Increasing the signal to noise ratio

Something that I sort of alluded to in a previous post was the slowing down of the trading process when trading options as compared to stocks.

I think that, while this prep time is a little longer and the trade order entry is also a bit longer, the overall signal to noise ratio is increased making up for the other slight downsides. My spreadsheets make the whole selection and order determination a whole lot easier and quicker so that certainly helps.

But back to S/N.

I see my stock positions moving up and down and the P/L moves along with them...penny by penny which translates into 50 cent increments with my 50 share position sizing right now.

Then I see my options positions moving along in 10 cent increments. As the delta on these is 0.75 or higher (all deep ITM long term so far), the option positions, being representative of 100 shares, they tend to move in unison with the smaller stock position but in $10 increments. All those penny moves in the underlying stock have no immediate direct bearing on the current trading price of the option so they get softened. This means that they don't even need to be watched, not that they really did anyway but seeing the minute chart clicking along is interesting, seeing the option price not move for an hour is not so interesting.

This puts me in mind of the P&F charting with it's $1 increments and no time factor. The price can fluctuate wildly within the one point range and the chart never changes. This is a nice easy on the nerves charting and trading plan that I am fitting myself into.

P&F charts and options combine to reduce the need to micro manage positions, even though I am monitoring things rather closely right now I plan on being able to step away from trading and setting fairly wide safety stops for hours at a time...or days down the road when I want to take some extra time.

Some of the next plans, once I get the standard put and call buying down, is to start looking at other strategies including selling covered and naked options and applying stock, option and multi-option combos to capture certain profit targets often.

Sidenote. I have cancelled my real time charting service as it is no longer necessary. As I have numerous positions in play the only ones that get tinkered with that need real time are the new orders...and even that is not really needed. My broker has live feed, on a small scale of four charts, two option chains and two quote screens and that seems to be all that is necessary now. Lower overhead so I can easily offset the additional commissions placed on options in my mind.

My positions are looking good today. I think I am up a couple hundred dollars or more. I'll check later and perhaps setup my performance tracking on the blog homepage now that I am using a strategy and plan regularly.

Jeff.