Making Your Overall Option Trade Plan Adjustment in a Bear Market

Tom Gentile

Posted in

By: Tom Gentile
June 13th, 2022

3 mins read

The market slide seems like it is never going to end at times. And it may take more time than many of us want. Some are already tired of it and don’t want to open their broker accounts because of what the reality is in their accounts. For options traders, it may be no different, but if you are going to continue to make efforts to make profits trading options in a bearish environment there are three things to consider.

Trade Plan Consideration 1

Consider switching to and looking for more bearish option trading technical patterns. If you have a suite of online scanning tools like you would subscribing to you can search up bearish patterns and options that coincide with those.

The same approach in trading bullish setups is to look for a high probability setup, look for a reasonable cost option for your expectations for it and manage it to what you deem is your capital preservation point.

Trade Plan Consideration 2

Reduce the amount of trades. If you find yourself trading and feeling nervous about how many open positions you have, talk with your broker on what trades are best to either sell to close a part of or sell to close all of so as to reduce your risk and your level of nervousness.

If you get to a point where you reduced the number of trades or the size of those trades and you feel you can breathe a bit better or even sleep better, that may be the place to be.

Make not of the amount of money at risk in open positions and going forward, when you have little to no trades working, when you start opening up new trades you only consider doing so up to this same amount of monetary risk.

Trade Plan Consideration 3

And this may happen once you deem how much total risk of your portfolio you want at risk in your options trades.

Consider reducing your position size per trade. A scenario we run in our education at Toms Trading Room, LLC is risk no more than 2% of your options trading account size in any one trade. Taking a theoretical $25,000 account that would mean one does not risk or spend more than $500 per trade.

If you want to reduce that to $250 or 1% per trade that will result in less money at risk per trade. Know that you might not be able to get in to many option trades because the premiums on the options you area looking at coming in at a higher price that $2.50 per contact (1 contract = 100 shares and $2.50 – $250).

There may be less trades because of this adjustment, but that may in and of itself accomplish the trade less during a bearish market.

When things look like they are poised for a bounce or better yet a more bullish trend you can consider going back to your original trade plan with your account.

When will one know the markets are in a more bullish trend? That is a lesson for another day.

App: Toms Option Tools

Market Insight articles may show images of lists of stocks meeting a variety of options parameters like Unusual Call and or Put activity or Expensive IV found on my app Toms Option Tools.

Other times I will have other charts may work to amplify my educational points. 

Those options data lists, however, can be found on my app Tom’s Option Tools. Use your device to search up and download this app and get free access to the Morning Reports section of the app.

Other parts of the app are available at a premium subscription rate, but the Morning Reports Lists are yours free.