PROGRAMMING ALERT: I’m launching a new weekly show on StockMarketTV.com called What Are My Options?
It’s a 30-minute(ish) show where I take your requests for options strategies on your favorite stocks. I’ll drop a lesson or two along the way, and sometimes I’ll just riff on the philosophy behind options trading.
The first episode airs Tuesday, July 1st at 3pm ET—and I’ll be doing it live every Tuesday after that. It’s meant to be interactive, so I hope you’ll join me!
Lately, I’m noticing more people talking about how the market has “come too far too fast.” Some are even licking their chops, ready to jump in short and try to catch what they’re sure will be an “epic reversal.”
This kind of talk makes me uncomfortable.
Not because I disagree that a pullback could happen — anything can happen. But because I know the psychology behind this kind of positioning. It’s not usually about disciplined risk management. It’s about ego.
A couple weeks ago, when I was in-studio with Yahoo Finance in New York, we were talking about how to catch the turn in volatility — specifically $VIX — after a spike. They asked me when to buy the bottom. I told them the truth: I want to be late.
I like to see the turn first, then hop on once the wave is actually starting to roll. I don’t need to be first. I don’t need the glory of catching the absolute low tick. There’s usually plenty of opportunity after the turn confirms.
But I get it — being first is tempting. Especially for those of us who grew up in trading communities where the biggest ego in the room often got the most attention. You catch a top? Or a bottom? People remember. But most of the time, what actually happens? People blow up trying.
I know. I’ve been there.
The summer and fall of 2011 nearly ended me. Remember when the U.S. credit rating first got downgraded? LOL. I got obsessed with shorting the resulting volatility — aggressively selling call spreads on $VXX.
And when the position went against me, instead of stepping back and managing risk, I doubled down. Then again. And again. I was sure $VXX would mean revert. And it did… eventually. But by the time it did, I’d already been forced to wave the while flag after having burned through about half my trading capital.
All because I was trying to be a hero.
I was chasing validation more than I was chasing edge. That’s a tough pill to swallow, but it’s true. I wanted to be right. I wanted the story.
What I’ve learned since then — painfully — is that it’s far better to identify trends and ride them while managing risk. I don’t need to pick tops or bottoms. I don’t need to be a hero. I just need to be consistent, patient, and disciplined enough to catch the meat of the move.
That suits my temperament better.
And honestly, it suits most people better — even if they don’t want to admit it.
Sean McLaughlin | Chief Options Strategist, All Star Charts
