How Fantasy Football Can Teach You To Become A Successful Options Trader [AUDIO VERSION: I also recorded an audio version of this blog post. Click below to listen. Let me know if this is something you find helpful!]
In How Winning Football and Options Trading Are Similar, we talked about about how the game of football relates to options trading. But let’s face it, most of us have never played football at an elite level. However, over 30 million people play fantasy football–a multi-billion dollar business. Now, I’m not sure about you, but fantasy football is a pretty big deal in Chicago, there is even a show about the pursuit of the fantasy football glory that fictionally takes place here. I’ll be honest, fantasy football isn’t really my thing. I’d rather focus on my businesses and trading…but I can appreciate those who give it a go.
Believe it or not, the process of becoming a good fantasy football player is very similar to becoming a successful options trader or investor. By the time you’ve finished reading this, you’ll see what I mean. Everyone Starts the Year With a Chance In the investing world they say that past performance is not indicative of future results. It doesn’t matter how successful you were last year..let alone last week. Everyone starts off fresh, with the goal of extracting capital from the markets. If you won your fantasy football league last year, you still have to prove yourself again this year, to retain the crown. Before the start of the fantasy football season, each player has a draft position. Obviously, the closer you get to having the first pick, the better the chances of picking up a star player that will help your team. In investing, not everyone starts with the same amount of capital, some investors have much larger bankrolls than others. Having a large bankroll is like getting a very good draft position in your draft. However, that doesn’t mean you’ll win nor does it mean you’ll be a profitable trader because you’ve got more money to start off with. You’ve Got To Do Your Homework Although some players will start off with an advantage (better draft positioning) that doesn’t mean that they are guaranteed to be the champion. By studying the teams, coaches, schedules and players… you start developing a list of candidates you’d like to select. This type of research can be done by following blogs, watching shows, going on team websites or even paying for premium services. This is all fine and dandy…but before we even get to that stage, you’ve got to understand how your league is structured and what type of player positions are the most valuable in your league. After you’ve identified that, you can start focusing on players who might be available when it’s your turn to draft. Most traders and investors don’t have unlimited capital, with that said, they’ve got to allocate their capital to trades which they feel will generate the best returns for them. If you’re starting off with a small account, you want to allocate your trades to those that have a high probability of success. Not only that, but you’ve got to size them appropriately, so that,
when you do lose a trade, you won’t blow out your account. High Draft Picks Are Like High Probability Trades During a football season, there are a ton of surprises…some teams underperform, while others overachieve…same could be said with players. However, before the season starts, there is a small group of players who everyone feels that they’ll have an All-Pro season (if they can stay healthy). In trading, there are setups in which have a high probability of success. They almost feel like free money when the opportunities arise. For example, drafting Peyton Manning is like selling option premium when implied volatility is relatively high, which is considered a high statistical option trading approach. With that said, even high probability trades sometimes don’t work out. Just like those fantasy football players who selected an elite running back like Adrian Peterson in their draft this season. Unexpected events do occur, like Adrian Peterson’s legal issues that have forced him out of play. Sleeper Picks Are Like Low Risk High Reward Trades As mentioned earlier, you want to do your homework and select players who are poised to have a strong season. However, as you build a solid team, you can then look to gamble a little. Maybe select a backup player who could shine if an injury takes place…or select someone who had an off-year last season. If the player surprises, it could be the difference between winning the championship or losing in the playoffs. In many ways, this is like buying OTM options in a high flying stock. For example, last Friday, The Priceline Group (PCLN) opened trading around $1180 a share, the $1190 calls expiring that afternoon were under $2 per contract at the time. By the end of the session, they finished in the money with a value of over $26 per contract. Of course, more times than not…buying these type of options are a total waste of money. However, the reward is so great…that sprinkling a couple contracts into your account is not a bad thing. The problem with many new option traders, is that they rely too much on these type of trades to get them out of a hole.
These type of trades should be a very small portion of your account…just like selecting sleeper picks on your fantasy football team. I believe you have to take your shots at higher risk opportunities…because they can create the separation you need for building a successful trading account. You’ve Got To Be Active The markets have the ability to surprise even the savviest of investors. We can go from bullish to bearish…from no volatility to extreme volatility, rather quickly. With that said, you’ve got to adjust your trading to the current market environment. The same is true with your fantasy football team, you’ve got to look at the matchups and teams your players are going up against. You may decide to insert someone who normally sits on the bench because they are getting the start this week–or are competing against a team that has weaknesses defending players like him. Not only that, you might adjust your lineup because there is a category you are trying to win over your opponent. Bottom line, you’ve got to be active and make adjustments. In option trading, a strategy is just an expression of your view of where a stock is headed. However, taking into account the volatility of the options will help you better construct the right strategy. You don’t want to start a player who has a bye week because you forgot to check the schedule. Now, I’m not implying that you’ve got to be glued to your computer screen 24/7. However, you’ve got to be aware of your surroundings and how to react when changes arise. You don’t want to overreact and start churning your account…just like you don’t want to be adding and dropping players without giving them a chance to see what they’re made of. Catching Bad Beats Is Part Of The Game As mentioned earlier, players get injured and fantasy lineups need to be tweaked. Being aware of who is on the waiver wire and who can help your team is important. It’s highly unlikely that your team will go injury free the whole season. Just like in trading, there might periods where your confidence is shaken up and you go through a series of losses. Believing in your process will help you get past those difficult
periods. Trading smaller until your confidence builds up again is a great way to put the focus back on your process vs. concentrating on your PnL swings. You don’t want to drop a player who is projected to have a good season after one or two bad games. Don’t Get Caught Up With The Talking Heads At the end of the day, the players play the game. With that said, don’t put too much stock in the opinions of people who have no influence on the game…… experts get it wrong all the time. The same is true with the markets. You’ll see a lot of guys and gals on TV telling you why they think XYZ stock is a buy or sell right now. But why should you listen to analyst that has no skin in the game? Makes absolutely no sense for you to do so. That’s why I only follow the smart money, those who risk large sums of money in hopes of multiplying it. Study…Study…Study I once heard someone say, the market doesn’t evolve it mutates. It’s important to stay on top what factors are driving the market, the volatility landscape, scheduled events, key-technical levels, what sectors are in-play etc. By putting in the work, you are putting yourself in a position to capitalize on opportunities when they arrive. Now, I’m not saying you’ve got to be an expert in all these areas of trading. Not at all. However, you’ve got to be a master of what your bread and butter is…and most importantly, not to style drift and adjust what you do best to the current market environment. Fantasy football doesn’t end after the draft. You’ve got to manage your team, make adjustments, study the waiver wire, read injury updates etc. It’s a long season and a lot of hard work involved. I’d like to think of OptionSIZZLE as your source for generating ideas on how to approach options trading and investing. My goal is to provide with you the tools, information & research so that you can go out on your own and take control of your money. After all, having someone else handle your investments is like having the computer auto-draft
your fantasy football team and then charging you for it! Now it’s your turn. Did this article shed some light on how fantasy football is similar to options trading? If you enjoyed it, let me know below. If you’re not using options yet, but would like to…. how can I help you? As usual, I’ll be hanging out in the comments section below.
Hi I’m Josh, and I’m a finance guy. I cut my teeth in the markets on the Chicago Mercantile Exchange, so I saw firsthand how the “sausage was made” – and it usually wasn’t pretty. Because I quickly realized that fund managers only care about getting their fee's first even though 95% of them underperform the overall market. That didn’t sit right with me, so I left that world – And I discovered how to use my financial know-how to empower the little guy by using high-powered investing techniques – including the only “real time” market indicator the pro’s use to spot future price direction. Now I’ve shared my message with over 129,000 people like you, and everyday investors have suddenly started making money in the market for the first time. Make sure you visit http://www.OptionSIZZLE to access your FREE report and eBook that will teach you how to trade options successfully to help you create wealth, freedom & options for you and your family.