Market Rebellion Co-founder Pete Najarian coined a phrase that embodies his legendary options trading philosophy. One that’s built on making a game plan for every trade and sticking to it. Market Rebels know it as a simple acronym, DDA – Discipline Dictates Action.
Options are dynamic, powerful tools that can give traders significantly greater leverage on an individual stock than simply trading the stock alone. After all, every option contract controls 100 shares of the underlying asset. That’s a lot of control in exchange for defined risk. But just as Uncle Ben once warned a young Peter Parker “with great power comes great responsibility.”
What ‘Discipline Dictates Action’ Means for Trading
Pete Najarian has traded options professionally for over 35 years. From the floor of the Chicago Board Options Exchange to pioneering the Unusual Option Activity trading strategy. He’s been around the block long enough to know the potential benefits and pitfalls of various options strategies that could be used across a wide range of possible scenarios. At the end of the day, if anyone knows how to successfully navigate the derivatives world — it’s Pete.
So, why does “The Pit Boss” wave the flag of discipline with such ferocity when it comes to options trading? Because he knows it’s absolutely critical to your strategy if you plan to stand a chance trading against Wall Street’s most elite technicians in today’s fast-paced market.
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You Must Have a Game Plan for Every Trade
During a recent Market Rebellion Roundtable webinar on the topic, Pete explained why he came up with the phrase “Discipline Dictates Action” and how it should start the moment you decide to enter every single options trade.
“Anybody involved in the derivatives market understands (options) can be a little confusing at times. But they provide a great opportunity as far as how you can leverage things.”
In the clip, Pete points out the eye-popping order size he sees when it comes to many of the Unusual Option Activity hits filtered by our Heat SeekerⓇ algorithm.
For instance, let’s say someone buys 10,000 at-the-money call options expiring next week for $3 a pop in a single print. That’s the type of potential “smart money” trade that can really get our attention. After all, they’ve spent $3 million for control of 1 million shares of stock—with only a limited amount of time to be correct with their bet. The trader must know something is up, right? Not so fast – check your discipline.
It’s easy to let yourself get mixed up in the excitement of potentially piggybacking on an unusual trade like that. That’s why both Jon and Pete Najarian follow hard and fast discipline rules backed by their F.R.A.M.E. methodology when trading UOA.
“(Unusual Option Activity) is great, but you’ve gotta have a game plan of some sort. That doesn’t mean it can’t get tweaked a bit or changed to some degree. But you really need to have a game plan in place and set goals for making the best out of every trade. And that’s going to have to take discipline. The worst thing that can happen is to be right about a trade and not have the discipline to take some profits when they are there.”
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How Pete Najarian Trades with Discipline — What’s In His DDA Toolbox?
“Other traders might have their own set of rules. But Jon and I have been talking about this for many many years. If an option position we purchase doubles, we’re going to take off half. That way, we’ve taken our initial money back. And it’s up to you how you’d want to play it from there.”
Pete goes on to explain that you need to incorporate specific actions into your trading process with defined triggers. If his position doubles, he sells half. If an option drops to 50% of its purchase price, he closes the position. Developing strict rules like these can make a world of difference in helping you stick to your risk management plan.
Build a Foundation of Trading Discipline
“I think it’s why Market Rebellion has such a great relationship with the special forces – whether it’s the Navy SEALs or Army Rangers. And those guys are disciplined beyond words. That goes for athletes (as well)… It doesn’t all just come naturally. You’ve got to really hold everything about what you are to be the very best, greatest you can possibly be, right? And that’s what you’ve got to do each and every day that you’re in the markets ”
As Pete says, you can’t slip. Discipline starts the moment you decide to execute a trade to buy or sell an option.
You must always have some form of discipline embedded within your strategy if you hope to compete in trading and life. It’s about going out there and doing what needs to be done each day when Discipline Dictates Action. Start your discipline journey with Market Rebellion today.