock in the lowest price possible for life.  Details on are on the event page for this as well.
• Third, my new 50/50 Strategy is part of my 12 Minute Advisory service.  If you are a student, you will start to get the new trades next week.  If you are not a current student, I am offering 50% your first month giving you the service for under $50 to check it out and try the strategies.  You can find the sign up and coupon code for the offer at the event page.  
• We did have a few people inquiry about the 12 Minute Trading Bundle where you get both Doc and my services at deep discounts.  It is an even better deal right now if you purchase before Doc's service goes up in price next week.  The monthly price is $197/mo and the annual is $1997 which is a 30% savings.  Click on the option the option you prefer below to sign up and take advantage:
  • 12 Minute Trading Bundle Monthly ($197)
  • 12 Minute Trading Bundle Annual ($1997)

Have you heard of the term “Random Walk” as it relates to trading strategies?
 
The author Burton Malkiel wrote the book “A Random Walk Down Wall Street” in 1973, and has served to be kind of a bible to those in the investment community that believe that predicting forward price movement is impossible. 
 
This, of course, flies directly in the face of those that use technical charting studies to analyze price behavior and predict future movement. 
 
So you have two religious “camps” in the investing community:

• The “Random Walkers” who believe that forecasting forward price movement is lunacy, and instead rely on statistical or probabilistic approaches. 
• The “Chartists” who believe that patterns can be discerned in stock charts, which forecast predictable forward behavior. 

 
Which camp do I ascribe to? Actually, both. 
 
I DO believe that price can do whatever it wants, WHENEVER it wants to. Actually predicting the forward movement of price action is a fool’s errand. 
 
But I also believe in the power of analyzing price movement and patterns, and some things repeat over and over again. Range Expansion leads to Range Contraction. Exhaustion leads to Consolidation. Those don’t change. Instead of forecasting future price movement, I will go so far as to give the benefit of the doubt to one direction or another. Strong convictions, loosely held. 
 
I use a somewhat hybrid approach that allows me to see and react to what’s actually happening, instead of forming a bias based on what I think SHOULD happen. 
 
The longer that I have been trading, the more that I admit to myself that I don’t know what’s going to happen in the next five minutes, let alone in the next month. That affords me a sort of freedom in a way, but only if I’m using a strategy designed to work with this “Random Walk” approach. 
 
In general, strategies designed to work with a Random Walk approach are generally better reward-to-risk, and exchange a decreased probability of success for better reward-to-risk. They also have more mechanical entry conditions, instead of waiting for a specific technical signal. 
 
Learning about and using them might make a difference in your trading. Ask us how you can get started. 
 
In your corner……..Doc Severson

In the realm of options trading, selling covered calls stands out as a strategy that can potentially boost your income while holding onto stocks. Whether you're new to trading or looking for an additional income stream, let's break down the concept and explore some actionable steps to get started.

Understanding Covered Calls

What Are Covered Calls? Covered calls involve selling call options on stocks you already own. This strategy is great for those who want to generate extra income while keeping their stock positions.

Why Covered Calls?

• Income Generation: Earn premiums by selling call options.
• Stock Ownership: Maintain ownership of the underlying stocks.
• Manageable Risk: Limited risk compared to outright stock sales

Selecting the Right Stocks

Choosing the right stocks is crucial for successful covered call strategies. Here are some recommended stocks, each priced under $15, that align well with covered call opportunities:

1. AT&T Inc. (T): Stable with consistent dividends.
2. Apple Inc. (AAPL): Widely traded, ample liquidity, moderate price movements.
3. Procter & Gamble Co. (PG): Low volatility, excellent for income generation.
4. Johnson & Johnson (JNJ): Stable, considered a defensive stock.
5. Ford Motor Company (F): Affordable entry point, stable.
6. General Electric Company (GE): Budget-friendly with historical options liquidity.
7. Groupon Inc. (GRPN): Interesting choice for covered calls, priced under $15.

Step-by-Step Guide to Selling Covered Calls

1. Choose Your Stock: Select a stock you own and are comfortable holding onto.
2. Check Options Availability: Ensure that the stock has available call options.
3. Set Your Price: Decide on the price (strike price) at which you're willing to sell the stock if the option is exercised.
4. Pick an Expiry Date: Choose a date when the option will expire.
5. Execute the Trade: Place the trade through your broker, selling the call options against your owned stocks.

Managing Your Covered Call Positions

Once your covered call positions are in play, it's essential to manage them effectively:

1. Monitor Regularly: Keep an eye on your stocks and market conditions regularly.
2. Potential Outcomes: Understand potential outcomes, including stock assignment and adjusting positions.
3. Adjust as Needed: If the stock price changes significantly, be prepared to adjust your strategy accordingly.

Risks and Considerations

While covered calls can be lucrative, it's crucial to be aware of potential risks:

1. Limited Upside: Your gains may be capped if the stock price rises significantly.
2. Stock Assignment: Be ready for potential stock assignment if the option is exercised.

​​
Congratulations! You now have a simplified guide to start selling covered calls and potentially boost your income. Remember, like any investment strategy, it's important to stay informed, adapt as needed, and enjoy the potential benefits of this income-generating approach. Happy trading!

Hey traders! Today, let's dive into the world of Iron Condor trading with a focus on those low-volatility stocks. If you're all about smart risk management and looking for a strategy that's both low on competition and high on probability, then selling Iron Condors on low-volatility stocks might just be your ticket to that sweet income stream.

Why Iron Condors Love Low Volatility
Iron Condor trading really thrives in those calm, low-volatility market vibes. Forget the wild price swings – this strategy is all about navigating the smoother waters, minimizing those pesky risks that come with options trading.

Picking the Right Low-Volatility Stocks
So, how do you find the perfect match for your Iron Condor game? We're talking metrics here – historical volatility, beta, and other nifty indicators that give you the lowdown on a stock's stability. This is the nitty-gritty stuff that forms the backbone of a successful Iron Condor strategy.
​
Top 5 Low-Volatility Stock Picks

1. Johnson & Johnson (JNJ)
   • Why? This healthcare heavyweight is a poster child for stability. When the market throws a curveball, JNJ tends to keep its cool.
2. Procter & Gamble (PG)
   • Why? As a consumer goods titan, PG is like the fortress of defense stocks. It has a history of weathering storms with lower volatility.
3. Coca-Cola (KO)
   • Why? In the world of low-volatility portfolios, Coca-Cola is the unsung hero. Its non-cyclical nature adds a layer of predictability to its stock price.
4. Visa Inc. (V)
   • Why? Being in the financial sector doesn't always mean crazy ups and downs. Visa's stable business model usually translates to lower volatility.
5. NextEra Energy (NEE)
   • Why? As a utility company, NEE is all about that stable cash flow and lower volatility. It's a go-to for investors who like their options on the defensive side.

Choosing wisely when it comes to low-volatility stocks is the secret sauce for Iron Condor success. The top five picks we've spilled the beans on offer the stability you crave and the potential for some predictability in those stock movements. As you journey into the world of Iron Condor trading amidst the tranquility of low-volatility environments, don't forget to do your own digging and keep an eye on what's shaking in the market.  Happy trading!

Trading in the financial markets always involves a degree of risk, and options trading is no exception. However, within the realm of options, some strategies are considered more conservative, offering a balance between risk and potential returns. Let's explore a few options trading strategies that are often deemed safer:

1. Covered Call Strategy

Overview: In a covered call strategy, an investor owns the underlying stock and simultaneously sells a call option against it.

Risk: This strategy carries limited risk, as the ownership of the stock provides a cushion against potential losses. However, profits are capped at the strike price of the call option.

2. Cash-Secured Put

Overview: The cash-secured put involves selling a put option while having enough cash to cover the purchase of the underlying stock if the option is exercised.

Risk: Risk is limited, as the strategy is cash-secured, and the investor is obligated to buy the stock at the strike price only if the put option is exercised.

3. Protective Put (Long Put)

Overview: This strategy involves buying a put option to protect an existing long stock position.

Risk: Risk is limited to the cost of the put option, which acts as insurance against a decline in the stock price.

4. Collar Strategy

Overview: The collar strategy combines the purchase of a protective put with the sale of a covered call.

Risk: Risk on the downside is limited due to the protective put, but potential gains are also capped by the covered call.

5. Iron Condor

Overview: In an iron condor, an investor sells both an out-of-the-money put and an out-of-the-money call, while buying a further out-of-the-money put and call for protection.

Risk: Risk is limited due to the defined maximum loss, but profit potential is also constrained.

6. Credit Spreads (Bull Put Spread/Bear Call Spread)

Overview: Credit spreads involve selling one option and buying another option with the same expiration date but a different strike price.

Risk: Risk is limited due to the spread structure, but profit potential is also limited.

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Are you ready to elevate your trading game? Explore these safer options trading strategies with 12 Minute Trading.   Download our free e-book, "The 5 Key Elements of a Winning Trading Strategy," and discover essential insights to enhance your trading approach.

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​
While these strategies offer a more conservative approach to options trading, it's crucial to understand that they come with limited profit potential. Traders should carefully assess their risk tolerance, market outlook, and financial goals before implementing any strategy.

Moreover, gaining a solid understanding of options mechanics and market dynamics is essential. For those new to options trading, seeking advice from a financial professional is highly recommended.

Remember, no strategy can eliminate all risks, and markets can be unpredictable. It's essential to stay informed, continuously learn, and adapt your approach based on market conditions.

Happy trading!