Latest option trading service and time value

I was driving in and out of the city today and I always do some good thinking while driving and playing some decent tunes. I pondered the idea of trading as a whole, at least as I have approached it.

My trading has run the gambit from initial DRIPping, long term buy and hold to loose daytrading, swing trading, position and counter trend trading, back to day trading then into point and figure based trading now into options. Up until this point I have strictly been following my own strategies and plans. The one that shines over the whole of my trading so far has been my tight money management as that has, above all else, kept me with cash to stay in the game.

The part that has been lacking is the sticking to a particular plan once I prove that it is viable. Part of the issue has always been the time needed to actively manage the accounts and trades as I tend towards micro-managing even when it is not necessarily warranted. I spend too much time poring over the charts and worrying about the stops. The P&F charting reduced that immensely and that plan does work. Some of my recent trades have been based on that and have produced some nice returns.

My thoughts turned to the idea of the best way to make money. The three independent means that I can directly control are owning real estate and becoming a landlord, starting and operating my own business and stock market trading/investing.

I already am directly involved in our family business, second generation. One of three. Now I am into stock trading, so two of three. I investigated real estate and decided it was not for me so I scratched that off the list long ago.

While in a business the best way to continue to make money is to have a staff that can operate the business mostly independently. I am working toward that goal now and I am able to do other non-business related things and let a lot of the business run itself.

I considered the same approach with stocks. I have been doing all my own work, until recently, research, charting, trading etc. So why can I not hire some of this out? In come the trading services. They have access to more and better information than I do and I don't care to try to acquire all the data services that they need and use to give the information that they give (or sell). So I am considering using a few services to maximize potential returns. They each have their strengths and all are option based.

In a business having good staff is important for a smooth and profitable operation. Good staff costs money in wages and benefits. I expect that good trading services would require no less or a consideration when being selected. So I consider the cost of the service a trade for more free time. The old saying that time is money is not really far off the mark.

So....

The latest service that I mentioned earlier looks after the executions as well as the advisory. If it were not for the substantial upfront fee and the need to open another brokerage account I expect that I would already be trying them out. I have been paper trading for some backtesting and now I am caught up in that my paper trades are active current trades.

I may yet try them out but I want to be very sure that this is a service that I will use for a long term before sinking the cash into the fee and setting up an account. I feel that I need about $10,000 USD in the account to start in order to cycle 9 or ten trades continuously. So $14K converts to near $16K CDN I expect.

In my backtesting I picked a particular issue (E-Mini Dow Jones) to trade exclusive of any other offerings, just to give me a worst case baseline starting last September. They 7 issues taken from the S&P500, S&P midcap 400, Russell 200 and the Dow Jones Industrial. Of these three are trades under $1000 using the particular strategy I chose...to keep trade capital to a minimum.

Annualized returns on these are between 50% and 100%+. The idea being that if I place a trade, let it expire then immediately place another in the same issue I can keep that $1000 working for me to produce an average 75% annualized return. Of course I can rotate trades as I enter an additional trade each week. If $1000 can return $750 a year then I expect that my $10,000 should be able to return $7,500 per year.

2009 shows 33 trades closing, two losers and a total net return of $1841.00. Checking the number of active trades, I see that only eight are ever active at the same time which makes $1841 a 23% return for nine months...hmmm. Considering that this is worst case, not selecting better trades and not compounding by adding trades as cash allows.... it still beats most mutual funds. I keep in mind that this is a long term plan and service and it does not preclude me still making the other more speculative option trades in my current accounts. Just one more piece of the pie.

The CSR I talked with briefly mentioned something about how the trades are managed. I suspect that because they use strangles that they may close the losing half of the position and give the option of letting the winning half run a bit so the protective puts for the call side can appreciate...that is what I would do. That is sort of what I did with my straddle and the winning side is around $2 while I cut my losing side for a 80 cent loss.

Yes, I think that I have made up my mind... now to free up some cash...

Jeff.