Jenny Andrews: (Music playing) Hi, everyone. Welcome back to the LIZ & JNY Show, this is "Know Your Options". Breaking news. I did not find a diagonal. (Laughter)
Liz Dierking: I love live programming. And I love that music that brought us in, so thank you very much, Alex-
Jenny Andrews: I know, I did like that song. Okay, so, you know. I had 90 seconds during the break to find a double-diagonal that worked, and I didn't find one.
Liz Dierking: Breaking news. Did not work. (Laughs)
Jenny Andrews: They're not easy to find! I think you almost have to choose your product. Choose your product, and then say what strategy works best for this product-
Liz Dierking: Well …
Jenny Andrews: You can't say, "I want to do a double-diagonal," and try and find one.
Liz Dierking: So, the funny thing about what Jenny's talking about right now …
Jenny Andrews: [ And that can be a 2014 takeaway. [laughs]
Liz Dierking: The takeaways here are things that we've learned over the years, and over this last year. To be honest with you, what you just said out loud is one of the biggest lessons that we've had doing the live show. So, Jenny and I would get an idea in our head, and be like, "We're going to teach double-diagonals today," and we'd have a plan. So on Tuesday, we're going to teach double-diagonals-
Jenny Andrews: We made a list. On this day we're going to teach this, on this day we're going to teach that, and you just, you can't …
Liz Dierking: Well, training is a lot like having children. You have to throw your plans out the window and go with the flow. Because you never - it's like having a toddler. You never know what you're going to get, when you're going to get it, and you have to kind of … there are rules to follow. And they have to follow the rules, but you have to kind of be able to change your program depending on the day.
Jenny Andrews: Exactly. Exactly. So you can't …
Liz Dierking: The market is like a toddler.
Jenny Andrews: You can't say, "Today I'm going to learn this," because you might not find that. It's a lot easier to choose your product and then find the strategy.
Liz Dierking: Exactly.
Jenny Andrews: Like today,. Today we're both getting on Southwest Airlines. We're going to look at love, and we're going to look at the product, and look at all of the information it has to give us, and pick a strategy based on the information that that product has to give us.
Liz Dierking: Versus going in reverse, and saying, "Today, we're going to trade a credit spread, come Hell or high water." And that's not - that doesn't work.
Jenny Andrews: Yeah, it doesn't work. So …
Liz Dierking: Jenny was living proof of that. (laughs) In the last segment …
Jenny Andrews: And it's why as the market changes in a period of low volatility you might see us doing calendar, calendar, calendar, calendar. Or, poor man's covered call, poor man's covered call …
Liz Dierking: Say that three times fast.
Jenny Andrews: Poor mans covered call, poor mans covered call, poor mans covered call or when the volatility is high you'll see us doing Iron Condor, Iron Condor, Iron Condor. You'll see the same show ten times in a row depending on the market conditions.
Liz Dierking: Right. That's something we learned over … I think that's one of our take a way's too is that as far as things go choose your product kind of based on the volatility and then choose your strategy from there.
Jenny Andrews: Yeah. That is the number one takeaway from 2014. Don't try to force a strategy. Choose the product first and then find the right strategy.
Liz Dierking: Right. We're taking this "Know Your Options" and kind of talking through some of the things that we've learned and our biggest takeaways for two thousand firteen. Fourteen. I don't know why … (laughs)
Jenny Andrews: Surprise ladies and gentlemen. Liz's cup is not full of coffee it's full of champagne. She's already started.
Liz Dierking: You would think so it isn't …
Jenny Andrews: Kidding. She's already started her New Year's Eve.
Liz Dierking: New Year's Eve, right. Right, this is filled with Vodka.
Jenny Andrews: Do you know how many drink tickets - I can give you some. My purse is just loaded with drink tickets.
Liz Dierking: It's noon!
Jenny Andrews: For the plane.
Liz Dierking: I'd like some of those.
Jenny Andrews: Number one take away, trade small trade often. That's nothing new. We've known that for three years.
Liz Dierking: This is not new to 2014. That isn't new to 2014 but I think it's kind of important. Because we had Nick on this year, and Nick was new to 2014.
Jenny Andrews: Yeah, right.
Liz Dierking: Keeping that in check too. It's kind of interesting to watch other people's thought process through this whole thing because trade small. People don't know what that means. Even if as your account gets bigger I still think smaller is better.
Jenny Andrews: How about the one day Nick told us he was short so many oil futures, and we're like, "Nick, what are you doing?" I think when people are newer and they see that they are making money in something. They see they are making money in something. It's working for them. They're making money this month, they're making money next month, and they're making money the next month and they think, "Oh, well this strategy is a money maker." Then they start putting more in, more in, more in, more in, more in and I think that that is something to be very careful of. You need to trade small and trade small. Something might be working for you. Great, it's working for you but you don't load up in that one position.
Liz Dierking: Right. Correlation was a big eye opener for me this year. That was kind of the EWZ PBR type of correlation where there are products that are highly correlated. Say I'm bullish and 90% of my products are correlated and un-bullish. Well, guess what? I'm all in. In one particular thing and that's not necessarily trading small. That's putting all of my eggs in one basket.
Jenny Andrews: Absolutely. For sure, that was a big lesson for us this year because … I think we're more careful now to see what's the correlation. We knew PBR and EWZ had a correlation. I didn't realize it was 90%
Liz Dierking: I didn't realize how heavily weighted it was, right.
Jenny Andrews: Yeah. Understanding the products that you're trading. Understanding where they come from and what products are correlated so you don't have all of your eggs in one basket. It's kind of funny that we're talking about not having all of our eggs in one basket because I feel like my account is like that right now.
Liz Dierking: That's how I am too. They are good things to talk through because people need to realize that even people trading for a little while go through the same struggles.
Jenny Andrews: Yeah.
Liz Dierking: It's good. Now, should we talk about our resolutions or keep going through our takeaways?
Jenny Andrews: No, keep going through our takeaways. What time is it?
Liz Dierking: We have plenty of time.
Jenny Andrews: Yeah we still have a lot of time. I've got one resolution and that's not going to take that long to talk through. Unless you have a bunch of them.
Liz Dierking: [laughs] A lot more. All right. Take your profits.
Jenny Andrews: Take your profits for sure. Take your profits. I see right now - This happens over and over and over. You've got a profitable trade and you don't close it because you think you can make more. That LinkedIn calendar that we all closed, I left because I was greedy. Now it's a full loser.
Liz Dierking: Take your profits. It is human nature to say, "Oh, I want to squeeze more out of this."
Jenny Andrews: Or to say, "What? This is going in my direction. This is so far from my short strike that I can make another 50 dollars out of this trade." We have to take profits. I think that's a huge … That comes from tastylive and you never heard that anywhere else, but that comes from tastylive. Take your profits and it's really important.
Liz Dierking: I wholeheartedly agree. Everyone is programmed to be the exact opposite. Say if something's working let it go. Get as much out of it as you can. Did you ever see the movie - You've seen the Wall Street with Gordon Gekko where he's like, "Ladies and gentlemen, the point is greed is good." It's not good. That's the exact opposite if you're selling premium. Maybe if you're the opposite but if you're a premium seller and your capping your gains going in you know the maximum that you can make anyway. You don't have unlimited profit potential.
Jenny Andrews: Right.
Liz Dierking: Take your profits.
Jenny Andrews: Take your profits. I think 2015 is a good fresh start. I think people run into the problem of being greedy when they have a loss that they're trying to make back. Then they're trying to really load up and make that back. It's just like someone at a casino. You're down at the casino and they keep betting more and more and more to make back their losses. I think that's a bad habit to get into. I think every trade is a new trade, fresh start, new trade and you deal with that trade.
Liz Dierking: I'm kind of juggling because when we first started sitting kind of on this side of the desk versus being floor traders, it's a totally different style. Little losses at the time really irked me, and I kept being like [crosstalk 00:08:11] What can I do to make this back? Somebody said to me, "Just find a new trade and move on." I was like, "I do that every day. What do you think I'm doing here?" It's hard to kind of cross that bridge and say, "You know what? That product I don't need to make it back in." [crosstalk 00:08:26] There's going to be losses and they don't have to net each other out.
Jenny Andrews: It's hilarious because on the trading floor we would have -
Liz Dierking: Major losses.
Jenny Andrews: Yeah. Fifty thousand dollar swings in a day, and then Liz loses $42 in JCPenny, she's going …
Liz Dierking: I literally called. Speed dialed Tom Preston on a JCPenny trade.
Jenny Andrews: On a JCPenny dollar wide call spread.
Liz Dierking: Yeah, because I didn't know what had happened.
Jenny Andrews: I think you have to not try to make your money back. You don't have to make your money back in that product. You don't have to keep loading up and loading up and doubling down to try to - I think that only gets people into trouble. You just have to trade smart and lots of small wins, and stay small.
Liz Dierking: Yeah, because you don't want to throw good money after bad money. If your assumption is still intact you can be wrong for a while and still mainstay the course. I don't want to talk out of both sides of my mouth. I have lots of products that have gone awry that I have losses in right now that I'm staying the course in because my assumption is still intact.
The other thing too about being a self-directed retail investor, my father-in-law wants to start learning how to trade options as soon as he retires in February, and he said that's when he will have the time for it. When they get their statements, they see their statements ever six months.
Jenny Andrews: Right.
Liz Dierking: Every year … You don't see those daily swings.
Jenny Andrews: The daily swings. It's getting used to those daily swings and it takes a while to get used to and as you build your account and build your size those swings get bigger and that takes a while to get used to.
Liz Dierking: You're right. As you have more in there you have more capital at use and the swings do get bigger. You're absolutely correct. You just hope the upswing is just a little bit better than the downswing.
Jenny Andrews: I think back to staying small. Staying small and many different trades you're not going to have a big loss in something if you have many different trades and you're staying small.
Liz Dierking: 1000% - Trade small trade often. There's a reason we say it. How many times do you think you've said, "Trade small, trade often" in your life?
Jenny Andrews: A million.
Liz Dierking: A million. (Laughs)
Jenny Andrews: A million as I'm staring at my 20 lots which are too big for me. I don't trade that size but I have them because I get greedy.
Liz Dierking: Right. I'm going to kick Jenny in the shins under the table. Yeah. That happens.
Jenny Andrews: What are my biggest regrets in my trading account? When I look at it, the products that I've gotten too big in.
Liz Dierking: My biggest regret trading this year is thinking that I know where something’s going.
Jenny Andrews: Oh. I quit that. I quit that last year …
Liz Dierking: [crosstalk 00:11:18] Honestly my biggest trading regret is earning set up calendar that I was sure that I would have not lost all of my money on. That's just it. We say calendars are a slow bleed. Yada, yada, yada. When you put on a trade it's real risk so I put on a very expensive calendar. It's not like that ever took me out it just really bothers me. It more bothers me that I did that than anything else. That's my biggest trading regret. [crosstalk 00:11:43] and earning set up calendar that was too expensive.
Jenny Andrews: In 2014 I swore off debit spreads. I swore off being directional. Saying, "Oh, I know where this is going." I feel less about commoditize as I do about the market in general. This whole year I've never played it directionally.
Liz Dierking: There are certain products. There are certain trades that I remember making and I remember where I was when I traded them. I know that Priceline really bothers you.
Jenny Andrews: That was it. That was my last debit spread. The Priceline debit spread. We've got a minute left.
Liz Dierking: We've got a minute left.
Jenny Andrews: We never got to our New Year's resolutions.
Liz Dierking: That's okay. We have "Trade Small Trade Often" we'll talk about our New Year's resolutions.
Jenny Andrews: Oh, yeah. We'll be back with "Trade Small Trade Often" We're going to go over our New Year's resolutions, and we have a couple trades to take a look at, and we are opening the phone lines so give us a call at 8 … I don't even remember the number.
Liz Dierking: 855-238-2789 or 855-be-tasty.