Trade management is vital for all trades, but perhaps more important when subscribing to a service that provides you with recommendations. If the recommendation pertains to buying or selling options, the following process has worked extremely well.
Take all Trades and Start Small
When paying for a service, take all trades, and start with a small position. Purchasing one contract will get you started with the trade. After purchasing your contract, review the trade, check out the charts, and exercise your own due diligence.
If you play Blackjack, you will accumulate more winnings if you double down when the opportunity presents itself. Use the whole play book. Trading is no different, the trades you skip may be the winners. Take all trades.
Capital Utilization
How Much Capital Per Trade?
The short answer is never more than 3 percent of the capital you have set aside for trading options. Utilizing no more than 3 percent of your option trading capital will allow for you to have perhaps a dozen or more open trades.
How Much Cash Should I Retain
My goal is to keep 45 percent of my options trading capital in cash. Every “amazing bargain” you encounter will require cash (dry powder). I will only think about going to 20 percent cash when this kind of event is on the horizon, then I will scale into a final position. Avoid blowing up your account! A lot of people do.
Entering The Trade
Start with 1 contract and take every trade. Skip one and watch it turn into the winner you missed!
Recommendation Looks Questionable
If the recommended trade looks questionable, after doing my own research, I’m done. I will hold the one contract and wait for sell instructions from the service. I will hold the one contract so I can profile the service (and myself) and trade thesis as to:
- missed opportunities for profit
- trade durations
- stop loss
- capital utilization
- success rate in number of trades and total capital
- how my trade vision aligns with the services trade vision
Recommendation Looks Promising
If the trade looks like a winner, I will decide how much capital I am willing to apply to the trade. I will never put more than 3 percent of my total trading capital toward one trade. After knowing the ceiling of the trade, I will average down on slow dips and average up on quick movers (DCA). My goal is to see how fast I can get a 4 to 7 percent return (or more) in one to four days. I hardly ever hold more than one contract AMC (after market close) or weekends if the trade is green (profitable). Remember, The Lions Come At Night.
Taking Profits
Yes, a very high percentage of ALL TRADES recommended will reach a profit level, even if it is 1 or 2 percent in a few minutes or the same day trade started. I take profits (P1) – leaving one contract, then add to the position on dip.
Leaving one contract allows for me to quickly identify dips so I can purchase more contracts and rebuild a new position. After all, If I sold for +7% profit, and I leave one contract … a quick glance might reflect anywhere from a +1% to -3% (or better) prompting me to add to my position.
Once I hit my real goal (P2), I sell all except one contract and take the profits. As long as the trade has at least 21 to 14 days left, and the buy “up to” limit is intact, or reasonable based upon price movement, I will add to my position. I may repeat this process 20 times (more or less) during the life of the trade.
During my first 6 months of trading from services, I experienced many trades that expired worthless, sold for a loss, and many others that sold for gains. I stayed with the program … bought and sold when directed.
Interesting thing is, ALL OF THE TRADES had gains at some point between entering the trade and exiting the trade.
My change in strategy, which is the subject matter of this post, has resulted in exponentially growing my accounts. Take Profits!
Real Trade Example
Recently, a trade from a paid service sold for a small gain one week before expiration. Here is the trade:
- Issued March 1st
- XYZ Corp
- Buy To Open
- May 15, 2025
- $100 strike
- up to $4.70 per contract
Results
- Sell order issued May 7th (week before expiry)
- Sold at $5.10
- Gain 8.5%
- Trade duration was 67 days
- Annualized ROI 43.6%
Pretty good results!
How I Worked The Trade
Please note: the following results have occurred repeatedly, often multiple times in a single day.
While this trade started at $4.70 per contract and ended at $5.10 per contract, the journey was quite the journey. Swings from being down over 50% to being up over 60% could be found, and I caught them 21 times over a period of 38 days. How? Watching the basket; price action, and RSI.
- Buy low sell high (many times)
- Overall Gain +680%
- Trade Duration 67 days
- Annualized ROI 3704%
The proverb “Don’t Put All Your Eggs in One Basket” means don’t risk everything on a single plan or idea. It advises diversifying resources to minimize potential loss. The saying alludes to gathering all the eggs from your hens into one basket so that if you should drop the basket, you lose all your eggs. Sorry, but I disagree … read on
The concerns which fail are those which have scattered their capital, which means that they have scattered their brains also. They have investments in this, or that, or the other, here, there and everywhere. “Don’t put all your eggs in one basket” is all wrong. I tell you “put all your eggs in one basket, and then watch that basket.” Look round you and take notice; men who do that do not often fail. It is easy to watch and carry the one basket. It is trying to carry too many baskets that breaks most eggs in this country. He who carries three baskets must put one on his head, which is apt to tumble and trip him up. One fault of the American business man is lack of concentration. June 23, 1885 Andrew Carnegie
I believe that moving the closest to perfecting a profitable trading process requires a persistent focus on fine-tuning a programmatically consistent approach of relentless action.
Exiting The Trade
The trade is over when I hear from the service. I may have only one contract expiring worthless, red, or green.
The journey is always worth the time and capital because of what is gained and retained for future trading strategies.
Summary
A lot of money has been made from the recommendations from trade services. While I highly recommend trade services, trade management from services is crucial. Trade services can lead you to the water … but you need to be the one to closely “watch the basket” and milk the trade.
Take all trades, then park the trade or milk the trade and wait for the services exit strategy.
Make It Happen!
