In a Flash, It Can Be Gone
Happy New Year, everyone!
I am incredibly excited for 2023. And for today’s note, I am in the middle of preparing to tell you one of the biggest reasons why I’m so excited for this year. It’s a productivity hack that is already taking my personal trading to a whole new level, but it extends to everything outside of trading — work and life – as well!
The plan was to finish up that piece and share it with you today.
However, it’s going to have to wait until another time. For now.
Everyone with a pulse who is aware of what transpired in the NFL football game last night between the Buffalo Bills and Cincinnati Bengals was knocked in the teeth by a heavy dose of reality.
The reality is that no matter how well we plan and strategize, no matter our confidence level, and no matter how well-positioned we might be to succeed in following our dreams, we have to be ever-vigilant and mindful of the very unsettling fact that it can all end tomorrow. Or even today.
The need for being mindful and grateful for everything we have and cherish should be pretty obvious as it pertains to our families and our life outside of the trading screens. You don’t need a long sermon on that from me.
As for trading – which is what many of you do read these notes for my insights on, and I’m grateful for – it’s also (another) reminder to us that putting ourselves in a position to win also means doing everything in our power to prevent catastrophic loss.
Losing sucks and it’s part of the game. It’s the cost of doing business. We can never erase losses from being a part of our daily interaction with the markets. But it only takes one large loss to take us out of the game forever.
We cannot allow this to happen.
Here is a non-exhaustive list of ways (in no particular order) that we options traders can prevent the risk of catastrophic loss:
- Trade small.
- Trade with defined-risk positions (long options, debit spreads, Iron Condors) and be comfortable with losing everything we risked in this one trade.
- When trading naked short options, trade even smaller than normal and manage our risk like a momma bear protecting her cubs.
- Leave a significant portion of our trading capital in cash.
- If we've hit a long string of losses, take a break. Nobody is forcing us to trade.
- When in doubt, get out.
The best predictor of future success in this business is time. The more time we have to put into it, the more time we’ve experienced it, and the more time we’ve learned about it through reading, mentorship, and community, the better our odds in the long run. But no matter what, we have to REMAIN IN THE GAME. We have to do whatever it takes to make sure we’re ready to take the field for the next play.
Godspeed, Damar Hamlin. Get back to whatever brings you the most joy – whether it's family, friends, or way down the list… football – as soon as possible. Much love, my man.
