What’s the Best Trade? aka, Earning a Red Feather Boa

Last weekend I was dancing burlesque on a stage…

Now, without cheating and googling, I’m going to go out on a limb and say that probably no one has ever started their options trading blog with this sentence.  It’s actually relevant, though, so stay with me here a bit. (SFW!)

I am not a dancer and have never aspired to be one.  However, I recently was asked to do a burlesque show for a local magazine’s big birthday bash.  Since I am at the point in my life where very little disturbs me, I figured what the heck?  Sounds like fun. And besides, I got a red feather boa out of it.

Because I’m a risk-taker in my real life.

But I’m not one, at all, in my trading.

This dichotomy may seem strange but it actually makes a lot of sense.  My personality preference would be to put on trades that are a gamble, to take huge risks and to win big and lose big.  (Thanks, Dad, for that particular DNA strand.)  Since I’m retired, though, the money I trade is used for income generation, not gambling.  “Risk management” is the watch-phrase, not “put it all on red.”

Now let’s talk about you.  You might be asking yourself, “What’s the best trade?”  Advanced traders can offer you a lot of good suggestions depending upon your available time, experience level, available capital, the type of market we’re in, are you conservative or a risk-taker and so on.

Before you ask them, though, ask yourself this simple question:

How much financial risk can you tolerate?

Keep in mind that risking money is completely different than risking being thought an idiot on stage in sequins and feathers.  If you can quantify and answer this simple question, it becomes a lot easier to find the best trade for you.

Can you handle drawdowns without losing sleep?  Check out the Bearish Butterfly and the ROCK, to see if the risks and rewards fit within your trading style.  Can’t stomach the idea of being down 15%, even if the trade makes money back quickly? Investigate the M3.  Are you really confident in your technical analysis and comfortable with advanced options trades?  Try the M21.  None of them perfectly fit?  Talk to John and he’ll help you create your own custom trade.

Start with the financial numbers, figure out the risk that matches your trading personality and in the end, you may find your own red feather boa.

Written and contributed by Cynthia Sarver