Why are some RPM’s 2 years out and others are 7 months out?

You’ve happened across the very principle that makes RadioActive Trading adjust to the markets to tell you how many contracts to trade and how far out. Ready for this?

The simple truth is that depending on the market type, the further-out puts are more or less expensive. Essentially what you are paying for with an option is certainty in the face of uncertainty… that is, that you may buy or sell at a certain, locked-in price at some point in the future.

Depending on how UNcertain expectations are in the near term, you may pay less or more for this privilege.

I like to keep risk in any one position down to 4% to 8%, MAYBE 9%. Also, the dollar amount risked is limited to 1% or less of my entire portfolio. This way, the more volatile the market, the less positions I’m in. Also, I am exposed for a shorter period of time.

In a trending (up OR down), more quiet market it will be possible for me to purchase puts that are further out and open more positions.

I personally prefer to be in fewer positions because it gives me focus. However, in a market that is trending it makes sense to spread the net a bit to catch a few really BIG winners.

Also, I personally like to be in a market that trends quietly and stay in it for long periods of time to ride it to the top… or bottom if I’m short. I can buy a much further out option if the market is quiet. However, if the market is acting all herky-jerky and has a lot of range, automatically the prices are higher and I must go for shorter plays.

Right now I would say that MOST stocks are in this latter category. I did however place a married put trade with ESRX recently in which I was able to afford a 2011 put. Some stocks have more certainty than others…

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