It's Friday night and I am sitting in the JFK airport in New York on my way home from Florda. I had a great trip even if it was too short.
I traded most mornings seeing as everyone was slow in getting gonig, I figured I might as well. I did miss three days in there somewhere. Even so I managed to net $2,700 in my TFSA. The holiday almost managed to pay for itself.
I started to implement the 3 contract trade rule this week. Once I get the account up to a balance that can handle 10 trades at the current average contract prices I will start to bump that up to 4 as I work up to 5 then 10.
I don't know if I mentioned the advised trade sizes. They were reduced to 5 maximum due to low liquidity and now there is no max. Someone was trading 30 today's and there was no comment. Interesting as this frees me back up to be able to increase my trading size according to my account balance rather than some arbitrary (but valid) upper limit on trade sizes.
I'll run some other numbers later this weekend.
Jeff.
Questrade, My direct access discount broker.
Friday, April 30, 2010
Wednesday, April 28, 2010
Holiday trading
Due to being in Florida for a holiday the last week or so I have been doing less trading lately.
Having said that I am working on my longer term positions. I have some of my fresh capital in my margin account so I decided to load up on a few of the trades that I was not able to do earlier. These are ones that were recommended and have seen the prices drop a bit for nicer entry's now... they are all still recommended as the patterns are still intact.
Right now I an running $38.54 per day in my momentum options service and $10.25 in the stock service. The daytrading is down but that is mainly due to some losing trades closed the week before last ...still average daily is $34.25.
These add up to $83.04 per day so far. Not bad considering the small positions I am using right now.
One thing that has me thinking about my current position sizing is the many trades that are in the 5% - 10% range that has the commissions eating up enough of the profit to even turn a trade into a loser, even if only by a buck or two. There are so few losing trades in any of the service trades I have made that if all I did is equal size I would be farther ahead. The trouble comes in when the trade is larger than I can stomach due to a big price.
In the stock trading I have ranged from 20 shares to 200. my net per share profit is $9.54. The largest stock price has been $38.40. In order to handle all of the trades recommended I capped the trade size to about $1200. Bumping all trades to 100 shares would take up about $15,000 in margin or $5,000 in base capital. This would take my $10 daily return to $17 range.
In the momentum options I have averaged 2.6 contracts. Running the numbers as if I had always used 1 through 5 contracts has me netting from $836 to $5,136. As the trade size gets larger the commission costs, as a percentage, get lower. This is a huge factor as it turns out.
For single contract trading the commissions eat up 24% of the profits whereas commissions are down to 7% at 5 contracts. The largest size would have been $3,000 so allowing for 6 trades the commitment is fairly large. The average of all of my trades is $2.24 or $1,120.
This is where I am heading, scaling up from my current average and heading for the 5 contract size for every trade. This is in my margin account so I will have room for that as of late next week.
In my daytrading I am headed for the same thing. Based on this month's trading, losers and all, if I were trading 3 contracts for every single trade I would be at $94 per day instead of $34. My current average size is 2.4 contracts but due to oversizing a couple of losers and undersizing some winners it tends to skew the results.
So, in May I will be bumping up to 100 share trades in the stock trades, 5 contracts in the momentum options and 3 contracts in the daytrading account. As the accounts grow I will bump up as there is room.
Jeff.
Having said that I am working on my longer term positions. I have some of my fresh capital in my margin account so I decided to load up on a few of the trades that I was not able to do earlier. These are ones that were recommended and have seen the prices drop a bit for nicer entry's now... they are all still recommended as the patterns are still intact.
Right now I an running $38.54 per day in my momentum options service and $10.25 in the stock service. The daytrading is down but that is mainly due to some losing trades closed the week before last ...still average daily is $34.25.
These add up to $83.04 per day so far. Not bad considering the small positions I am using right now.
One thing that has me thinking about my current position sizing is the many trades that are in the 5% - 10% range that has the commissions eating up enough of the profit to even turn a trade into a loser, even if only by a buck or two. There are so few losing trades in any of the service trades I have made that if all I did is equal size I would be farther ahead. The trouble comes in when the trade is larger than I can stomach due to a big price.
In the stock trading I have ranged from 20 shares to 200. my net per share profit is $9.54. The largest stock price has been $38.40. In order to handle all of the trades recommended I capped the trade size to about $1200. Bumping all trades to 100 shares would take up about $15,000 in margin or $5,000 in base capital. This would take my $10 daily return to $17 range.
In the momentum options I have averaged 2.6 contracts. Running the numbers as if I had always used 1 through 5 contracts has me netting from $836 to $5,136. As the trade size gets larger the commission costs, as a percentage, get lower. This is a huge factor as it turns out.
For single contract trading the commissions eat up 24% of the profits whereas commissions are down to 7% at 5 contracts. The largest size would have been $3,000 so allowing for 6 trades the commitment is fairly large. The average of all of my trades is $2.24 or $1,120.
This is where I am heading, scaling up from my current average and heading for the 5 contract size for every trade. This is in my margin account so I will have room for that as of late next week.
In my daytrading I am headed for the same thing. Based on this month's trading, losers and all, if I were trading 3 contracts for every single trade I would be at $94 per day instead of $34. My current average size is 2.4 contracts but due to oversizing a couple of losers and undersizing some winners it tends to skew the results.
So, in May I will be bumping up to 100 share trades in the stock trades, 5 contracts in the momentum options and 3 contracts in the daytrading account. As the accounts grow I will bump up as there is room.
Jeff.
Friday, April 23, 2010
Equal weighting vs equal sizing
I setup up a parallel spreadsheet to my tracking that let's me vary the position sizing for the trades that I have performed this month in the TFSA account. That is 63, not including a few others in the swing trading account. Right now my TFSA is down $240, which I am not concerned about as I know why. Between goofy group dynamics and a too large trade gone south drove my profits down.
This parallel setup gives me total net results including commissions and fees and let's me compare my current method of equal weighting against the idea of equal sizing. John pushes the idea of going with larger trades for higher probability setups and smaller with lower probability setups. I can go through and figure this out but I cannot go back and easily do a historical check taking this into account unless I just apply a theoretical fudge factor to account for the possible change in profits.
Naahhhhh.
Current results are, as I said, $240 down on the account. This surprises me a bit but my equal weighting is not going in my favour is all. My average trade size is 2.5 contracts so I will plug that into the results as well.
Equal sizing results are as follows: (every trade the same size)
1 contract: $643 loss, commissions $1379
2 contracts: $26 profit, commissions $1505
2.5 (current average): $361 profit, commissions $1568
3 contracts: $696 profit, commissions $1631
4 contracts: $1366 profit, commissions $1757
5 contracts: $2036 profit, commissions $1883
6 contract: $2706 profit, commissions $2009
7 contracts: $3776 profit, commissions $2135
8 contracts: $4047 profit, commissions $2261
9 contracts: $4717 profit, commissions $2387
10 contracts: $5387 profit, commissions $2513
Obviously getting into equal sixing is a benefit, even at my current average sizing I would have been better off not trying to pick and choose the size to trade. Going with 3 contracts per trade may have meant not being able to place the last trade of a day here and there... but based on my historical trades that would have only been an issue once or twice, if even then as we tend to close trades along the way as well.
This certainly puts the commission cost into perspective. I might look into another avenue sometime but finding a decent broker is going to involve a US based company and therefore no TFSA accounts and a $25,000 minimum account balance (which I will have once I finish transferring my remaining trading cash next week anyway).
So, once I get some more cash in my accounts my next plan is going to be to trade equal sizing, 5 contracts per trade, and starting with the TFSA account and moving to the margin account once that account is full. This may reduce the profits under tax sheltering but may be worth it in the long run just to get larger trades on the go in the TFSA while using the entire capital base as a trading balance allowing the larger trade sizes overall.
The step after that will be to start using stocks instead of options for these trades as there is just plain more flexibility in the trade setups (stops and bracket orders are capable as well as the service moving to stock price based exits for some of the option trades).
Jeff.
This parallel setup gives me total net results including commissions and fees and let's me compare my current method of equal weighting against the idea of equal sizing. John pushes the idea of going with larger trades for higher probability setups and smaller with lower probability setups. I can go through and figure this out but I cannot go back and easily do a historical check taking this into account unless I just apply a theoretical fudge factor to account for the possible change in profits.
Naahhhhh.
Current results are, as I said, $240 down on the account. This surprises me a bit but my equal weighting is not going in my favour is all. My average trade size is 2.5 contracts so I will plug that into the results as well.
Equal sizing results are as follows: (every trade the same size)
1 contract: $643 loss, commissions $1379
2 contracts: $26 profit, commissions $1505
2.5 (current average): $361 profit, commissions $1568
3 contracts: $696 profit, commissions $1631
4 contracts: $1366 profit, commissions $1757
5 contracts: $2036 profit, commissions $1883
6 contract: $2706 profit, commissions $2009
7 contracts: $3776 profit, commissions $2135
8 contracts: $4047 profit, commissions $2261
9 contracts: $4717 profit, commissions $2387
10 contracts: $5387 profit, commissions $2513
Obviously getting into equal sixing is a benefit, even at my current average sizing I would have been better off not trying to pick and choose the size to trade. Going with 3 contracts per trade may have meant not being able to place the last trade of a day here and there... but based on my historical trades that would have only been an issue once or twice, if even then as we tend to close trades along the way as well.
This certainly puts the commission cost into perspective. I might look into another avenue sometime but finding a decent broker is going to involve a US based company and therefore no TFSA accounts and a $25,000 minimum account balance (which I will have once I finish transferring my remaining trading cash next week anyway).
So, once I get some more cash in my accounts my next plan is going to be to trade equal sizing, 5 contracts per trade, and starting with the TFSA account and moving to the margin account once that account is full. This may reduce the profits under tax sheltering but may be worth it in the long run just to get larger trades on the go in the TFSA while using the entire capital base as a trading balance allowing the larger trade sizes overall.
The step after that will be to start using stocks instead of options for these trades as there is just plain more flexibility in the trade setups (stops and bracket orders are capable as well as the service moving to stock price based exits for some of the option trades).
Jeff.
Monday, April 19, 2010
Position sizing revisited... Yet again.
John, the host and moderator of the trading room, seems to like to keep everyone informed on a need to know basis... which is not necessarily a bad thing but it can be annoying. He is catering to the "lowest common denominator" which means everything is dumbed down pretty heavily. There are a number of people who should not be in the room as they cannot follow or do not know enough to be able to follow straight forward instructions to execute the trades necessary to profit or even to just execute the trades...period.
For this reason he has indicated position sizing to use along the way without doing a full overview of his expectations in order to ensure that nobody trades too big to affect the room or too small to profit.
Initially we were using "normal" sizing which was no larger than 10 contracts. I scaled my sizing to accommodate equal weighting by price... $1000 to $1200 worth of contracts. I will admit that I went over that on a few trades and it bit me in the ass.
Next the volume came out of the market as there was a bit of a consolidation going on and everything was neutral as opposed to bullish or bearish. Maximum trade size was set at 5 contracts. This was hammered home as a few oversized the trades and it was a problem for the group.
Now we are back to normal sizing as volume is back. For me that puts me trading 2, 3 or 4 contracts...perhaps 5 in some cases as I don't like how much leverage gets into the $1 contracts. Cheaper does not mean they are a better deal.
Today we doubled up on two positions and are treating them as separate trades for all intents and purposes... although each entire position may be closed at the same time... or not. In order to play I have to leave enough room for some of these trades to double up for the purposes of reducing the average cost and to stay with the program. If I do not then when the trade is eventually closed, for a profit, that profit may rely on the average effect and not the original higher cost putting me behind the eight ball, so to speak.
Trade every trade of someone else's plan... and this is a good plan.
More on sizing in my next post.
Jeff.
For this reason he has indicated position sizing to use along the way without doing a full overview of his expectations in order to ensure that nobody trades too big to affect the room or too small to profit.
Initially we were using "normal" sizing which was no larger than 10 contracts. I scaled my sizing to accommodate equal weighting by price... $1000 to $1200 worth of contracts. I will admit that I went over that on a few trades and it bit me in the ass.
Next the volume came out of the market as there was a bit of a consolidation going on and everything was neutral as opposed to bullish or bearish. Maximum trade size was set at 5 contracts. This was hammered home as a few oversized the trades and it was a problem for the group.
Now we are back to normal sizing as volume is back. For me that puts me trading 2, 3 or 4 contracts...perhaps 5 in some cases as I don't like how much leverage gets into the $1 contracts. Cheaper does not mean they are a better deal.
Today we doubled up on two positions and are treating them as separate trades for all intents and purposes... although each entire position may be closed at the same time... or not. In order to play I have to leave enough room for some of these trades to double up for the purposes of reducing the average cost and to stay with the program. If I do not then when the trade is eventually closed, for a profit, that profit may rely on the average effect and not the original higher cost putting me behind the eight ball, so to speak.
Trade every trade of someone else's plan... and this is a good plan.
More on sizing in my next post.
Jeff.
Friday, April 16, 2010
Largish mistakes in trading
Hyphenating the word mistake leads to miss-take. So a mistake is the result of taking something the wrong way. Often this is not the case though as a mistake is really a lapse of judgement, not following an instruction or rule or even just being impulsive or emotional about something.
All of these qualify for the miss-take that I started with an old trade.
I have been trying to follow a particular methodology in my position sizing which has been morphing along the way to where it is now. I am placing maximum 4 contract trades if the setup is a low risk and going as low as 1 contract for higher risk setups.
Another factor has become where we place our stop loss, mentally. Up until this week we have often held trades overnight in order to take advantage of the potential gap up in a stock the next morning. This has led to holding trades for many days in some cases, longest is 30 days now and is the main reason for my post topic...more on that later. Now we are exiting all trades before the end of the trading period in order to stick with the idea of "day trading" and also due to many people not being able to manage a trade past the initial time frame of one to two hours.
I have to keep in mind that smaller contract price does not equate to lower risk, in fact this is often the reverse. Today we traded front month options or options that were expiring in April... expiring today. While an option expires out of the money it is worthless so trading options that expire today is quite risky and VERY volatile. I kept trades to 2 or 3 contracts only and made out OK considering.
I also have to keep in mind that a larger price does not equate to less risk, depending upon how it is traded. I entered an oversized $10 option trade with my average cost of $9.30 last month. I watched it drop to the $4.20's and had the opportunity to exit after that at $10. I did not as I was holding out for breakeven at the time of $10.10. For the sake of 10 cents I let the trade go to zero and lost 100% of the capital in play. That is un-acceptable for a day trade.... but I did this three times, all last month. If nothing else it gives me some losses to cover some gains going forward, mot the ideal though.
In all I dropped all of my March profits times 2. Considering that I had, up until this point, been doing very well as I made 50% in three weeks on a $10,000 starting capital.
Had I exercised proper management in trade size that would have been a $1000 at most for the large trade, $500 and $400 for the other two. Even at that I should have exited at near breakeven and been down about $20 on the larger trade and maybe as much as $100 for each of the other trades... total of $220.
Lesson learned.
Going forward I have shrunk my trade size considerably and look forward to increasing it slowly as my account grows up to a maximum of 5 contracts per trade.
My stats are not up to date as these trades have messed with my overall numbers.. I'll look at these later and see where I am at.
I did run a duplicate spreadsheet to track all my trades as if I had used 5 contracts for every single trade that I placed in the TFSA, I will do the same for the Margin account sometime but the $10 options would not have made it to 5 contracts regardless so I will not use that one, seeing as proper management would have had it only loosing $20 or so I feel that optimized sizing and management would have had me stay out of this larger risk anyway.
The trouble with 5 contracts right now is that I could not run all the trades as I would run out of capital. Seeing as we are exiting all trades on the same day I likely could bump up to that level soon, perhaps start with three per and see how that would have fared... three I could have handled and it sure makes placing the trades easier as there is not 2 seconds wasted figuring out the sizing for the trade.
Jeff.
All of these qualify for the miss-take that I started with an old trade.
I have been trying to follow a particular methodology in my position sizing which has been morphing along the way to where it is now. I am placing maximum 4 contract trades if the setup is a low risk and going as low as 1 contract for higher risk setups.
Another factor has become where we place our stop loss, mentally. Up until this week we have often held trades overnight in order to take advantage of the potential gap up in a stock the next morning. This has led to holding trades for many days in some cases, longest is 30 days now and is the main reason for my post topic...more on that later. Now we are exiting all trades before the end of the trading period in order to stick with the idea of "day trading" and also due to many people not being able to manage a trade past the initial time frame of one to two hours.
I have to keep in mind that smaller contract price does not equate to lower risk, in fact this is often the reverse. Today we traded front month options or options that were expiring in April... expiring today. While an option expires out of the money it is worthless so trading options that expire today is quite risky and VERY volatile. I kept trades to 2 or 3 contracts only and made out OK considering.
I also have to keep in mind that a larger price does not equate to less risk, depending upon how it is traded. I entered an oversized $10 option trade with my average cost of $9.30 last month. I watched it drop to the $4.20's and had the opportunity to exit after that at $10. I did not as I was holding out for breakeven at the time of $10.10. For the sake of 10 cents I let the trade go to zero and lost 100% of the capital in play. That is un-acceptable for a day trade.... but I did this three times, all last month. If nothing else it gives me some losses to cover some gains going forward, mot the ideal though.
In all I dropped all of my March profits times 2. Considering that I had, up until this point, been doing very well as I made 50% in three weeks on a $10,000 starting capital.
Had I exercised proper management in trade size that would have been a $1000 at most for the large trade, $500 and $400 for the other two. Even at that I should have exited at near breakeven and been down about $20 on the larger trade and maybe as much as $100 for each of the other trades... total of $220.
Lesson learned.
Going forward I have shrunk my trade size considerably and look forward to increasing it slowly as my account grows up to a maximum of 5 contracts per trade.
My stats are not up to date as these trades have messed with my overall numbers.. I'll look at these later and see where I am at.
I did run a duplicate spreadsheet to track all my trades as if I had used 5 contracts for every single trade that I placed in the TFSA, I will do the same for the Margin account sometime but the $10 options would not have made it to 5 contracts regardless so I will not use that one, seeing as proper management would have had it only loosing $20 or so I feel that optimized sizing and management would have had me stay out of this larger risk anyway.
The trouble with 5 contracts right now is that I could not run all the trades as I would run out of capital. Seeing as we are exiting all trades on the same day I likely could bump up to that level soon, perhaps start with three per and see how that would have fared... three I could have handled and it sure makes placing the trades easier as there is not 2 seconds wasted figuring out the sizing for the trade.
Jeff.
Sunday, April 11, 2010
Lamentations of a bored trader
Ho hum.
Yes, I am bored in my trading. That can be a problem for me as I tend to want to keep the interest level up in activities that I choose to do. I think that this may have been one of my problems in my earlier trading and why I tended to not get a plan to be particularly profitable...as soon as it was no longer fun I had to change it up.
Interestingly I have an easy time stopping a losing plan cold... as I just did with Optioneer even though I recognize it's longer term potential it did not mesh with my short term plan... "outta here". The profitable plans tend to just peter out as I shift it to something else, let the profitable trades run their course, take the profits and put them into the next idea. In fact I am up about $700 on paper in my two other current plans. I considered just cashing in the trades, taking the profits and putting them into other newer and more fun trades. They have not run their course yet but it is not interesting to have them just sitting there making money.
HUH?
Yep, making money is not as interesting as losing it, not by a long shot. Forming the plan then trading it and having it do what was expected compared to doing the same thing, being wrong and figuring out why it was wrong. In the most recent case of the Optioneer plan I know what the problems were. Between the timing of me starting the plan and trying to get nice short term trades, as short as I could, it just has not worked out with the market activity. The longer term trades would tend to get into the profit point, slower, but would not be as volatile. Although they might have still produced losses probably not as quickly and I would have been open to closing them earlier. In the end they just don't suit my current plan anyway.
I have now decided to leave the interesting stuff alone for a bit, which makes for terribly boring posts here as well, but interesting posts are not my primary goal anyway.
So, re-funding my Questrade account over the next while, taking a trip next week but still going to trade in the mornings anyway. I will be seeing if I can step this up to get some boring but profitable trading in.
Jeff.
Yes, I am bored in my trading. That can be a problem for me as I tend to want to keep the interest level up in activities that I choose to do. I think that this may have been one of my problems in my earlier trading and why I tended to not get a plan to be particularly profitable...as soon as it was no longer fun I had to change it up.
Interestingly I have an easy time stopping a losing plan cold... as I just did with Optioneer even though I recognize it's longer term potential it did not mesh with my short term plan... "outta here". The profitable plans tend to just peter out as I shift it to something else, let the profitable trades run their course, take the profits and put them into the next idea. In fact I am up about $700 on paper in my two other current plans. I considered just cashing in the trades, taking the profits and putting them into other newer and more fun trades. They have not run their course yet but it is not interesting to have them just sitting there making money.
HUH?
Yep, making money is not as interesting as losing it, not by a long shot. Forming the plan then trading it and having it do what was expected compared to doing the same thing, being wrong and figuring out why it was wrong. In the most recent case of the Optioneer plan I know what the problems were. Between the timing of me starting the plan and trying to get nice short term trades, as short as I could, it just has not worked out with the market activity. The longer term trades would tend to get into the profit point, slower, but would not be as volatile. Although they might have still produced losses probably not as quickly and I would have been open to closing them earlier. In the end they just don't suit my current plan anyway.
I have now decided to leave the interesting stuff alone for a bit, which makes for terribly boring posts here as well, but interesting posts are not my primary goal anyway.
So, re-funding my Questrade account over the next while, taking a trip next week but still going to trade in the mornings anyway. I will be seeing if I can step this up to get some boring but profitable trading in.
Jeff.
Friday, April 9, 2010
Spreads revisited
I decided to close out my Optioneer account, as I think I mentioned before, and I am in the middle of getting it all transferred back...chunk one is back now. I have two trades in play so I will wait until they are at least in the green as they are still fairly new iron condors which are prone to showing a loss for a while until they get going.
The decision had as much to do with the Optioneer losses as it does with the current gains, I might as well have my money working where it is performing the best... and the most fun.
I have missed out on a few spread trades through two of the three services I am using right now, the daytrading sold a put for a good return on the trade and the momentum option service has placed a few nice spread trades. One returned a nice tidy profit after only two days in play...but not to me.
The spread trades that seem to be popular with short term trading are the long call and short put of the same strike price, basically a type of straddle that takes advantage of a bull move in the underlying.
The long call appreciates in value as the stock rises and the put decreases in value. The put tends to decrease faster than the call rises, which is why it is traded in the first place as this lets more premium be kept. The trouble may be that if the stock price drops the put will get more expensive to buy back and the call will be cheaper to sell back. That seems to me to be an extra leveraged position so it would be prudent to figure on using half the position sizing for this sort of trade. Sort of figure that the call is one half and the put is the other. Seeing as the trade is not long term, a few days, a large loss is not likely to accrue quickly.
More to the point, I need a $25,000 account value to be able to sell to open options and the working capital calculation needs to be applied to each trade to determine how much free cash, not margin, that I need to cover the trade. This also changes as the stock price moves and the options change in value and this is one place where a margin call could develop if not enough spare cash is sitting idle in the account.
I will be transferring enough to cover this $25,000 requirement next month, I fell short in my first transfer this month by about $2,000...that and converting my US dollars back to Canadian right now would be almost silly due to the near par values. Having said that I am better off to have the money working for me over holding for a possible bump in USD value against CDN. I can make more in a few days than the extra cost of converting.
Jeff.
The decision had as much to do with the Optioneer losses as it does with the current gains, I might as well have my money working where it is performing the best... and the most fun.
I have missed out on a few spread trades through two of the three services I am using right now, the daytrading sold a put for a good return on the trade and the momentum option service has placed a few nice spread trades. One returned a nice tidy profit after only two days in play...but not to me.
The spread trades that seem to be popular with short term trading are the long call and short put of the same strike price, basically a type of straddle that takes advantage of a bull move in the underlying.
The long call appreciates in value as the stock rises and the put decreases in value. The put tends to decrease faster than the call rises, which is why it is traded in the first place as this lets more premium be kept. The trouble may be that if the stock price drops the put will get more expensive to buy back and the call will be cheaper to sell back. That seems to me to be an extra leveraged position so it would be prudent to figure on using half the position sizing for this sort of trade. Sort of figure that the call is one half and the put is the other. Seeing as the trade is not long term, a few days, a large loss is not likely to accrue quickly.
More to the point, I need a $25,000 account value to be able to sell to open options and the working capital calculation needs to be applied to each trade to determine how much free cash, not margin, that I need to cover the trade. This also changes as the stock price moves and the options change in value and this is one place where a margin call could develop if not enough spare cash is sitting idle in the account.
I will be transferring enough to cover this $25,000 requirement next month, I fell short in my first transfer this month by about $2,000...that and converting my US dollars back to Canadian right now would be almost silly due to the near par values. Having said that I am better off to have the money working for me over holding for a possible bump in USD value against CDN. I can make more in a few days than the extra cost of converting.
Jeff.
A loser day and the forced trade
Today the market opened on unusually low volume and we, as a group, almost decided not to trade at all as nothing looked good. John suggested an AAPL trade and we got in and out for a decent single trade profit, 34 cents.
Then we all decided that was it for the day, finish way early and take a break...then John decided that a play in X might work out. Well, we forced the trade that really was not there and the market makers were rigging the price. The low of day stock price was $65.01 and the option was in the 1.70's. Later it hit $65 again and the option price was lower again, it normally wouldn't be as this is a very liquid stock and a very liquid option chain, the spread was a penny or two. It made for easy entry and exit as a market order was the cleanest method but that does not make up for some funky business in the option pricing.
I was down for the day around $220, which has not happened often at all. My daily average is now likely in the $30's. Monday will be the start of a new week and my TFSA account is still up overall so I cannot complain too loudly... after all it is only week one of the TFSA plan. Lots of time to work things out.
Jeff.
Then we all decided that was it for the day, finish way early and take a break...then John decided that a play in X might work out. Well, we forced the trade that really was not there and the market makers were rigging the price. The low of day stock price was $65.01 and the option was in the 1.70's. Later it hit $65 again and the option price was lower again, it normally wouldn't be as this is a very liquid stock and a very liquid option chain, the spread was a penny or two. It made for easy entry and exit as a market order was the cleanest method but that does not make up for some funky business in the option pricing.
I was down for the day around $220, which has not happened often at all. My daily average is now likely in the $30's. Monday will be the start of a new week and my TFSA account is still up overall so I cannot complain too loudly... after all it is only week one of the TFSA plan. Lots of time to work things out.
Jeff.
Thursday, April 8, 2010
Day three and position sizing comes up again
Today we had a busy day, 7 trades open and closed. The session ran on though and there were some that had to stay after class... in the interest of finding out what they did wrong to end up stuck in some positions when they should have been out. These were a handful of the new people this week, so it was interesting. I stuck around just out of curiosity.
Today was a $148 day, tax free so it is equivalent to a $246 taxable day. Seeing as $250 was my initial target I figure that $150 in he TFSA is the same target and a decent start. My TFSA average day is $119... yesterday was a $2.30 day... it happens.
We are starting to make more use of stop losses rather than continuing to ride a trade as all of the trades entered this week have been closed on the same day. I don't mind as the longer term plays I am getting into with the other services are for that style of swing trading anyway.
Position sizing today was ranging as I had everything from 1 to 6 contracts per trade... 6 was actually two 3 contract positions in the same contract though. If I considered all trades taken in the three days of TFSA trading thus far as 5 contract trades my daily average would bump up to $403. Now I would need to have a larger capital base to work from and I expect to be there in some short order. I know that $500 days are the target but I would like to aim higher. That may just mean sharpening my trading skills to get in and out of trades faster than the rest of the group and to that end I played with the trading platform a bit today to try out some trade entry tricks to streamline the process.
I have been entering the stock symbol in the option box window to get the contract chains up, which is fine, but was finding the price entry cumbersome trying to click on the price box and enter the price. I found that opening an alternate window gives all the level two style bid / asks which lets me just click on the price I want. Adjusting the price by pennies is just a matter of hitting the arrow keys then hit buy/sell.
Our entries have gone from holding firm to suggested limit order prices to entering "around the range" suggested. I have to have faith that paying a nickle or dime more will not adversely affect the final outcome enough to worry about. In that vein I figure that selecting the ask then entering the order as a limit will get me in with an upper limit on what I will pay. Hitting the ask is about as fast as a market order without the risk of getting a poor fill. In fact I did that today and on one trade I got a 17 better price than expected, which was also 17 cents lower than the highest suggested entry. I made a better trade than the group as a result...sadly it was for a single contract and my exit was later than I wanted as it was closed later in the day... but still at target.
The biggest topic discussed tends to be the importance of a good direct access broker. I like the speed of execution and prices attained through Questrade so I don't expect to switch. I know there are some cheaper brokers in the US that I might be able to use but I figure that the tax advantage of the TFSA far outweighs the possible lower commissions.
I am looking forward to tomorrow's trading and honing my speed of executions some more. As much as I like the idea of trading with a bunch of like minded people I am finding that in order to be successful the others almost have to be considered competition... after all, we are all after the same trades. Today I managed to get into every single trade. Yesterday I think that I missed two... I recall them being two of the more profitable ones two. I've got to take them all to average out the possibility of loser trades eating up capital.
Today was a $148 day, tax free so it is equivalent to a $246 taxable day. Seeing as $250 was my initial target I figure that $150 in he TFSA is the same target and a decent start. My TFSA average day is $119... yesterday was a $2.30 day... it happens.
We are starting to make more use of stop losses rather than continuing to ride a trade as all of the trades entered this week have been closed on the same day. I don't mind as the longer term plays I am getting into with the other services are for that style of swing trading anyway.
Position sizing today was ranging as I had everything from 1 to 6 contracts per trade... 6 was actually two 3 contract positions in the same contract though. If I considered all trades taken in the three days of TFSA trading thus far as 5 contract trades my daily average would bump up to $403. Now I would need to have a larger capital base to work from and I expect to be there in some short order. I know that $500 days are the target but I would like to aim higher. That may just mean sharpening my trading skills to get in and out of trades faster than the rest of the group and to that end I played with the trading platform a bit today to try out some trade entry tricks to streamline the process.
I have been entering the stock symbol in the option box window to get the contract chains up, which is fine, but was finding the price entry cumbersome trying to click on the price box and enter the price. I found that opening an alternate window gives all the level two style bid / asks which lets me just click on the price I want. Adjusting the price by pennies is just a matter of hitting the arrow keys then hit buy/sell.
Our entries have gone from holding firm to suggested limit order prices to entering "around the range" suggested. I have to have faith that paying a nickle or dime more will not adversely affect the final outcome enough to worry about. In that vein I figure that selecting the ask then entering the order as a limit will get me in with an upper limit on what I will pay. Hitting the ask is about as fast as a market order without the risk of getting a poor fill. In fact I did that today and on one trade I got a 17 better price than expected, which was also 17 cents lower than the highest suggested entry. I made a better trade than the group as a result...sadly it was for a single contract and my exit was later than I wanted as it was closed later in the day... but still at target.
The biggest topic discussed tends to be the importance of a good direct access broker. I like the speed of execution and prices attained through Questrade so I don't expect to switch. I know there are some cheaper brokers in the US that I might be able to use but I figure that the tax advantage of the TFSA far outweighs the possible lower commissions.
I am looking forward to tomorrow's trading and honing my speed of executions some more. As much as I like the idea of trading with a bunch of like minded people I am finding that in order to be successful the others almost have to be considered competition... after all, we are all after the same trades. Today I managed to get into every single trade. Yesterday I think that I missed two... I recall them being two of the more profitable ones two. I've got to take them all to average out the possibility of loser trades eating up capital.
Wednesday, April 7, 2010
TFSA day two.
This was a poor day, $7 in profits... better than a loss at least and all trades were closed, no hold overs.
I have been doing all the math showing some really nice numbers based on $10,000 trade sizes and what not. Today we had a talk, well, John did all the talking, in the direction of trade sizing. Apparently we are to keep out trades to a maximum of 5 contracts. I have no trouble with that initially as I am aiming for $1000 trades which makes most of the $2-$4 trades in the under 5 contract range. In a few weeks that will change. I had planned on at least hitting 10 contracts on larger options and up to 20 on smaller options.
The idea of limiting to this size is troublesome. I figure that I can trade the stocks and make use of larger trading capital by entering the stock at the same point as the options and exiting using trailing stops. The entries would be fine as the contract price entries are at or near low points, buy on weakness, and sold at high points, sell on strength. The thing about getting out of an option trade is that just placing a market order screws up the bid / ask for anyone else trying to get out at the same point. Market order exits in a liquid stock are just a matter of course and hardly have any real bearing on the price.
The trouble is I am using a TFSA and margin is not available and I cannot even just plunk a hoard of cash in there instead due to the $5,000 annual contribution limit.
So, back to options in the TFSA and stocks in the margin once I get things rolling along. I will aim for at least 100 share orders and will need to keep the price range under the $200 price range.
I worked out the trades for today based on time of entry in the options orders and the profits would have been in the $670 range if I had my $25,000 in the margin account. In the long run I will still be making the larger trades and may only use the options when they are being sold to open for some premium capture. I want to get my TFSA built up to be able to do the larger trades without going into margin use for these.
I am looking forward to a good day tomorrow and tuning my order entry to be sure to get into these options before the prices run up as they are lately... more people in the group will affect entries. 150 - 200 were about right. 300 is getting pretty full and we will have to be more selective on the stocks we are using. 500, the ultimate group size target seems like it may be too cumbersome, we will see.
Jeff.
I have been doing all the math showing some really nice numbers based on $10,000 trade sizes and what not. Today we had a talk, well, John did all the talking, in the direction of trade sizing. Apparently we are to keep out trades to a maximum of 5 contracts. I have no trouble with that initially as I am aiming for $1000 trades which makes most of the $2-$4 trades in the under 5 contract range. In a few weeks that will change. I had planned on at least hitting 10 contracts on larger options and up to 20 on smaller options.
The idea of limiting to this size is troublesome. I figure that I can trade the stocks and make use of larger trading capital by entering the stock at the same point as the options and exiting using trailing stops. The entries would be fine as the contract price entries are at or near low points, buy on weakness, and sold at high points, sell on strength. The thing about getting out of an option trade is that just placing a market order screws up the bid / ask for anyone else trying to get out at the same point. Market order exits in a liquid stock are just a matter of course and hardly have any real bearing on the price.
The trouble is I am using a TFSA and margin is not available and I cannot even just plunk a hoard of cash in there instead due to the $5,000 annual contribution limit.
So, back to options in the TFSA and stocks in the margin once I get things rolling along. I will aim for at least 100 share orders and will need to keep the price range under the $200 price range.
I worked out the trades for today based on time of entry in the options orders and the profits would have been in the $670 range if I had my $25,000 in the margin account. In the long run I will still be making the larger trades and may only use the options when they are being sold to open for some premium capture. I want to get my TFSA built up to be able to do the larger trades without going into margin use for these.
I am looking forward to a good day tomorrow and tuning my order entry to be sure to get into these options before the prices run up as they are lately... more people in the group will affect entries. 150 - 200 were about right. 300 is getting pretty full and we will have to be more selective on the stocks we are using. 500, the ultimate group size target seems like it may be too cumbersome, we will see.
Jeff.
Tuesday, April 6, 2010
NEW TFSA day
Today was a short day for me and I was only able to trade until 1000h due to a funeral. There are always other days. I actually figured that my cash would not have been transferred to the TFSA and tradeable yet so I was likely to pass on the day overall... but that was not the case.
I split the account into $1000 trading pieces, 16.7% per piece which is high but I anticipate either some sort of stop losses on future trades so the entire amount is not necessarily the possible loss all the time. It seems to be the consensus in the group that we set some sort of stop if a trade is not going anywhere to at least clear the books, at least there was a stop level posted today on one of our languishing trades at 15% loss. That would be $150 for me or 2.5% of the account, which is acceptable. The high win rate offsets the possibility of a total trade loss anyway.
So, I made two trades, netted $212 which is not huge until I consider that it represents just over $350 in pretax income...which is higher than my typical $250 target. My TFSA minimum target would be $150.
Also, I checked the other group trades to see what profits I missed out on.
20 cent, 45 cent and 17 cent trades which, based on the position sizing represents $60, $90 and $51 respectively. I must mention that the 17 cent was a stock trade in the margin account and I may have passed on that one anyway seeing as I am focusing on options in the TFSA. Potentially the day would have been a $312 day...net commissions and tax free.
My return was 3.12% and could have been 5% on the total account.
I will stick with $1000 sizing for now and worry about bumping that up next week based on this week's trading. I may leave it there and add another trade at $1000 if we trade often enough to warrant it then compound up from there depending upon market risk at the time.
All in all it was a good day considering it was so short.
Jeff.
I split the account into $1000 trading pieces, 16.7% per piece which is high but I anticipate either some sort of stop losses on future trades so the entire amount is not necessarily the possible loss all the time. It seems to be the consensus in the group that we set some sort of stop if a trade is not going anywhere to at least clear the books, at least there was a stop level posted today on one of our languishing trades at 15% loss. That would be $150 for me or 2.5% of the account, which is acceptable. The high win rate offsets the possibility of a total trade loss anyway.
So, I made two trades, netted $212 which is not huge until I consider that it represents just over $350 in pretax income...which is higher than my typical $250 target. My TFSA minimum target would be $150.
Also, I checked the other group trades to see what profits I missed out on.
20 cent, 45 cent and 17 cent trades which, based on the position sizing represents $60, $90 and $51 respectively. I must mention that the 17 cent was a stock trade in the margin account and I may have passed on that one anyway seeing as I am focusing on options in the TFSA. Potentially the day would have been a $312 day...net commissions and tax free.
My return was 3.12% and could have been 5% on the total account.
I will stick with $1000 sizing for now and worry about bumping that up next week based on this week's trading. I may leave it there and add another trade at $1000 if we trade often enough to warrant it then compound up from there depending upon market risk at the time.
All in all it was a good day considering it was so short.
Jeff.
Monday, April 5, 2010
Could have's and all in with the TFSA vs Margin and taxation
With the decision I made based on my last post, to cash in my Optioneer capital to trade my current plans, I ran some numbers to see where best I might use the transferred cash. I had already put all of the option trades into a spreadsheet in order to see what my 3 weeks of trading would produce if I extrapolated the same results forward. I considered that if I only used the three weeks that it accommodates a possible poor fourth week performance and sort of treats it as if the fourth week only broke even...unlikely but possible. I also set this up as if I were following a truly equal weighted trading plan.
I ran six separate "studies" as follows:
Three used a margin account... which does not help with the option trading except that I could start with more cash. The other three use the TFSA account.
Margin:
$20,000 start up, 4, 5 and 6 concurrent trades (basically using three trade sizes, 25%, 20% and 16.7%)
Taxes are deducted at 40% at the end of each year.
Trade size is only adjusted at the end of each month... so monthly instead of daily compounding.
TFSA
$6,000 start up, 4, 5 and 6 concurrent trades (basically using three trade sizes, 25%, 20% and 16.7%)
Taxes are not deducted, none owing.
Trade size is only adjusted at the end of each month... so monthly instead of daily compounding.
Maximum trade size is $10,000.
Results:
Margin:
Balance at year one: 4 trade = $256,892, 5 trade = $248,855, 6 trade = $239,867
Balance at year two: 4 trade = $526,271, 5 trade = $518,264, 6 trade = $509,245
Maximum trade size reached in months June, June and July respectively.
TFSA:
Balance at year one: 4 trade = $352,452 , 5 trade = $322,513, 6 trade = $291,108
Balance at year two: 4 trade = $787,416, 5 trade = $757,457 , 6 trade = $726,072
Maximum trade size reached in months August, September and October respectively.
I thought about bumping the TFSA up $5000 after next January but what would be the point? The income is already flowing well above worrying about that, in fact the maximum trade size is already achieved well ahead of that. I expect that I will be peeling off cash in order to fund other trading that may involve needing margin, or perhaps not.
The long and short is that the TFSA, once again, beats margin hands down... taxes take their toll. It might be different if I were able to leverage the 3:1 margin for these trades but the max trade size is max for reasons of affecting the trades within the group so margin is a secondary issue.
Having said that I will be using margin for the stock trades that we take, we have taken a few, two today in fact, so restricting my study to only options traded is a bit narrow minded. I don't mind that as it skews the results against me, if you can call those two year forecasts "against". I also did not count the other two services that I subscribe to, which are both in the green. I used very little cash to fund these so I expect to turn up the heat on those shortly.
So, I "could have" been that much farther ahead already had I started "all in".
I am waiting for the cash to settle in my TFSA as I type this, request to transfer was placed immediately after trading on Thursday last week. It takes three business days due to the way that they convert and transfer the cash. Had I known I could have done it same day in a different manner....oh well. I will consider April month one and will reset my stats to match this as time progresses.
Jeff.
I ran six separate "studies" as follows:
Three used a margin account... which does not help with the option trading except that I could start with more cash. The other three use the TFSA account.
Margin:
$20,000 start up, 4, 5 and 6 concurrent trades (basically using three trade sizes, 25%, 20% and 16.7%)
Taxes are deducted at 40% at the end of each year.
Trade size is only adjusted at the end of each month... so monthly instead of daily compounding.
TFSA
$6,000 start up, 4, 5 and 6 concurrent trades (basically using three trade sizes, 25%, 20% and 16.7%)
Taxes are not deducted, none owing.
Trade size is only adjusted at the end of each month... so monthly instead of daily compounding.
Maximum trade size is $10,000.
Results:
Margin:
Balance at year one: 4 trade = $256,892, 5 trade = $248,855, 6 trade = $239,867
Balance at year two: 4 trade = $526,271, 5 trade = $518,264, 6 trade = $509,245
Maximum trade size reached in months June, June and July respectively.
TFSA:
Balance at year one: 4 trade = $352,452 , 5 trade = $322,513, 6 trade = $291,108
Balance at year two: 4 trade = $787,416, 5 trade = $757,457 , 6 trade = $726,072
Maximum trade size reached in months August, September and October respectively.
I thought about bumping the TFSA up $5000 after next January but what would be the point? The income is already flowing well above worrying about that, in fact the maximum trade size is already achieved well ahead of that. I expect that I will be peeling off cash in order to fund other trading that may involve needing margin, or perhaps not.
The long and short is that the TFSA, once again, beats margin hands down... taxes take their toll. It might be different if I were able to leverage the 3:1 margin for these trades but the max trade size is max for reasons of affecting the trades within the group so margin is a secondary issue.
Having said that I will be using margin for the stock trades that we take, we have taken a few, two today in fact, so restricting my study to only options traded is a bit narrow minded. I don't mind that as it skews the results against me, if you can call those two year forecasts "against". I also did not count the other two services that I subscribe to, which are both in the green. I used very little cash to fund these so I expect to turn up the heat on those shortly.
So, I "could have" been that much farther ahead already had I started "all in".
I am waiting for the cash to settle in my TFSA as I type this, request to transfer was placed immediately after trading on Thursday last week. It takes three business days due to the way that they convert and transfer the cash. Had I known I could have done it same day in a different manner....oh well. I will consider April month one and will reset my stats to match this as time progresses.
Jeff.
Friday, April 2, 2010
Another one bites the dust.
I have not named services for a variety of reasons. One was that if I mentioned a service that appeared to be a good deal and turned out to be not so good...well, if anyone actually signed up based on anything I said in here... I just skipped names.
I made one exception for the Optioneer service as I had faith that their trade selection methodology would be as sound as the theory behind the trade style. Iron Condor option trades can have a sound application if used correctly. It turns out that the Optioneer model is not as sound as it would appear.
Now, I still feel that it could be a good service if traded with a more conservative approach, longer time frames on the trades with the plan to exit the trade earlier, perhaps when the value of the trade exceeds the initial time value. This can increase the overall returns to a degree.
Having said that I have had a number of trades lose money, enough that recovering from the loss would be a longish process. The nature of iron condors is that the amount of cash at risk is much higher than the potential profit. One short falling was I was not aware that certain trades that I made were not going to fall under the terms of the performance agreement which means that the overall agreement timeline was too short to enable me to place all the trades necessary to meet the requirement. If I worked the trades to the minimum times right now I would be short by one trade. Given that having trades filled is less frequent than having them not fill means that it is unlikely that I could pull it off. Besides, even if I did the chances are that I would make the minimum profit requirement and not get to cash in on the refund.
The long story turned short is that I would be wasting my time with daily returns of one tenth of what I am returning right now in my Questrade account. So I will be shutting this service down, taking my lumps of the loss and the up front setup fees and putting my money to better use.
Could I have made it work over the long term? Sure.
Do I want to? No.
Do I regret mentioning the service by name here? Sort of.
If I decide to dabble in spread trades again I will do it either in my Questrade account or with an option specialty broker that does not attempt to make money off of services other than the commissions. I didn't begrudge the "other than commission" fees but perhaps I was too quick to get into this service when I could have setup something similar through someone like OptionXpress for very good commission rates... commissions only.
So, another one bites the dust and I should have done more homework in advance of signing up... or at least before making the main commitment.
Jeff.
I made one exception for the Optioneer service as I had faith that their trade selection methodology would be as sound as the theory behind the trade style. Iron Condor option trades can have a sound application if used correctly. It turns out that the Optioneer model is not as sound as it would appear.
Now, I still feel that it could be a good service if traded with a more conservative approach, longer time frames on the trades with the plan to exit the trade earlier, perhaps when the value of the trade exceeds the initial time value. This can increase the overall returns to a degree.
Having said that I have had a number of trades lose money, enough that recovering from the loss would be a longish process. The nature of iron condors is that the amount of cash at risk is much higher than the potential profit. One short falling was I was not aware that certain trades that I made were not going to fall under the terms of the performance agreement which means that the overall agreement timeline was too short to enable me to place all the trades necessary to meet the requirement. If I worked the trades to the minimum times right now I would be short by one trade. Given that having trades filled is less frequent than having them not fill means that it is unlikely that I could pull it off. Besides, even if I did the chances are that I would make the minimum profit requirement and not get to cash in on the refund.
The long story turned short is that I would be wasting my time with daily returns of one tenth of what I am returning right now in my Questrade account. So I will be shutting this service down, taking my lumps of the loss and the up front setup fees and putting my money to better use.
Could I have made it work over the long term? Sure.
Do I want to? No.
Do I regret mentioning the service by name here? Sort of.
If I decide to dabble in spread trades again I will do it either in my Questrade account or with an option specialty broker that does not attempt to make money off of services other than the commissions. I didn't begrudge the "other than commission" fees but perhaps I was too quick to get into this service when I could have setup something similar through someone like OptionXpress for very good commission rates... commissions only.
So, another one bites the dust and I should have done more homework in advance of signing up... or at least before making the main commitment.
Jeff.
Subscribe to:
Posts (Atom)
