Why I’m Adjusting My Trading Time Frame in This Market

Why I’m Adjusting My Trading Time Frame in This Market

Posted On March 19, 2021 3:22 pm

The lesson of the week for me is that I must keep trades on a tighter time frame — be it winners like McDonald’s (MCD) where Options360 Service bagged a 41% gain in under a week or a loser like Stone Capital (STNE) that was closed after just one day.  

Both positions still had time remaining. MCD had some flexibility for two more weekly rolls to bring in additional income while STNE had over a month to see if the stock could recover. However, the trade parameters were met in both cases. MCD moved above the $220 level, and the stop-loss level was violated in STNE. A disciplined approach to trading dictated that I close out the positions. 

In the past, I may have tried to milk additional gains from MCD or hedge STNE and hope for a bounce (the stock has continued to sink sparing us additional losses).  However, years of experience have taught me to stick with the game plan, otherwise, what’s the point of having any plan at all?

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Another reason I’m hewing to closing positions even with time remaining and them working in our favor, such as last week’s winners in Mosaic (MOS) and Pulte (PHM), is because the current market environment is one of large daily moves and swift reversals. When the majority of a position’s profit potential has been achieved its best to secure the profit rather than overstay your welcome and risk giving back the gains. 

Similarly, today the Options360 portfolio closed our bullish ratio spread in MetroMile (MILE) today despite another 4 weeks remaining until expiration. This was less about having hit a predetermined target but rather the Options360 had a 46% gain and I made a  judgment that MILE and the market were losing momentum. 

These large day-to-day moves and quick reversals also have me structuring trades with shorter time frames.  Case in point, yesterday I established a new bullish diagonal in Costco (COST) where the long call I purchased has only three weeks until the April 9 expiration.  

In a less volatile market environment, I’d typically initiate the long leg of a diagonal with six to eight weeks until expiration.   However, I’m currently putting the emphasis on profiting from a directional movement or capital appreciation rather than income generated by the process of ‘rolling’ the short leg. 

Overall, it’s been a good week as the Options360 Service has nudged above a 20% profit for 2021.  Looking forward to next week! But, I’m keeping the time frames tight and not staring too far ahead. 

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About author

Steve Smith

Steve Smith have been involved in all facets of the investment industry in a variety of roles ranging from speculator, educator, manager and advisor. This has taken him from the trading floors of Chicago to hedge funds on Wall Street to the world online. From 1987 to 1996, he served as a market maker at the Chicago Board of Options Exchange (CBOE) and Chicago Board of Trade (CBOT). From 1997 to 2007, he was a Senior Columnist and Managing Editor for TheStreet.com, handling their Option Alert and Short Report newsletters. The Option Alert was awarded the MIN “best business newsletter” in 2006. From 2009 to 2013, Smith was a Senior Columnist and Managing Editor for Minyanville’s OptionSmith newsletter, as well as a Risk Manager Consultant for New Vernon Capital LLC. Smith acted as an advisor to build models and option strategies to reduce portfolio exposure and enhance returns for the four main funds. Since 2015, he has worked for Adam Mesh Trading Group. There, he has managed Options360 and Earning 360, been co-leader of Option Academy, and contributed to The Option Specialist website.