Yo Pit Crazies,

Three of my favorite hobbies are trading, teaching traders and fishing in the cove near my house here in scenic Maine.

People often ask if I can teach classes and trade at the same time …

The answer, of course, is yes. After 30 years of doing this, I’ve gotten pretty nimble. (Although I have yet to try trading, teaching AND fishing simultaneously.)

Now, to be effective in my trading, I need to use stops … but I don’t want to get “fished” – and I don’t mean the bait-on-a-hook fun kind

See what I’m talking about – and how you can avoid getting hooked – when you click here.

Using Stop Orders Helps to Manage Positions

Let’s pause a minute to consider stop orders.

They’re placed above or below the current market for a stock, option or future.

And they’re your way of saying that if the underlying gets to X price, that you want out.

For example if you own puts currently trading for $5 and you want to lock in a gain, you might stop them at $4.50. That way if the value declines, you can still keep a gain.

When an order is fished, however, your stop is triggered but the market goes the other way right off the bat. Essentially, your order was the low price for the period of time and the market never looked back.

That is what happened in my Trading Legion class today. I was riding puts to a decent gain but knew I would have a hard time managing the trade during class.

So, I set a stop and kept pushing the stop as the value in my puts increased.

Then a short rally in the market occurred and my puts were lifted. I made some money but my goal was holding to the close.

While I dont have any hard evidence, when my stop orders are .40 away from the market they are almost always triggered and the level is not seen again. I think some algos “fish” for stops that are relatively close.  My solution going forward is just to use a wider stop if I really want to keep the trade on for more gains.

That is the tradeoff is less sure money vs. trying to ride the momentum.

Come to think of it, that’s trading in a nutshell.

The Rundown

Capitol Gains w/ Frank Gregory

I closed some short calls in Clean Energy Inc (Ticker: CLNE)  for a 60% gain and will look to reenter against the longer term calls I own. Green energy stocks got hit very hard today.

Power Income Trader:
Bill Griffo and I jumped into some VIX call spreads today for Power Gains and they marked up 25% into the close.

Trading Legion

I closed my SPY call calendars and puts for a 8% net gain today.  It should have been closer to 20% but my put stop … got fished!

Pro Trading Room:
The Pro Room is Option Pit’s live access to Mark and myself during trading hours. Our Pro students post trade ideas with Mark and me during the entire trading session. 

Ken taking the selloff to write a few puts:

Vol Trade Club

I closed my Pro Shares UltraShort QQQ ETF (Ticker: SQQQ) calls up 25% and VIX puts up 30%, leaving me with VIX puts for a credit until May expiration.

To Your Trading Success,

AG