The Conservative Approach Trade Plan

The Conservative Approach Trade Plan (also attached)

The following trade plan outlines The Conservative Approach (TCA) to trading in Mike Golembesky’s VIX and Index/Sector Trading Service.

This plan uses IF/THEN statements to minimize subjective decision-making. Over the past six years, I have refined and successfully implemented this system and achieved a very high rate of return. I will be sharing my real-time trade entries and exits in Mike’s room and tracking the results in a table for all members of the service to follow.

The core principle of this system—explained in detail in EWT’s public video—is that most of Mike’s trades reach at least 60% profit at some point, often early in the trade’s lifespan. TCA aims to capture some of these gains early while managing risk effectively and reducing drawdown. 

Since this is primarily an options trading service, risks such as time decay place these trades in a high-risk category. However, the convexity of options also amplifies potential returns. By strategically sacrificing some profit, we can incorporate solid risk management and low drawdown into the plan while still achieving a very high rate of return as I have been able to do over the past six years.

1. Sizing:
   1. Sizing has 2 components: i) Choosing how large a default size position should be, and ii) Choosing per trade whether to enter with a default/full size position or some fraction of a full size position. The latter is discussed in detail in Section 2.b, below. 
   2. Choosing how large a default size position should be depends on one’s risk profile, risk tolerance, and account size. The risk management section of the video in the link above explains all of this is more detail.
   3. One should keep the same sizing guidelines regardless of "confidence" in trade or past history. Changing sizing is how you will blow up your account, so this needs to be decided upon ahead to time and kept consistent.  Changing the default trade size should only be done at pre-determined intervals; for example, every year but not more frequent than monthly. 
   4. In general, a full size position in the range of 1% - 2.5% of one’s total account size is reasonable for options trading this particular system. 

2.  Entry:
   1. Analyze Worksheet:  
      1. Compare all three expiration dates; determine how many days to expiry for each
      2. Note any strikes that are highlighted
      3. Select a preferred strike for each expiration date
      4. Compare the minimum and maximum returns for those strikes
      5. IF the min and max returns for a later dated contract are satisfactory, AND the difference between time to expiry from the previous selection is worth the additional expense, THEN buy the later dated contract. (This gives us more options for managing risk)
      6. Note: if the R/R on the earlier dated contract is too enticing, I can buy some of each. 
   2. Selecting a tranche size:
      1. First check with Mike. Did he say “small size”, “starter position”, “Lotto”, etc…?  IF yes, THEN simply copy Mike.
      2. IF there is less than 5 days to expiry? THEN consider a half size position. 
      3. IF sizing is left up to the member, OR IF Mike enters a full sized position THEN ASK:
         1. Am I entering this trade late?
         2. Has the cost basis changed a lot since Mike posted it?
         3. Do I already have similar positions in my account where this new trade imparts outsized downside/upside risk?
         4. Could the position serve as a hedge for other items in my account?
         5. IF so, THEN consider entering with a smaller (or maybe even larger) size, ELSE enter at full size.   
3. Closing the Position:
   1. Conservative approach to tranching out:
      1. IF a position is up 60%, THEN ask:
         1. Has it become too oversized? THEN trim. 
         2. Has this gain come immediately after opening the position? THEN consider trimming it.
         3. Is there plenty of time before expiry? IF so THEN consider re-evaluating this step at 80% gain, 100% gain, 120% gain, and 150% gain until ⅓ - ½ of the position has been trimmed. 
   2. As expiry approaches, check for special factors, such as:
      1. Does your broker automatically close options at noon if they expire that day?
      2. Will you be at your computer, focused, in the afternoon?
      3. Has the position become oversized?
      4. IF so, THEN consider closing all or part of the position early.  
   3. IF the trade fails (or otherwise ends or invalidates) AND you still hold a later-dated contract, THEN strongly consider stopping out.