Trade Discipline

This was a week when all four major indexes (QQQ, SPY, IWM, DIA) all went down, so I figure it is a good time to remind everyone of the importance of disciplined trading. When you are trading Put Credit Spreads, this is a neutral to bullish position so down weeks can be challenging psychologically. When the market has increased volatility and the indexes are going down, it’s easy to get scared and do some panic selling. It could cause us to not open any new trades for the week or potentially close out positions too early before they hit the 200% max loss. Of course, I do not recommend that. I make sure I impose discipline on myself and stick to the system. This method will only work if you repetitively perform the mechanics, in good weeks and bad weeks, blue skies and gray.

I believe I closed out nine losers this week overall once they hit the 2X stop loss. That’s the most I can remember in all of 2025. The good thing is that I’m only down 2.3% for the month of November, and I should be back to positive for the month if the market finds some stabilization next week. During this duress, I remained calm and mechanical and stuck to the fundamentals of the process. Was I happy to loose on this many trades…no! But it is part of the system and I still have an 89.1% winning percentage for the year, which is historically very high. I even had two trades in IBIT and SMH that I closed less than a week after opening the positions. Both of these expired on 12/12/2025, which was over 21 DTE at that time. Now, should I reopen new IBIT and SMH positions that expire on 12/12/2025? The answer is a resounding no. Sometimes the market is trying to tell you something. Never open up new trades in weeks you’ve already lost that underlying. You are just chasing or revenge trading. The point of closing out these trades is to take some risk off the table. When the market is going down, it’s OK to take risk off the table. You can only lose them once. If you double up and put the same trade back on you can potentially lose it again! I was doing that back in 2023 occasionally, with very poor results.

Again, some losing is part of the system. You should expect to lose around 15% of the time. So, on average that works out to around 2 of your 12 trades each week! This past week was particularly poor, but what I’ve noticed (and this is proven via TastyTrade research) is that when we go through a period of sharp, rising volatility like this, then you typically have a long tail on the back end of slow, falling volatility. During the periods of falling volatility we will typically see all winners or nearly almost all winners for a period. The VIX got above 25 some last week, which was the highest since the April trade-war, tariff business earlier in 2025. So we need to continue with the system until the VIX starts to fall again. The challenge is that we don’t know when that will be. The VIX could stay elevated for days or weeks, or maybe even continue to go up to 40 or 50; we just don’t know. However, if it does stay elevated, we will get great options pricing, we’ll get further distance between the current stock prices and the strike prices, and we’ll be able to get our trades on during the week (Monday – Thursday) when the market is going down. From there we just ride it out. Then, after the balloon is filled, it will start to leak back out until the VIX goes back down into the 16 to 18 range where it has been most of the year. After the VIX starts to normalize, our position’s pricing will go down and our profit numbers will shoot back up on the positions that are still on.

I just want to encourage you to stick to this system, even in times of increasing volatility. Don’t change up your strategy. Don’t start buying Puts. Don’t capitulate when the market is going down. Don’t chase or revenge trade by opening up new trades in weeks you’ve already lost in that underlying. If you truly understand the philosophy around Put Credit Spreads, you’ll see that these have downside risk protection (due to the friction from the buy and sell sides), built in pricing increases when putting on trades, increasing distance between the stock prices and strike prices, and loss limits during bad time periods when volatility is increasing and we need to close out trades. Just ensure you are disciplined and you focus on the long term profitability in order to not get too emotionally upset by short term financial loses. Stick to the system. Loses are no fun, but the sun will come back out and you will see your P&L increase on the backside slope when volatility starts to come back down!