I am starting this journal mainly for myself. But at the same time I would like to be more educated by knowledgeble options traders. So, I would much much appreciate it if you have any comments in regards to my thought processes.
First off, my trading rules:
Rule 1: Look for a good trade
Rule 2: Look for a good trade
Rule 3: Look for a good trade!
Profits will follow good trades.
Rule 4: When I can not find a good trade, but have to trade (I trade for income stream), trade only familiar underlying such as Goog, AMZN, CMG, etc
So, what defines a good trade?
In terms of Volatility, look for a stock with HV (historical volatility) lower than 30 (in general, but depends on strategy I would like to employ)
For vertical credits: Mostly for put side, look for a good skew - the difference between ATM's IV and 10% OTM's IV is more than 1.4 times. In terms of chart, look for a stock which bottomed out.
For IC: I don't initiate IC often. I leg in.
For Ratio: I love Ratio!! Look for a stock which went down with a bad news and IV is exploding! I mean, look for a panic sell. Sell 2 buy 1. Once IV exploding, I can get good portion of credit very quickly. So, get out very quickly, too as this is very margin intense position. But DOn't use this when the market is in correction. You never know how far down it can go. This is more for a bull market.
For Fly: Look for a flat skew. Look for a underlying sitting still. Chartwise, I want it be in a very tight range and not trending.
For Horizontal spreads: Look for a good term structure AND increasing IV. Without IV increasing, this will be a loosing trade. Don't stick around. Grab the profit.