[Revealed] 3 Steps to Preparing Your Options Trading Portfolio for Vacation

[Revealed] 3 Steps to Preparing Your Options Trading Portfolio for Vacation

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Preparing portfolio for vacation

You won’t always be in front of your options trading platform to monitor your positions.

Sometimes you will take an extended step away from your options portfolio to go on vacation.

You don’t want to worry about your options positions when you are on vacation.

However, this does not mean that you have to completely stop trading.

When preparing to go on vacation, there are a number of steps you can take to reduce your portfolio risk.

Let’s take a look at the measures you can take to prepare our options trading portfolio for vacation.

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1

Full Portfolio Assessment

Before taking time away from your options trading portfolio, it’s important to do a full portfolio assessment.


In this chapter, I’ll show you the key areas to examine prior to your vacation.

When going through your portfolio, there are several key items you should look out for.

The key question to ask yourself is, “Do I want to be in this options position or not”?

Manage Your Days To Expiration

The first factor to look at is the number of days to expiration for your positions.

You would want to consider whether your positions have many days to expiration or a few days to expiration.

If your positions are nearing expiration, you may want to roll those positions out to a further expiration cycle or close those positions altogether.

A smaller number of days to expiration is a greater risk than a larger number of days to expiration. This will help to avoid expiration and assignment risk.

Assess Your Profit or Loss

The next factor to consider is the profit or loss status of your positions.

If your options positions are close to break even, you may want to just close these positions out just to take some risk off the table.

This is something that you could always reestablish at a later time.

If you have some decent sized winning trades, you might also want to book those profits so to prevent them from turning into a losing trade while away from your trading platform.

Even if you haven’t reached your predetermined profit target, reducing position size and booking profits can’t hurt your portfolio.

Reduce Your Position Size

Lastly, if you are trading more than one contract, you could reduce your positions size.

By taking these few, simple steps you can book some profits, significantly reduce your portfolio risk and scale down your positions, all of which are important when you can’t actively manage your positions.

You are not completely closing down your portfolio so you’ll still have time decay working in your positions and the chance for losing positions to come back to being profitable in the future.

2

Days To Expiration And Gamma Risk Management

Gamma is a hidden risk for options sellers. I’ll show you why that is in this chapter.

 

I’ll also explain what precautions you can take to mitigate that risk.


Let’s dive in.

The biggest risk you have when you don’t have access to your trading platform is gamma risk.

Gamma causes greater profit and loss fluctuations in your account as expiration approaches.

Gamma Risk

Gamma risk occurs when the option price begins to swing with greater magnitude as expiration approaches.

Gamma risk is why you can have a decent profit on a trade, but quickly see it turn into a loser.

To avoid this risk, it is best to roll your positions out to an expiration cycle with more days.

Expiration cycles with more days left have significantly less gamma risk than expiration cycles with fewer days to expiration.

The threshold that we use is after 21 days becomes too risky to continue holding short options positions.

The second benefit to extending duration is less assignment risk and dividend risk.

Assignment risk is the risk that your short options will be assigned into stock positions.

Assignment really only occurs in the week or two prior to expiration or when there is little to no extrinsic value left in the option contract.

Dividend risk also only occurs when there is little to no extrinsic value left in the option contract.

Dividend Risk

Dividend risk occurs when you have short in-the-money call options with little to no extrinsic value. In-the-money call options are at risk of assignment due to an upcoming dividend.

When you have enough duration in your positions, you essentially avoid all of these risk all together.

This is something that you should really pay attention to for defined risk positions.

Let’s say you have a defined risk spread and you hold it through expiration.

If your short option goes in the money, it will be assigned into stock.

However, if your long option stays out of the money, it will simply disappear from your portfolio, leaving you with undefined risk with the stock position.

By rolling out and extending duration you significantly reduce your overall portfolio volatility, which is important when you won’t have close access to your trading platform.

3

Good-till-cancel (GTC) Orders

Good-till-cancel orders are one of the best tools you can use when you are taking time away from your options portfolio.


In this chapter, I’ll show you what good-till-cancel orders are and how you can use them effectively.

Good-till-cancel orders, or GTC orders can help to automate your trading to an extent.

A GTC order is a type of order that exists indefinitely until you cancel the order.

Good-till-Cancel Order

A good-till-cancel order is a type of order that will sit on your order book pending a fill until you manually cancel the order. 

This can be very useful for closing your options positions when they reach your profit target without you having to be at your trading platform to manually execute the order.

With this type of order, you do not have to be in front of your trading platform for this order to execute.

Let’s say you sold an iron condor for $1.00 in premium and would like to close the position at 50% of max profit.

You could set a GTC order to buy back the spread for $0.50, which is 50% of the maximum profit potential.

If the position ever reaches this profit target in the future, your order will trigger, booking your profits for you.

Now It's Your Turn

There are many precautions you could take to reduce risk prior to taking an extended leave from your trading platform.

 

These are just a few that I thought of.


Let me know if you do anything else or if I missed something.


Either way, let me know by leaving a quick comment below.

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