After Tom reminds Errol that as soon as you take off positions, new positions should be going right back on (”Capital on the sidelines doesn’t do you any good”), Errol looks for new opportunities.
Tom says that all things being equal, selling an iron condor is statistically better than just selling a single vertical spread on one side of the market. Even though Errol has directional assumptions on 3 stocks (KR, NVDA, and PDD), he takes Tom’s advice and places skewed iron condors (farther OTM puts for a bearish skew and father OTM calls for a bullish skew) on each of these underlyings.
Errol asks Tom if he thinks most of the skill in trading lies in managing trades. Tom says, no, it’s really in order entry. He says most investment and trading classes will put a hard emphasis on risk management, something Tom says is almost impossible to achieve. He says the burden is on being intelligent when entering an order, and that’s where wealth is created in trading. He says a lot of people fall down during this stage because they get too excited about opportunities that don’t fit the mechanics and probabilities.
Bonus Lesson: Errol grills Tom on how he plays earnings--does he always play neutral? Tom says, for the most part, yes, he plays it neutral and looks for that IV crush, but these are also the only instances Tom sometimes likes to lean a little long! He thinks company’s can lowball how well they’re doing.
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