From wild to real, the stock trade comparison.

Back to Earth for a moment.

I like planing ahead so I signed up for an entire year of the day trading service to save $1200 as there was a $100 monthly rate increase going in for June 1. Us charter members get to take advantage of this option.

Also in the vein of planning ahead I have been considering tracking the possible stock trades along side of the option trades in order to determine at what point trading the stocks make more sense than the options.

Pros for stocks over options:
-Larger trade sizes will not affect the trade overall
-Hold past profit target with moving stops to secure larger moves
-Smaller losses due to tight stop losses... if used
-Larger profits due to the option delta effect (ie: 50 cent option move = $1 stock move)
-Easier entry due to greater liquidity over options
-Getting into more trades as options run away... the stock may run but the trade is entered already
-Pre and Post market trading to secure profits
-Scaling into and out of positions easier
-Smaller commission rates for comparable underlying control

Cons against stocks over options:
-Larger possible losses due to option delta affect (ie: $1 stock move = 50 cent option move)
-Possible inability to sell certain stocks short

Hmmm.... Perhaps I am using the wrong account for my daytrading. If I used the margin account I might be able to trade the stocks right now. I could move the momentum options into the TFSA now as I have enough cash in there to do that and they are more profitable anyway. I think that I had best think more about this move as what I am doing now is working... besides, I have the momentum stuff well loaded right now and need to wait to unload it before the margin would be free anyway.

I plan to take the first week of July off of trading and that may be a good time to consider this sort of move... although it does not involve moving money, just switch which account I am trading from.

This month I will track the option trades more closely and also track the entry and exit prices for the corresponding underlying securities. I can easily set these trades up in Esignal and run a quick study on trailing stops and stock size comparisons. This will give me a target margin account size to watch for in order to know when I could make the switch without affecting my profits.

I notice that quite often a trade will be called out only to not get filled on the options. We will do one of two things, adjust the limit price up (if limits were suggested) or let it go. In either case it indicates that the stock has usually gone in the direction that was anticipated and, had I just entered a market order for the stock at the time of the call I would already be in a position to take advantage of the move. The downside... I cannot think of a downside in those two cases.

Anytime that a trade may not have been a good call I would be in a losing position whether in an option or stock... so order sizing may be important. Half sizes and scale in as the stock does what is anticipated or just keep tight stops. Often we take on trades that look very good at the start, they move against us, we hold. Occasionally increasing the options is called for but it is easier to add stocks at any point as not only is the commission less, the stock trade cannot affect the rest of the group's trade in any way at all.

While I got a bit rambly here the long and short of it is that I will compare all the trades in June as if trading the stocks as well... especially including those that run away and I would have been in. Then I will figure the cash needed to trade stocks in the quantities needed to see at least the same profits.

At least this gives me another numbers project to keep me busy instead of coming up with new spins on profits or ways to forecast the future returns.

Jeff.