Bruce Marshall’s Strategy Selection Risk Gauge

2017-05-22 | Bruce Marshall

Bruce is a conservative income trader, who specializes in longer term options strategies that can make your money work for you over time without a ton of adjustments. This trading style guides him when he decides which strategies to use on the setups he finds. What kind of trader are you? Bruce typically uses the same position sizing for each setup. The neutral style and lack of directional risk ensures that he is able to commit a sizable amount of his portfolio at any given time. The length of time he gives his trades allows him to adjust as needed, and making necessary adjustments is also something he specializes in. His goal as a trader, is to make income while avoiding creating any large fires to put out. It’s all about the singles and doubles with Bruce – as these are great, consistent plays that add up over time without a ton of worry involved. The goal is to identify trades that pay you, regardless of direction, through positive theta, probabilities and time.

Don’t forget – the relative risk of a strategy is also coupled with the position size you use when you place it, which should also reflect appropriately on your account size.

Risk Management at a Glance

Trading Style: Conservative Options Swing Trader + Income trades

Account Goals: Bruce seeks to attain about 15-20% return on his money each year.

Overall Acceptable/Recommended Account Risk: Bruce uses the following guidelines when he decides how to allocate cash in his account:

  • Goal: 15-20% on equity each year
  • Risk per Trade: up to 5% of his account
  • Risk on overall account: 50-60% of his account invested at any one time (income trading allows for a high tolerance on your portfolio, as it is long-term in nature and it isn’t directionally based)
  • Cash on Hand: 40-50% at any one time to make adjustments, defend, or use for opportunities that arise
  • Profit taking – If he makes 50% of his goal in 2-3 days, take it and run. If he makes 75% of his goal in a week, take it and run.

In addition to quantifying his risk on a percentage basis, Bruce also always considers:

  • The overall market
  • The overall volatility picture
  • Overall portfolio & strategy allocation
  • The timeline of trades

“Risk and probabilities first – profits second.” – Bruce Marshall

Strategy Use + Risk Taken Per Setup: Position size & strategy utilized per trade generally remains the same, about 5% of your account per trade.

Methodology: Bruce’s main goal is to be positive theta, and as such, he doesn’t want trades that are subject to directional risk because that brings you to a negative theta state. This method of trading is all about letting the Greeks work for you, with a high emphasis on volatility, allowing your money to work for you in a slow and steady fashion over time.

The Strategy Selection Risk Gauge