...and the room shifts again

Another fresh month for trading and another small batch of new traders enters the trading room. No big deal as we are locking down comments during the first bit of trading to keep the chatter out of the picture, less distracting that way.

We have shifted the scope once again as we are now going to concentrate on more true day trades and add selling options into the mix as well as not taking on nearly as many overnight trades... we'll see about that one.

I am working with a much smaller account base now due to a bunch of held trades that I would have preferred not to still be in, and perhaps not at the sizes that they are at. Even though they were sized according to my rules at the time they are bigger than what they maybe should have been as I have lowered my sizing even based on my previous account size.

If I go back to an old 5% of account risk rule it would put any account at 20 trades. Based on that a $20K account would have a $1000 per trade limit as any held option trade is considered a loss allowance, same as a stock trade losing $1000 no matter the price of the stock.

This obviously allows options to be traded in greater quantity as 20 trades are possible whereas stocks, say in the $30 range, would take about $10K of the account to allow a $3 stop loss (10% of the stock price).

So, this being the case, all held option trades would be considered a fair loss if they expire worthless and loose 100% of their value.

But, in a true day trade the loss is often capped at 20 - 30 cents per contract due to the short term nature of the trade. Yes, they can also be as high as $1 but normally the stop is dependent upon the pattern and activity at the time. Perhaps 50% of the price could be considered a normal maximum stop loss for options... if we knew ahead that they were not going to be held over. The trouble with using 50% is that it can effectively double the trade size, not a good idea.

All in all I expect that, once I get all the held trades closed, whether profitable or otherwise, I will be reviewing what sized trades I will plan on making regularly... yet once again.

Currently I am playing with $700 trades in order to allow enough cash to provide for a few trades at a time as a lot of cash is really tied up right now. This is on the small size as a small size should be about $1000, medium $2000 and large $3000. $700 is about as small as I can get and still see enough profit to overcome the commissions nicely as break even is between 2 and 6 cents depending upon the position size.

Long trading day today as we got into a trade that is taking forever. It also happens to be a naked short call play and we certainly don't want to leave it alone unsupervised so we are babysitting this one. I say we loosely as I just took a different strike put instead. I actually have been in and out for a profit already and bought back in later... perhaps I should have just stayed out of the second trade but this is fun too.

Jeff.