Comments on: Is It Worth My Time To Trade RadioActively? http://blog.radioactivetrading.com/2009/12/is-it-worth-my-time-to-trade-radioactively/ This trading methodology shows you how to protect your downside and leave your upside totally open for growth. Mon, 06 Sep 2010 13:35:30 +0000 http://wordpress.org/?v=2.6.2 By: kurt Frankenberg http://blog.radioactivetrading.com/2009/12/is-it-worth-my-time-to-trade-radioactively/#comment-4437 kurt Frankenberg Fri, 29 Jan 2010 22:29:09 +0000 http://blog.radioactivetrading.com/?p=231#comment-4437 Good question, Keith! Well, it's simply a matter of Expectation. In order for your RPM setup to make any money, it's just good business to expect that the price of the underlying stock itself will approach the strike price. That's not to say that you CAN'T make money until the stock gets to that price... but it's a durn sight easier. Well, what shall we say about expectation? Expectation is a trader's way of balancing risk with reward. If I have a 10% chance of making 300% on my money, and bet often enough I'll lose in the end. One in ten winners tripling my money doesn't stack up to the nine in ten times that I'll lose. OTOH, if I have a 50/50 chance of winning only 10%... and I lose only 5% if I'm wrong... Well, now THERE's a game I'd play all day and twice every Sunday. This is what I mean by balancing risk and reward. The reward may be very high if you risk 1.7 on ANF and get back 5.1 -- and that's POSSIBLE-- but highly unlikely. Likewise, if you were to buy the $20 strike you'd end up spending for an out of the money put that you wouldn't likely use and that would not protect you very well even if you did. You can risk too much... and you can risk too LITTLE. Risking too little in this ANF trade would mean insuring yourself at too high a level, a level to which the stock may never climb. It's more sensible to assume a slighter higher risk AMOUNT if the LIKELIHOOD of it making a return is in balance. About the "sweet spot" you mentioned... let me refer you to The Blueprint! It's all in there. Happy Trading! Kurt Good question, Keith!

Well, it’s simply a matter of Expectation. In order for your RPM setup to make any money, it’s just good business to expect that the price of the underlying stock itself will approach the strike price.

That’s not to say that you CAN’T make money until the stock gets to that price… but it’s a durn sight easier.

Well, what shall we say about expectation? Expectation is a trader’s way of balancing risk with reward.

If I have a 10% chance of making 300% on my money, and bet often enough I’ll lose in the end. One in ten winners tripling my money doesn’t stack up to the nine in ten times that I’ll lose.

OTOH, if I have a 50/50 chance of winning only 10%… and I lose only 5% if I’m wrong… Well, now THERE’s a game I’d play all day and twice every Sunday.

This is what I mean by balancing risk and reward. The reward may be very high if you risk 1.7 on ANF and get back 5.1 — and that’s POSSIBLE– but highly unlikely.

Likewise, if you were to buy the $20 strike you’d end up spending for an out of the money put that you wouldn’t likely use and that would not protect you very well even if you did.

You can risk too much… and you can risk too LITTLE. Risking too little in this ANF trade would mean insuring yourself at too high a level, a level to which the stock may never climb.

It’s more sensible to assume a slighter higher risk AMOUNT if the LIKELIHOOD of it making a return is in balance.

About the “sweet spot” you mentioned… let me refer you to The Blueprint! It’s all in there.

Happy Trading!

Kurt

]]> By: Keith Henry http://blog.radioactivetrading.com/2009/12/is-it-worth-my-time-to-trade-radioactively/#comment-4432 Keith Henry Tue, 26 Jan 2010 16:48:20 +0000 http://blog.radioactivetrading.com/?p=231#comment-4432 Kurt, do you decide which Married Put to buy purely based on risk? Is is there a sweet spot where later Put swaps can be done more readily or something like this? Here is a scenario for stock symbol ANF (current price $30.47): AUG 10 PUT Strike Price Premium Cost Basis $ at Risk % at Risk $35 $6.7 $37.17 $2.17 5.8 $37 $8.3 $38.77 $1.77 4.6 $38 $9.1 $39.57 $1.57 4.0 $39 $9.9 $40.37 $1.37 3.4 $45 $15.3 $45.77 $0.77 1.7 Based purely on risk I would buy the deep in the money $45 Put for the $15.3 premium. This would only be risking 1.7% of the outlay! Why would you buy another one instead of this one? Keith Kurt, do you decide which Married Put to buy purely based on risk? Is is there a sweet spot where later Put swaps can be done more readily or something like this?

Here is a scenario for stock symbol ANF (current price $30.47):

AUG 10 PUT
Strike Price Premium Cost Basis $ at Risk % at Risk
$35 $6.7 $37.17 $2.17 5.8
$37 $8.3 $38.77 $1.77 4.6
$38 $9.1 $39.57 $1.57 4.0
$39 $9.9 $40.37 $1.37 3.4
$45 $15.3 $45.77 $0.77 1.7

Based purely on risk I would buy the deep in the money $45 Put for the $15.3 premium. This would only be risking 1.7% of the outlay! Why would you buy another one instead of this one?

Keith

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