Writing Options

> I've read many of the books on your list,
> including Niederhoffer's autobiography. And
> I attended a trading seminar by Van Tharp
> about six years ago - very interesting. I
> really enjoyed the article about Nassim vs.
> Niederhoffer!

Do you remember what Niederhoffer's autobiography was called off the top of your head?

> I've written small position options and made
> money most of the time - only blew up once
> (luckily for not a lot of cash). I learned
> my lesson and trade spreads when I get the
> urge.

> The biggest thing I got from all I've read
> and learned from talking to traders is the
> key of money management and not trading with
> "scared" money. The guidelines
> given on percentages of money risked versus
> percentages in reserve are, to me, critical.

Thanks for sharing your experiences, Bob. And that money risked vs. percentage returned is one of the reasons I thought Fred Strickland's book was so good. Basically, I'd never heard that idea before and it made complete sense to me.

What kind of ideas and rules have you made for yourself about % risked vs. reserve and how much to devote to any one trade? I'm very curious about learning how other traders are going about setting rules for themselves. If you're not in the market this instant, what percentages do you think you would feel comfortable with?

That's one thing I liked about the New Market Wizards (I didn't read the first edition yet!) is that I was presented with the stories of a few dozen of the world's best traders and they talked about their money management as well as strategies. Most of them talked about when testing a new system, not using more than 1% of your total capital on any one trade. I believe someone said to make the trades so small that they hardly seem worth it.

That 1% rule seems like a good idea if you're managing a fund or a very large personal account, but for me, and most other investors, I think we may have to devote a bigger % of our capital to any one position.

Greg Donio has got me interested in calendar spreads, but I'm not quite comfortable enough with them to jump in. I still don't quite feel like I can understand and predict the spreads gap movements in relation to the underlying stock price. He's a small investor and his personal max risk is 10% on any one trade. But that's him. What about you, Bob? Anyone else?

Success,

Erik Lukas