The 3Dimensional Trading Breakthrough

Brian Schad
Liquidating a position
This book is not about picking market tops and bottoms. There are other manuals
and masters of the markets that have more expertise than you and I put together
that trade these type strategies – and in my experience I’ve watched them boom
and bust. This material is all about initiating and maintaining low-risk positions
by allowing the market to tell you what it wants to do. Since you and I will never
be smarter than the market, we must have a steadfast trading methodology that
fully “cooperates” with the natural rhythm of things. When I feel the market has
run its course, or I am on the wrong side of the market for too long (usually from
stubborn convictions after a string of winning months – eight consecutive months
as of this writing), this is when I must look to offset the entire position. Again, I am
not attempting to pick a market high or low. I always strive to trade in the path of
least resistance, and that of course is always with the trend.
There are only two reasons to liquidate a position: either you are not bullish/
bearish any longer and/or the option insurance is expiring soon. How I liquidate
the position is determined solely where the market is in relation to the option
(hedging the position), or options I hold. There can also be only one of two places
that the market can be at the time of option expiration/offsetting the position.
That is either Out-of-The-Money (OTM), or In-The-Money (ITM). Let’s examine in
closer detail both scenarios: “rolling-over” positions into farther out contracts and
generally offsetting positions.
When the Original Insurance (Options) Will Expire Out of the Money
(OTM)
When it is time for options to expire, and I have been long or short a position for
some time, the inevitable option expiration date will arise forcing me to “roll over”
the spot futures into a farther distant contract. If the futures go off the board some
distance away from the strike prices of my options (the original option I purchased
as insurance or any “covered” option that I have shorted to reduce the risk), I will
very simply offset my position either MOC (if I no longer want to participate in the
market) or offset the futures and initiate a farther out futures contract.
If this is the case (I wish to continue the position with a farther out contract) then
I must initiate this position anew with the appropriate ATM option insurance, just
as if I was establishing a fresh position. I have to keep in mind, however, the time
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