I am currently in 17 option positions with three additional orders pending.
I have just crossed the $4,000 capital utilized mark today... this does not count the orders pending.
There is no way I could get into that many stock positions with that little capital... short of playing with penny stocks.
Today was a rough ride as the market dropped off right off the start but I held everything through, added another call as well as one put to the list. I do need a little more put action to balance things out, but I see the reasoning behind the stock picks and they are justified in staying long through this undecided period.
Jeff.
Questrade, My direct access discount broker.
Wednesday, September 30, 2009
Tuesday, September 29, 2009
A quick performance check
I've been testing option trading services and their results. While I have not broken them down there is one clear winner so far...mostly due to the volume of trades they recommend. My original intention was to keep any service that paid for it's subscription price in the trial period but I can see that is really going to turn out in favour of only one service as two of the services are providing about one trade a week. I do not intend to continue any that cannot at least look like they may be profitable over the longer term.
So far my overall trade performance based on trades closed since I started tracking the service provided trades looks pretty impressive. There are a few of my trades mixed in here as well...actually four of the total 9 closed are mine and 2 are technically one trade as half of a position was closed and the other half was left to ride for a bit longer...I should have just closed the whole thing at the time...hindsight. The difference was an 85% net return compared to a 63% net return.
9 trades closed
8 winning trades (88.8% win rate)
49.3% average net profit per trade (including the loser)
55.5% average net profit per trade (NOT including the loser)
I expect to have more losers as time progresses. I also expect to be cancelling one service this week as the trial period expires on Saturday and there have only been three trades, one closed for a profit. I need to see more trading volume in order to keep more smaller trades active. Fewer large trades feels like a disaster waiting to happen as a large position goes south and takes capital with it.
I feel that a diversified approach, many small trades, can lose overall but it would take a larger market related move to do it whereas a few stocks could collapse but would only take out the smaller trades based on those stocks. The higher volume plan is in line with the approach of the trading service I am probably going to keep. They have had 16 trades in the same period... three closed for a profit and three did not get filled.
Basically they suit my style of trading.
Jeff.
So far my overall trade performance based on trades closed since I started tracking the service provided trades looks pretty impressive. There are a few of my trades mixed in here as well...actually four of the total 9 closed are mine and 2 are technically one trade as half of a position was closed and the other half was left to ride for a bit longer...I should have just closed the whole thing at the time...hindsight. The difference was an 85% net return compared to a 63% net return.
9 trades closed
8 winning trades (88.8% win rate)
49.3% average net profit per trade (including the loser)
55.5% average net profit per trade (NOT including the loser)
I expect to have more losers as time progresses. I also expect to be cancelling one service this week as the trial period expires on Saturday and there have only been three trades, one closed for a profit. I need to see more trading volume in order to keep more smaller trades active. Fewer large trades feels like a disaster waiting to happen as a large position goes south and takes capital with it.
I feel that a diversified approach, many small trades, can lose overall but it would take a larger market related move to do it whereas a few stocks could collapse but would only take out the smaller trades based on those stocks. The higher volume plan is in line with the approach of the trading service I am probably going to keep. They have had 16 trades in the same period... three closed for a profit and three did not get filled.
Basically they suit my style of trading.
Jeff.
Funky day
Today it is raining, actually it is supposed to rain all week so this is likely to be a funky week.
I have one position that is really in the doghouse. I bought the December option for 80 cents and it is around 25 cents today. I only have two contracts so it is not a huge problem, but that is how I am sizing these trades, I can lose the entire trade and it represents a small portion of my account. This one is about 4% if I let it expire worthless, but that is not the plan as I will close the trade with some value left unless a last minute rally looks promising. I don't hold much faith in last moment rallies though.
It is worth noting that I bought the option when the stock was in the $18.50 range and it is now at $17.10ish. That is a $1.40 per share drop had I just bought the stock and I would likely have used something just south of $17 as a stop loss so, if it continues to head south I would expect $1.60 or more as a loss. In this $1.40 drop the option has lost only 60 cents AND i have no need for a stop order that may or may not do what I want when I want...and I certainly don't have to keep checking at the open to see if I need to adjust my stop.
I have a few other positions that are in far better shape, but I will not close them yet. Most of the trades are at technical lows for their respective current trend, touching on support. I could have waited for the stock prices to approach these support areas before getting in but I was not doing technical studies for these. I will be starting that back up soon to help determine good exit points and stop loss on some of these trades. As much as I can let the whole trade hit zero, I would rather not if it is plainly obvious that the stock is more likely to depreciate than not.
My exit stops would be in the 50% of the trade mark depending upon the circumstances.
There is not much to talk about with these trades. Even though there are 15 active trades and two active orders I have done very little chart work other than a cursory glance. This makes for rather uninformative posts.
I have some waiting to do while the market sorts itself out and decides which direction it is likely to head next.
Jeff.
I have one position that is really in the doghouse. I bought the December option for 80 cents and it is around 25 cents today. I only have two contracts so it is not a huge problem, but that is how I am sizing these trades, I can lose the entire trade and it represents a small portion of my account. This one is about 4% if I let it expire worthless, but that is not the plan as I will close the trade with some value left unless a last minute rally looks promising. I don't hold much faith in last moment rallies though.
It is worth noting that I bought the option when the stock was in the $18.50 range and it is now at $17.10ish. That is a $1.40 per share drop had I just bought the stock and I would likely have used something just south of $17 as a stop loss so, if it continues to head south I would expect $1.60 or more as a loss. In this $1.40 drop the option has lost only 60 cents AND i have no need for a stop order that may or may not do what I want when I want...and I certainly don't have to keep checking at the open to see if I need to adjust my stop.
I have a few other positions that are in far better shape, but I will not close them yet. Most of the trades are at technical lows for their respective current trend, touching on support. I could have waited for the stock prices to approach these support areas before getting in but I was not doing technical studies for these. I will be starting that back up soon to help determine good exit points and stop loss on some of these trades. As much as I can let the whole trade hit zero, I would rather not if it is plainly obvious that the stock is more likely to depreciate than not.
My exit stops would be in the 50% of the trade mark depending upon the circumstances.
There is not much to talk about with these trades. Even though there are 15 active trades and two active orders I have done very little chart work other than a cursory glance. This makes for rather uninformative posts.
I have some waiting to do while the market sorts itself out and decides which direction it is likely to head next.
Jeff.
Friday, September 25, 2009
AAARRRGGGHHH! One last trial.
I had decided that signing up with the Optioneer program was to be my last service to put to the test (although there is more commitment there than others from my side AND their side to make it work).
Today I received a notice about another program that I had considered before and looked into. It is new but I have tried other products from the same group. While I did not keep them active and exercised my risk free guarantee I was impressed with their dealings and straight up business attitude.
I put the cost onto my card, as all online services do, and immediately went crazy reading and going through the material.
This one is a "course" in options that includes a DVD set of lessons and some online assistance and webtools for working with options.
I must admit that they did a bangup job of it and it comes across as professional and is informative. I blew through all the quizzes after reading through the slide presentations so I have a handle on the entire content of the course now. The last part I skipped had to do with some of the more complicated strategies, condors, butterflies, strangles... all of which I am already looking at implementing anyway but will approach on an individual basis as I have done with every other aspect of trading.
In order to receive the credit upon cancellation within the 30 days I have to return the material...I think that I may cancel before then as all of the option course so far, 70% of it, has not had anything new. A few twists on theories that I passed over before and a slightly different takes on a few ideas but certainly nothing earthshattering...and certainly not worth $2500, the "introductory" price let alone the suggest retail price of $5,000.
While I should have known, I was curious enough to try it. The thing about these is there is no real material to get to understand ahead of ordering these so I have to bite the bullet to satisfy my curiosity. I am glad that the guarantees so far have lived up to their word.
I suppose, in defense of the program, anyone brand new to options would have a time with this course as it does cover a lot of material, just not much new for someone who, like myself, loves to learn voraciously and seeks out every scrap of material available while leaving my BS filter on high gain.
One last comment, and this has to do with the reason that I left options as long as I have. No matter how much one knows about options, one still has to be able to gauge a stock and price expectations in order to trade options. There are a few ways to trade them that can turn losers into winners and some that can turn a profit without knowing anything more than the volatility and average true range but that does not preclude getting to know the stocks first anyway.
Another service bites the dust.
Jeff.
Today I received a notice about another program that I had considered before and looked into. It is new but I have tried other products from the same group. While I did not keep them active and exercised my risk free guarantee I was impressed with their dealings and straight up business attitude.
I put the cost onto my card, as all online services do, and immediately went crazy reading and going through the material.
This one is a "course" in options that includes a DVD set of lessons and some online assistance and webtools for working with options.
I must admit that they did a bangup job of it and it comes across as professional and is informative. I blew through all the quizzes after reading through the slide presentations so I have a handle on the entire content of the course now. The last part I skipped had to do with some of the more complicated strategies, condors, butterflies, strangles... all of which I am already looking at implementing anyway but will approach on an individual basis as I have done with every other aspect of trading.
In order to receive the credit upon cancellation within the 30 days I have to return the material...I think that I may cancel before then as all of the option course so far, 70% of it, has not had anything new. A few twists on theories that I passed over before and a slightly different takes on a few ideas but certainly nothing earthshattering...and certainly not worth $2500, the "introductory" price let alone the suggest retail price of $5,000.
While I should have known, I was curious enough to try it. The thing about these is there is no real material to get to understand ahead of ordering these so I have to bite the bullet to satisfy my curiosity. I am glad that the guarantees so far have lived up to their word.
I suppose, in defense of the program, anyone brand new to options would have a time with this course as it does cover a lot of material, just not much new for someone who, like myself, loves to learn voraciously and seeks out every scrap of material available while leaving my BS filter on high gain.
One last comment, and this has to do with the reason that I left options as long as I have. No matter how much one knows about options, one still has to be able to gauge a stock and price expectations in order to trade options. There are a few ways to trade them that can turn losers into winners and some that can turn a profit without knowing anything more than the volatility and average true range but that does not preclude getting to know the stocks first anyway.
Another service bites the dust.
Jeff.
Interesting twist, dissappearing bids
One of my positions that was showing a loss was not in a bad state, just down a bit. This was not a position that I had great hopes of gaining a lot... testing and all.
The option was worth $2.25 and I bought 2 contracts, $450. This is a higher than I normally would place on an options trade now, this one was entered before I decided on full trade loss risk.
Today, as I was reviewing the prices after the market had been opened long enough to get the option prices set and the bids in I noticed a huge loss in one account. My $2.25 position was at zero value, which shouldn't happen unless the option expires or nears expiry...even then it SHOULD have some value. This stock is only $1.30 down from the $20 strike price so I might expect a 50-75 cent loss at this point...maybe even as high as 90 cents worst case.
So what's up? No bids. The current ask is $3.00... much higher than my $2.25 entry price. Zero bids means zero value as nobody is buying. Now, the open interest is 1227 contracts so there is SOME interest but the stock itself is trading on lowish volume, under 20,000 shares in the first hour and less than 150,000 daily on average. Technically the stock is at a good support level trendwise so there is potential.
The first thing that comes to mind is THANKFULLY I decided not to place a stop on my options as I am not sure what price I might have got for this stock had I stopped it.
I notice that now it is back to a 50 cent paper loss, so all is good and this is actually in line with what I expected...so it is back to normal. I may drop this one as a bit of a whit elephant once it gets into a breakeven position or if I end up at a stable -90 cent point.
Jeff.
The option was worth $2.25 and I bought 2 contracts, $450. This is a higher than I normally would place on an options trade now, this one was entered before I decided on full trade loss risk.
Today, as I was reviewing the prices after the market had been opened long enough to get the option prices set and the bids in I noticed a huge loss in one account. My $2.25 position was at zero value, which shouldn't happen unless the option expires or nears expiry...even then it SHOULD have some value. This stock is only $1.30 down from the $20 strike price so I might expect a 50-75 cent loss at this point...maybe even as high as 90 cents worst case.
So what's up? No bids. The current ask is $3.00... much higher than my $2.25 entry price. Zero bids means zero value as nobody is buying. Now, the open interest is 1227 contracts so there is SOME interest but the stock itself is trading on lowish volume, under 20,000 shares in the first hour and less than 150,000 daily on average. Technically the stock is at a good support level trendwise so there is potential.
The first thing that comes to mind is THANKFULLY I decided not to place a stop on my options as I am not sure what price I might have got for this stock had I stopped it.
I notice that now it is back to a 50 cent paper loss, so all is good and this is actually in line with what I expected...so it is back to normal. I may drop this one as a bit of a whit elephant once it gets into a breakeven position or if I end up at a stable -90 cent point.
Jeff.
Thursday, September 24, 2009
Optioneer
I have been a bit evasive when it comes to talking about any of the services that I have tested, mainly as I was hesitant to attract any attention to something that I had no idea whether it would really work out well or not. Optioneer is different. Partly due to the ideal that their system and service is based upon and partly due to the training in advance and the explanation of the system long before any commitment is reqiured.
So, I am signing up for the Optioneer service. This is the more expensive service with the dedicated broker I mentioned. If this was not to be a long term plan I would reconsider going this route as I can place the strangle trades myself but cannot trade the markets they use. I would be restricted to using ETF options to emulate the market activity as strangling a stock is a little to "iffy" for a variety of reasons.
Even so, legging into a strangle is not overly complex, nor is closing the trade. They are really two bracketing spreads, as mentioned in my last post.
The downside of doing it myself is that the round trip for each contract is $22 initially. Subsequent contracts in the same execution are $1 per contract. Getting started involves at least four separate trades which adds up to $88 in commissions. Going with Optioneer starts the same round trip commissions at $24... that is a fair difference and the initial startup cost is offset after 62 trades. The monthly data fee is between $90 and $195 (I'll be at the minimum for some time) and I am used to paying close to $200 for decent charting services per month already so I consider the data fee a fair exchange.
In larger trades the Questrade route works out to be cheaper as the $24 Optioneer commission is charged for every full strangle trade unit. If I trade 4 units (4 of each calls/puts bought and sold) their commission is $96 whereas Questrade is $97. There is the break point. Having said that I would be trading different markets altogether, different valued units, Optioneer manages a lot of the data and signals ... so I can hardly compare the two fairly. Apples and oranges.
A quick note about using strangles and data. There is very little need to watch anything intra-day so having live data is a negligible benefit outside of the trading platform. With Optioneer I do not place the trades in the market as I am used to, I send the entire order to the broker and they look after executions for me... that is worth something right there as well. Also they have profit and loss auto exit strategies so I don't even have to decide when to close trades... if I don't ant to.
I am downloading and printing off the necessary forms as I type this.
Like I said, this is a long term plan, as would be any self generated strangle strategy based system. All in all I do not begrudge the upfront fee nor the monthly data fees as I consider this strategy a reasonably sound one and having a lot of the work done for me is a great advantage and I am looking forward to getting up and running.
Jeff.
So, I am signing up for the Optioneer service. This is the more expensive service with the dedicated broker I mentioned. If this was not to be a long term plan I would reconsider going this route as I can place the strangle trades myself but cannot trade the markets they use. I would be restricted to using ETF options to emulate the market activity as strangling a stock is a little to "iffy" for a variety of reasons.
Even so, legging into a strangle is not overly complex, nor is closing the trade. They are really two bracketing spreads, as mentioned in my last post.
The downside of doing it myself is that the round trip for each contract is $22 initially. Subsequent contracts in the same execution are $1 per contract. Getting started involves at least four separate trades which adds up to $88 in commissions. Going with Optioneer starts the same round trip commissions at $24... that is a fair difference and the initial startup cost is offset after 62 trades. The monthly data fee is between $90 and $195 (I'll be at the minimum for some time) and I am used to paying close to $200 for decent charting services per month already so I consider the data fee a fair exchange.
In larger trades the Questrade route works out to be cheaper as the $24 Optioneer commission is charged for every full strangle trade unit. If I trade 4 units (4 of each calls/puts bought and sold) their commission is $96 whereas Questrade is $97. There is the break point. Having said that I would be trading different markets altogether, different valued units, Optioneer manages a lot of the data and signals ... so I can hardly compare the two fairly. Apples and oranges.
A quick note about using strangles and data. There is very little need to watch anything intra-day so having live data is a negligible benefit outside of the trading platform. With Optioneer I do not place the trades in the market as I am used to, I send the entire order to the broker and they look after executions for me... that is worth something right there as well. Also they have profit and loss auto exit strategies so I don't even have to decide when to close trades... if I don't ant to.
I am downloading and printing off the necessary forms as I type this.
Like I said, this is a long term plan, as would be any self generated strangle strategy based system. All in all I do not begrudge the upfront fee nor the monthly data fees as I consider this strategy a reasonably sound one and having a lot of the work done for me is a great advantage and I am looking forward to getting up and running.
Jeff.
Option Strategy # 3 - The Spread
While I accepted and understood how a spread works I did not really comprehend the true power and flexibility of this strategy until today.
Jeff.
Technically the spread can do a few things:
1) it can make money if the price goes up....but a typical call can do that
2) it can make money if the price does nothing...calls depreciate in that case
3) it can make money at the moment of executing the paired trade...the put sold is worth more than the call bought
4) it can reduce the cost of a trade...the put sold offsets the cost of the call bought.
The third is my target but this takes some work to find puts that are valued higher than the call and still OTM enough that it is not likely to get "put" before expiry. From what I understand not many options get exercised before expiry unless there is some great move that needs to be taken advantage of at the time...even then 75% or better expire worthless anyway. This is the credit spread.
Buy the OTM call with a near term expiry and sell the same expiry OTM put. The call depreciates if the price does nothing and can expire worthless. The put makes money the instant it is sold, which is why a higher priced put is nice. Of course if the stock price goes up and the call appreciates, even better as then the put has already made money and the call is making even more.
This leads to the strangle as it is, basically, two spreads... one selling the put and the other selling the option bracketing the price and the potential price moves for the term of the options.Jeff.
Pain of the red numbers
Today is an odd day as my account is now, or at least was for a period, completely in the red. All 14 positions were down...most by 5 to 15 cents.
I bought another call option while the stock seemed to be at the bottom of it's current pullback, my first March expiry so far. Yesterday I sold off my October expiry's while the market peaked mid afternoon.
Now I have to decide how much "pain" I will take on these current positions. Originally I bought them and considered the entire capital outlay a potential loss so the majority are not much more than $200, one at $400 which I may stop at 50% if it goes that far. Now that they are all down at the same time it seems to "hurt" more than it would should only a few be down.
That's the way it goes though. The initial plan should be held so I will see how it plays out.
Meanwhile, I am looking at funding my margin account to allow for spread trading.
Jeff.
I bought another call option while the stock seemed to be at the bottom of it's current pullback, my first March expiry so far. Yesterday I sold off my October expiry's while the market peaked mid afternoon.
Now I have to decide how much "pain" I will take on these current positions. Originally I bought them and considered the entire capital outlay a potential loss so the majority are not much more than $200, one at $400 which I may stop at 50% if it goes that far. Now that they are all down at the same time it seems to "hurt" more than it would should only a few be down.
That's the way it goes though. The initial plan should be held so I will see how it plays out.
Meanwhile, I am looking at funding my margin account to allow for spread trading.
Jeff.
Wednesday, September 23, 2009
Plans, plans, plans...
Plans always change...
I had decided to put my P&F chart trading on hold for a while and test only the trading service trades. Now that I have migrated most (all but 4 of 14) trades over to my TFSA I have a ton of cash sitting in my RRSP not being put to work. All my trades right now would easily fit into less than a $5,ooo account.
This afternoon I am attending, if you can call it that, a webinar put on as a training guide for the next service I am likely to try out...the expensive one. Should this look extremely good I may be moving most of my RRSP over as a longer term plan. It really looks promising now that I have had more time to tweak the trades and do a little varied back testing. I have some current live fake trades that are turning into profit mode so it is nice to see an active progression.
In the meantime, my plan is to re-introduce the P&F chart trading into my RRSP account but I will be concentrating on covered calls to generate a slightly different line of income. I may be able to use some of the advisory trades to do this but substitute stocks for the calls then sell the calls based on the stock holding rather than perform a true option spread. I have updated my option level to level 2 in that account now, minimum balance to do this is $2500 so I updated my TFSA as well.
Should the service trades look promising I will use mainly those but I will pick up to 10 stocks from my final list of 50 or so P&F charts that are the most promising patterns and use those as the basis of my own covered call trades. These are going to have to be under the $20 mark though as I need to be able to trade in 100 share increments in order to sell a call against them. That alone will whittle the selection down considerably. Even so, checking the option chains for activity that corresponds to my charts will be interesting. I don't have any fancy software to do that for me so I cannot get too many going for this as I will be using my broker platform for this...which is really restrictive when it comes to studies.
Should the RRSP not get transferred I will consider liquidating some of it and transferring into the margin account to top it off to $5,000, plus a bit, to allow me to perform spreads... $5K is the minimum required account value to do this. I think that I would not likely use naked option writing so I won't worry too much about getting the account up to $25K. Once I have that in place then I will investigate getting into strangles as that is where I can produce some nice long term low risk regular gains. That will just be a rather complicated dance and I am afraid that the commissions are going to be prohibitive or perhaps just restrict me to one style of strangle or perhaps just one side, a spread, for now.
Back to the downside of any trading in the margin account...taxation.
Plans, plans, plans.
Jeff.
I had decided to put my P&F chart trading on hold for a while and test only the trading service trades. Now that I have migrated most (all but 4 of 14) trades over to my TFSA I have a ton of cash sitting in my RRSP not being put to work. All my trades right now would easily fit into less than a $5,ooo account.
This afternoon I am attending, if you can call it that, a webinar put on as a training guide for the next service I am likely to try out...the expensive one. Should this look extremely good I may be moving most of my RRSP over as a longer term plan. It really looks promising now that I have had more time to tweak the trades and do a little varied back testing. I have some current live fake trades that are turning into profit mode so it is nice to see an active progression.
In the meantime, my plan is to re-introduce the P&F chart trading into my RRSP account but I will be concentrating on covered calls to generate a slightly different line of income. I may be able to use some of the advisory trades to do this but substitute stocks for the calls then sell the calls based on the stock holding rather than perform a true option spread. I have updated my option level to level 2 in that account now, minimum balance to do this is $2500 so I updated my TFSA as well.
Should the service trades look promising I will use mainly those but I will pick up to 10 stocks from my final list of 50 or so P&F charts that are the most promising patterns and use those as the basis of my own covered call trades. These are going to have to be under the $20 mark though as I need to be able to trade in 100 share increments in order to sell a call against them. That alone will whittle the selection down considerably. Even so, checking the option chains for activity that corresponds to my charts will be interesting. I don't have any fancy software to do that for me so I cannot get too many going for this as I will be using my broker platform for this...which is really restrictive when it comes to studies.
Should the RRSP not get transferred I will consider liquidating some of it and transferring into the margin account to top it off to $5,000, plus a bit, to allow me to perform spreads... $5K is the minimum required account value to do this. I think that I would not likely use naked option writing so I won't worry too much about getting the account up to $25K. Once I have that in place then I will investigate getting into strangles as that is where I can produce some nice long term low risk regular gains. That will just be a rather complicated dance and I am afraid that the commissions are going to be prohibitive or perhaps just restrict me to one style of strangle or perhaps just one side, a spread, for now.
Back to the downside of any trading in the margin account...taxation.
Plans, plans, plans.
Jeff.
Tuesday, September 22, 2009
Consolidation
As of today I have 14 active open positions and all are option trades. The highest priced option is $4 and the lowest is 36 cents. The best thing about these is that ten of them are in my TFSA and I still have room for about 6 more should they materialize...I do have one order pending still.
The cheapest option that I ordered, but did not get filled, was 15 cents.
Current profit is running at $840 which is about 24% in the last week and change. Sadly those were not all in my TFSA so it is sprinkled about my three accounts.
Current positions are worth, not stopped but if I had closed them all at the end of the day, -$338 and the open capital used is $3434. In theory, if all my positions were wrong and I let them expire worthless I would lose the whole $3434. I doubt that is likely as I would stop some of them before then. That and I am diversified enough that all should not tank at once anyway.
Should even a few of these do what it looks like they may then the return is greater than 100%. Seeing as my theoretical risk is 100%, actually about 50%, then having a number over that mark should boost gains over losses.
I feel like I am consolidating. Similar to a market that trades horizontally for a bit to gain strength in the current range and accumulate strategic positions. I bought two more positions and sold none, no more realized profits. All of my trades are based from the advisory and data services but I am considering dropping one of the three as it has only yielded two trades this month. I like a lot of activity but only for it's own sake.
Of the total trades taken, 14 have been from one service, two of which have been profitable (71% and 100%) two did not fill and the rest are still open. I have not taken about 1/3 of the trades recommended as they are using strategies that I cannot execute in my accounts right now, everything from naked option writing to spreads and three legged trades as well. No covered calls as they are not into trading stocks.
My trades count 4 with 3 at 44%, 72% and 38% with one loss at -7%. There were other earlier ones that won and lost but those were the recent option trades based on my P&F charting
The other two services have yielded 5 trades total. Only one closed for a 44% gain so far. They do not look terribly promising at this point.
Jeff.
The cheapest option that I ordered, but did not get filled, was 15 cents.
Current profit is running at $840 which is about 24% in the last week and change. Sadly those were not all in my TFSA so it is sprinkled about my three accounts.
Current positions are worth, not stopped but if I had closed them all at the end of the day, -$338 and the open capital used is $3434. In theory, if all my positions were wrong and I let them expire worthless I would lose the whole $3434. I doubt that is likely as I would stop some of them before then. That and I am diversified enough that all should not tank at once anyway.
Should even a few of these do what it looks like they may then the return is greater than 100%. Seeing as my theoretical risk is 100%, actually about 50%, then having a number over that mark should boost gains over losses.
I feel like I am consolidating. Similar to a market that trades horizontally for a bit to gain strength in the current range and accumulate strategic positions. I bought two more positions and sold none, no more realized profits. All of my trades are based from the advisory and data services but I am considering dropping one of the three as it has only yielded two trades this month. I like a lot of activity but only for it's own sake.
Of the total trades taken, 14 have been from one service, two of which have been profitable (71% and 100%) two did not fill and the rest are still open. I have not taken about 1/3 of the trades recommended as they are using strategies that I cannot execute in my accounts right now, everything from naked option writing to spreads and three legged trades as well. No covered calls as they are not into trading stocks.
My trades count 4 with 3 at 44%, 72% and 38% with one loss at -7%. There were other earlier ones that won and lost but those were the recent option trades based on my P&F charting
The other two services have yielded 5 trades total. Only one closed for a 44% gain so far. They do not look terribly promising at this point.
Jeff.
Monday, September 21, 2009
Service ahead of the news
It is worth noting that one service has performed better than my trading, but that may be partially due to lack of trades on my part and missing some of my own key triggers...but I digress.
They posted an advisory on Wednesday last week about unusual call buying activity and recommended to follow the institutional buyers in that move. I placed the order but the price had already moved ahead enough for the option to be up by 5 cents... I decided not to chase it at all. Instead I made the order GTC so it would stand and fill on the next pullback.
The news had noted the activity on Thursday. Now, if I read every single news report to try to figure out which ones were good leads I would spend all day reading and likely end up trading my accounts away quickly...I have never believed that trading on news is a good plan. Having said that, trading activity that becomes news is not the same as trying to trade just news and talking head's speculation.
Today, the market pulled back and the order was filled, along with another GTC order from last week from the same service. This particular stock took off today and gained over 7% in the AM, so we'll hang on for bit and see where it goes. The option could easily double and I may set my stop at that point (keeping in mind the stop order executions on the ask, not the bid) but it is expected to quadruple.
It is worth noting that the stock price at the order fill time was around $7.00. The option is the January 7.50 call and today it reached $7.50... the option was bought for 60 cents and now is at the point of gaining intrinsic value as well as extrinsic due to volatility I expect. As the price is sitting at the strike the option is bid at 90 cents, already a 50% gain without any added intrinsic value.
I bought 4 contracts. It certainly is nice to see a quick gain but it may just as easily drop back as quick. Had I been daytrading the stock I would have traded 400 shares (same as the option contracts 4x100 shares represented) and jumped out after the 50 cent mark for a clean $200.
Jeff.
They posted an advisory on Wednesday last week about unusual call buying activity and recommended to follow the institutional buyers in that move. I placed the order but the price had already moved ahead enough for the option to be up by 5 cents... I decided not to chase it at all. Instead I made the order GTC so it would stand and fill on the next pullback.
The news had noted the activity on Thursday. Now, if I read every single news report to try to figure out which ones were good leads I would spend all day reading and likely end up trading my accounts away quickly...I have never believed that trading on news is a good plan. Having said that, trading activity that becomes news is not the same as trying to trade just news and talking head's speculation.
Today, the market pulled back and the order was filled, along with another GTC order from last week from the same service. This particular stock took off today and gained over 7% in the AM, so we'll hang on for bit and see where it goes. The option could easily double and I may set my stop at that point (keeping in mind the stop order executions on the ask, not the bid) but it is expected to quadruple.
It is worth noting that the stock price at the order fill time was around $7.00. The option is the January 7.50 call and today it reached $7.50... the option was bought for 60 cents and now is at the point of gaining intrinsic value as well as extrinsic due to volatility I expect. As the price is sitting at the strike the option is bid at 90 cents, already a 50% gain without any added intrinsic value.
I bought 4 contracts. It certainly is nice to see a quick gain but it may just as easily drop back as quick. Had I been daytrading the stock I would have traded 400 shares (same as the option contracts 4x100 shares represented) and jumped out after the 50 cent mark for a clean $200.
Jeff.
All in and all out, committed to trade services testing
I closed the last of my own trades today for a profit, that was CAH that I referred to in the Stop Order post this morning. Now my account has exclusively trade advisory positions, ten of them.
So I am all in with service trades and all out with my trades.
I have one account that is all green , one that is neutral and one that is mostly red, but not by much. Overall they are down a bit but after last week's profits I am hardly concerned about a couple hundred in paper losses at this point.
My accounts are a margin account, an RRSP account and a TFSA. The TFSA is the account that I really want to concentrate on as it can produce tax free profits that are available to transfer to other trading accounts, let grow through compounding or just use. In that light I am migrating all of my trades over to it now. AS it is I have six trades in there and still have $2500 in buying power (cash, no margin). Seeing as my largest position was $4.00 for one contract and the rest are all under $300 even with 4 contracts I can easily squeeze 10 - 15 trades in here.
My next consideration is what to do with the RRSP account. I may cash it out, or most of it, and transfer to the trade service that I spoke about before with the dedicated brokerage. I have authority now (Kate trusts that I will not squander the money) to liquidate some other investments to fund the venture if I still feel it of value after the webinar on Wednesday. At least, unlike many of the services, this is not a "limited time", " must act now", " save 1/2 off" sort of deal. This is a regular business operation and, as such, I do expect a level of service above anything I have experienced so far in my trading.
Some of today's activity included entering two more trades and getting filled as the market has a smallish pullback. I need to reduce my time spent in front of the computer with trading now. using services MAY provide that once I get to a point of trusting them. The last service will provide this as they look after the filling of orders to open and to close based on my criteria. Even though there is an expense involved I think that I will find it worthwhile.
Jeff.
So I am all in with service trades and all out with my trades.
I have one account that is all green , one that is neutral and one that is mostly red, but not by much. Overall they are down a bit but after last week's profits I am hardly concerned about a couple hundred in paper losses at this point.
My accounts are a margin account, an RRSP account and a TFSA. The TFSA is the account that I really want to concentrate on as it can produce tax free profits that are available to transfer to other trading accounts, let grow through compounding or just use. In that light I am migrating all of my trades over to it now. AS it is I have six trades in there and still have $2500 in buying power (cash, no margin). Seeing as my largest position was $4.00 for one contract and the rest are all under $300 even with 4 contracts I can easily squeeze 10 - 15 trades in here.
My next consideration is what to do with the RRSP account. I may cash it out, or most of it, and transfer to the trade service that I spoke about before with the dedicated brokerage. I have authority now (Kate trusts that I will not squander the money) to liquidate some other investments to fund the venture if I still feel it of value after the webinar on Wednesday. At least, unlike many of the services, this is not a "limited time", " must act now", " save 1/2 off" sort of deal. This is a regular business operation and, as such, I do expect a level of service above anything I have experienced so far in my trading.
Some of today's activity included entering two more trades and getting filled as the market has a smallish pullback. I need to reduce my time spent in front of the computer with trading now. using services MAY provide that once I get to a point of trusting them. The last service will provide this as they look after the filling of orders to open and to close based on my criteria. Even though there is an expense involved I think that I will find it worthwhile.
Jeff.
Stop Orders and Options
I have placed a few stop orders in the past for some of my option positions but I have just placed limit orders more often in order to catch a particular profit level. As a result I was never totally sure of how the stop orders were executed.
I watched an order that I placed today on a position that I was looking to get out of. Maximizing profits was not my goal so I set a stop order. The spread was 30 cents and the bids ranged from $4.50 to $4.70 near the start of the day.
I noticed that, unlike a stop on a stock position, the stop was not triggered when the bid price hit the stop price. Stock stop orders get executed as market orders as soon as the bid hits the stop.
My stop was set for $4.50 and I moved it up to $4.60 as the bid moved up. I was trying to get hit but wanted to see how the execution occurred as the price moved so I kept my stop at the bid.
I eventually got hit and the position closed at $4.30. Seeing as the spread was 30 cents and upon checking the bid at the time of the order execution, it was $4.30.
So, as I suspected, the stop orders get executed when the ask hits the stop, not when the bid hits.
This certainly makes difference in how I will choose to place stops in the future as losing the spread all the time is not really what I have in mind.
For the record, VTSOs do not work, which makes sense as the trailing stop is set by the last trade price and options may not trade all day while the prices fluctuate wildly. I think that the VTSO could be easily tied to the bid or ask but that would take the broker changing their platform to accommodate this. I suspect that the market (NYSE, AMEX etc) will not support a VTSO directly and Questrade does not handle orders as they are strictly a direct access discount broker. The most they do is to hold GTC orders over.
Jeff.
I watched an order that I placed today on a position that I was looking to get out of. Maximizing profits was not my goal so I set a stop order. The spread was 30 cents and the bids ranged from $4.50 to $4.70 near the start of the day.
I noticed that, unlike a stop on a stock position, the stop was not triggered when the bid price hit the stop price. Stock stop orders get executed as market orders as soon as the bid hits the stop.
My stop was set for $4.50 and I moved it up to $4.60 as the bid moved up. I was trying to get hit but wanted to see how the execution occurred as the price moved so I kept my stop at the bid.
I eventually got hit and the position closed at $4.30. Seeing as the spread was 30 cents and upon checking the bid at the time of the order execution, it was $4.30.
So, as I suspected, the stop orders get executed when the ask hits the stop, not when the bid hits.
This certainly makes difference in how I will choose to place stops in the future as losing the spread all the time is not really what I have in mind.
For the record, VTSOs do not work, which makes sense as the trailing stop is set by the last trade price and options may not trade all day while the prices fluctuate wildly. I think that the VTSO could be easily tied to the bid or ask but that would take the broker changing their platform to accommodate this. I suspect that the market (NYSE, AMEX etc) will not support a VTSO directly and Questrade does not handle orders as they are strictly a direct access discount broker. The most they do is to hold GTC orders over.
Jeff.
Saturday, September 19, 2009
Option Strategy #2 - Covered Call or the Naked Put
The Covered Call, as I mentioned before, is a strategy that I can use in an RRSP account as I own the underlying stock then sell a call using the existing position as the base. I consider this a longer term trade with cashflow in mind rather than a straight trade for quick profits.
I can either already have the stock positing or buy it for the purpose of selling the call, it amounts to the same thing with one difference. Holding a long term position can net some dividends and I can sell calls against it many times to increase the real yield of the stock.
Let's assume that I own BAC stock. I just sold my last stock position Friday so I don't' have anything to actually do this with this week but I may look for one that I am familiar with to try it out, BAC is not actually on the list..
BTW, this has nothing to do with testing any services. Any options trades that are "recommended" are typically straight option buying or some sort of spread, I don't trade the spreads though.
BAC is trading around the $17.50 mark (US dollars here, for tax purposes I could only do this in an RRSP account as the dividends would be subject to a 15% with holding fee at the broker for any other account type.). Say I have 500 shares.
BAC currently pays a quarterly dividend of $0.01. That sucks, I wouldn't pick these guys for dividends for sure but let's say that I have the stock and I expect the dividends to go up and I want to keep the stock. So my 500 shares nets $20 per year...about 0.2% yield.
Weighing the odds of the price jumping past $20, I might decide that by this time in October it will not likely do that... so I will sell the October call at the $20 strike for 20 cents which puts $100 into my account.
Three things happen:
1) Stock price stays neutral, I keep the $100 and can sell another call in late October...perhaps for another $100... doing this every month and change creates an additional $1200 per year. That is a 13.7% yield.
2) Stock price drops to $15.00. Technically I have lost $2.50 per share ($1250 if I sold the stock then) and I still keep the $100 which slightly offsets my loss. I might select a stock with a better priced call option and a better dividend but this is a longer term plan, so I might choose to not sell the stock looking for a dividend and more call writing as I am looking at a cashflow rather than a capital gain. I could still be able to sell calls each month for the $100 (perhaps).
3) Stock price jumps over $20 by the expiration in October. The option buyer gets to exercise the option and "call" the position away from me at $20. If it was at $22 I would be selling my stock to them for the $20 strike price for a profit of $2.50 per share ($1250) and keeping the $100. Maximum profit is therefore $1350, but I knew this going in.
3 B) is that I see the price heading for the $20 mark I can buy back the option for about 80 cents ($400) and take the loss in order to keep the stock. This effectively closes the option trade. I can then immediately sell an option for a higher strike price to re-coupe some of that realized loss.
The maximum gain is limited for the trade but creates a cashflow that can increase the yield of an existing position. For the most part it is a no-brainer trade. The maximum loss is the cost of the stock if it should happen to go to zero, unlikely but possible, less any calls sold against it.
The naked put is a little different but amounts to the same thing. While the capital is not tied up in the underlying stock the broker will likely tie it up anyway as insurance against the put being exercised.
Sell 5 put contracts at the $15 strike for $0.17, total cash is $85.
1) & 2) If the price stays neutral or heads up I keep the $85 and there is no stock to be sold so that is the maximum profit.
3) If the price drops below $15 I will be forced to buy the stock from the buyer at the $15 strike price or I can buy the put back near the strike for about $0.75 and take that loss...assuming that the price looks like it might tumble.
Like the worst case above, if the stock should hit zero I would have to buy the stock from the buyer at the $15 creating a substantial loss. Unlike a naked call this is the maximum loss. A naked call loss is theoretically unlimited in the sense that a huge gap up and a run could force me to buy the stock at much higher prices in order to fill the exercised call.
In the final tally I think that I would rather execute spreads rather than covered calls due to the need to actually hold a stock to as cover, except for the fact that spreads are not RRSP eligible trades. I looked at strangles and they are basically a pair of naked calls and puts protected by corresponding puts and calls strategically placed to maximize profits and minimize losses. I'll look at the strangle later but they are limited profit plays with a much higher win rate. This gets me back to the cashflow idea and how it ties in with the US based trading service that I talked about already. Super high win rates can be better than 50/50 wins while trying to minimize losses. Certainly keeps emotions in check that way.
Jeff.
I can either already have the stock positing or buy it for the purpose of selling the call, it amounts to the same thing with one difference. Holding a long term position can net some dividends and I can sell calls against it many times to increase the real yield of the stock.
Let's assume that I own BAC stock. I just sold my last stock position Friday so I don't' have anything to actually do this with this week but I may look for one that I am familiar with to try it out, BAC is not actually on the list..
BTW, this has nothing to do with testing any services. Any options trades that are "recommended" are typically straight option buying or some sort of spread, I don't trade the spreads though.
BAC is trading around the $17.50 mark (US dollars here, for tax purposes I could only do this in an RRSP account as the dividends would be subject to a 15% with holding fee at the broker for any other account type.). Say I have 500 shares.
BAC currently pays a quarterly dividend of $0.01. That sucks, I wouldn't pick these guys for dividends for sure but let's say that I have the stock and I expect the dividends to go up and I want to keep the stock. So my 500 shares nets $20 per year...about 0.2% yield.
Weighing the odds of the price jumping past $20, I might decide that by this time in October it will not likely do that... so I will sell the October call at the $20 strike for 20 cents which puts $100 into my account.
Three things happen:
1) Stock price stays neutral, I keep the $100 and can sell another call in late October...perhaps for another $100... doing this every month and change creates an additional $1200 per year. That is a 13.7% yield.
2) Stock price drops to $15.00. Technically I have lost $2.50 per share ($1250 if I sold the stock then) and I still keep the $100 which slightly offsets my loss. I might select a stock with a better priced call option and a better dividend but this is a longer term plan, so I might choose to not sell the stock looking for a dividend and more call writing as I am looking at a cashflow rather than a capital gain. I could still be able to sell calls each month for the $100 (perhaps).
3) Stock price jumps over $20 by the expiration in October. The option buyer gets to exercise the option and "call" the position away from me at $20. If it was at $22 I would be selling my stock to them for the $20 strike price for a profit of $2.50 per share ($1250) and keeping the $100. Maximum profit is therefore $1350, but I knew this going in.
3 B) is that I see the price heading for the $20 mark I can buy back the option for about 80 cents ($400) and take the loss in order to keep the stock. This effectively closes the option trade. I can then immediately sell an option for a higher strike price to re-coupe some of that realized loss.
The maximum gain is limited for the trade but creates a cashflow that can increase the yield of an existing position. For the most part it is a no-brainer trade. The maximum loss is the cost of the stock if it should happen to go to zero, unlikely but possible, less any calls sold against it.
The naked put is a little different but amounts to the same thing. While the capital is not tied up in the underlying stock the broker will likely tie it up anyway as insurance against the put being exercised.
Sell 5 put contracts at the $15 strike for $0.17, total cash is $85.
1) & 2) If the price stays neutral or heads up I keep the $85 and there is no stock to be sold so that is the maximum profit.
3) If the price drops below $15 I will be forced to buy the stock from the buyer at the $15 strike price or I can buy the put back near the strike for about $0.75 and take that loss...assuming that the price looks like it might tumble.
Like the worst case above, if the stock should hit zero I would have to buy the stock from the buyer at the $15 creating a substantial loss. Unlike a naked call this is the maximum loss. A naked call loss is theoretically unlimited in the sense that a huge gap up and a run could force me to buy the stock at much higher prices in order to fill the exercised call.
In the final tally I think that I would rather execute spreads rather than covered calls due to the need to actually hold a stock to as cover, except for the fact that spreads are not RRSP eligible trades. I looked at strangles and they are basically a pair of naked calls and puts protected by corresponding puts and calls strategically placed to maximize profits and minimize losses. I'll look at the strangle later but they are limited profit plays with a much higher win rate. This gets me back to the cashflow idea and how it ties in with the US based trading service that I talked about already. Super high win rates can be better than 50/50 wins while trying to minimize losses. Certainly keeps emotions in check that way.
Jeff.
Wednesday, September 16, 2009
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.
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.
More profits taken
I sold off a position this morning for a nice $1.20 and have two more that are at $1 and $1.90 that I have set limits or stops for. Closed MS yesterday for a 50 cent loss just to get out of that one. It was down over $1.50 a while ago and I had no faith that it was going to move quickly... No sense in worrying about it anymore.
All in all the last four or five days have been profitable, considering my small trade sizes I cleared over $600 in four trades not counting the two to close today or tomorrow and not counting my first profit taking of about $120 to close some other non-movers last week.
One of these days I will get going with a progress report on my homepage... although I am phasing out my P&F in favour of testing these services I am not sure that I can lay claim to any great insights ... so progress is a more appropriate term than performance.
Oh well, money made is money made no matter the method, within reason.
Quick mention about these service fees. I am tracking which trades go with which service so I can determine which ones may or may not be keepers. If they pay for themselves in their trial period then they are keepers, otherwise I will likely give them the boot. Just like trading, no emotions in these decisions. No attachment or obligation makes it easy to decide and easy to execute.
Now this other expensive one is a whole other matter.
Jeff.
All in all the last four or five days have been profitable, considering my small trade sizes I cleared over $600 in four trades not counting the two to close today or tomorrow and not counting my first profit taking of about $120 to close some other non-movers last week.
One of these days I will get going with a progress report on my homepage... although I am phasing out my P&F in favour of testing these services I am not sure that I can lay claim to any great insights ... so progress is a more appropriate term than performance.
Oh well, money made is money made no matter the method, within reason.
Quick mention about these service fees. I am tracking which trades go with which service so I can determine which ones may or may not be keepers. If they pay for themselves in their trial period then they are keepers, otherwise I will likely give them the boot. Just like trading, no emotions in these decisions. No attachment or obligation makes it easy to decide and easy to execute.
Now this other expensive one is a whole other matter.
Jeff.
A more advanced option trading service
Of course more advanced means more expensive. More than $4K CDN start up plus some access and commission fees as this is a broker/trader platform that only works with one broker...and it is a US company. Now, they have a track record in the sense that they have been around since 2000 or so and I can back test to 2004.
The core assumption that the system is based on is that close to 75% of all options sold expire un-exercised...this is a loss to the buyer and a gain to the seller. That alone is quite an edge over just buying options. I sort of knew that I was going to need to get into selling options in order to secure a smoother cash flow and I also knew that a lot of options expire worthless...but I didn't know the numbers.
The second assumption is that big winning home runs are not looked for. They promote the idea of very tight risk management that will, by it's nature, provide a good return compared to any other investment vehicle. In this, compounding, even though they don't mention it, will turn a small account into a decent size rather quickly.
The strategy is sound and my back testing has yielded an over all win rate higher than anything I have back tested yet... in fact in 2009 I have yet to produce a single losing trade. Looking at their strategy, this is plain to see why. The only "worst case" scenario involves a huge run up or sell off in the market and I think that they tweak things to accommodate this on the fly, somewhat.
I was able to create some large losses in September last year as there was a bad run down in the market which fell outside of the current strategy parameters...it may not have been near as bad as I tested as I was just going with current settings and strict exit criteria. Pulling out of the hole that I virtually dug in September and October took me until May or so. I must admit that a hole in a mutual find account would still be there. Plodding along doing the exact same thing for each trade using the same strategy and same index (I won't get into what they trade but suffice it to say these are not stock options) worked. I expect that I could have mitigated the loss by not trading when risk factors were high in that month and boosted the returns by selecting trades that had higher risk/reward numbers initially and shorter time lines.
They have a 30 day money back exit guarantee and a 10 trade guarantee to have the initial fee reimbursed while still staying with the program. Now they specify which trade strategy that this guarantee applies to and I can see that they are next to guaranteed that they will never have to pay me back should I sign up. But, in that case I will have paid for it through trading anyway... win, win.
There are downsides to even trying this as it is a US company and I am not sure how the taxation applies to me yet. They do let me paper trade the service for free first, which is nice, but setting up an account through them could be onerous and I may have to do some sort of online US banking.
They use a proprietary formula to determine trade entries, exits and monitoring. The trades are complicated enough that I would not really want to have to try to set them up myself, at this point. Commissions alone in my current account for a single trade would amount to $152 USD. The paper trade setup accounts for commissions through their system so my testing is not "frictionless".
The trading appears to be easy enough. They make about 10 recommendations each day. I select the style of trade from three styles, select the size of base trade and pick which ever one has the shortest duration, select how many units and hit "Trade"... more or less. Then check the position each day to determine if is remains a keeper or to close it due to high risk factor. They look after making the corresponding trades (up to six trades for a single position) and send a notification as to whether the trade was filled or not. Oh, there is an allowance for how far outside the trade prices that I am willing to go to get the trade filled.
I think that there is also an automatic exit setup that will close a trade at a certain point that I determine ahead of time as well, sort of a stop loss even though that is easily looked after by checking myself.
They make their money from the commissions, data fees (loosely speaking there are data fees monthly) and I don't doubt that they take some from the spreads during the trades as well.
All in all this looks like a decent system and I am seriously considering trying it. There would be a significant cash outlay to test this though. The 10 trade guarantee uses minimum trades that are in the $16,000 range...US. I cannot do this through an RRSP so there would be tax implications in the spring. My 10 trades would take about 10 months to complete if I were not able to do multiple trades, which I won't. Putting up $20K seems like a lot...but how much have I dumped into mutual funds hoping for the best? My wife has just given me the OK to transfer her RRSP account to trade but I really hesitate to do that just yet. My RRSP is play money, hers is not.
My other option would be to dump $10,000 USD into this and go with the smaller trades, about $1000 per trade and run them like a laddered GIC plan, one trade per week and roll them over as they expire or close. I would consider the $4K cost as a trade deficit to start so I would not be tempted to pull cash out for anything and I could continue with my RRSP and TFSA trading in my CDN account.
I am torn as I see the huge long term potential here.
I have been in one of their webinars, done some serious playing in a test account and have booked another webinar next week. Overall I have about 6 hours into this so far. I think that this company is willing to spend the time to get anyone up to speed and help facilitate the account setup and funding...after all, it is their business.
Jeff.
The core assumption that the system is based on is that close to 75% of all options sold expire un-exercised...this is a loss to the buyer and a gain to the seller. That alone is quite an edge over just buying options. I sort of knew that I was going to need to get into selling options in order to secure a smoother cash flow and I also knew that a lot of options expire worthless...but I didn't know the numbers.
The second assumption is that big winning home runs are not looked for. They promote the idea of very tight risk management that will, by it's nature, provide a good return compared to any other investment vehicle. In this, compounding, even though they don't mention it, will turn a small account into a decent size rather quickly.
The strategy is sound and my back testing has yielded an over all win rate higher than anything I have back tested yet... in fact in 2009 I have yet to produce a single losing trade. Looking at their strategy, this is plain to see why. The only "worst case" scenario involves a huge run up or sell off in the market and I think that they tweak things to accommodate this on the fly, somewhat.
I was able to create some large losses in September last year as there was a bad run down in the market which fell outside of the current strategy parameters...it may not have been near as bad as I tested as I was just going with current settings and strict exit criteria. Pulling out of the hole that I virtually dug in September and October took me until May or so. I must admit that a hole in a mutual find account would still be there. Plodding along doing the exact same thing for each trade using the same strategy and same index (I won't get into what they trade but suffice it to say these are not stock options) worked. I expect that I could have mitigated the loss by not trading when risk factors were high in that month and boosted the returns by selecting trades that had higher risk/reward numbers initially and shorter time lines.
They have a 30 day money back exit guarantee and a 10 trade guarantee to have the initial fee reimbursed while still staying with the program. Now they specify which trade strategy that this guarantee applies to and I can see that they are next to guaranteed that they will never have to pay me back should I sign up. But, in that case I will have paid for it through trading anyway... win, win.
There are downsides to even trying this as it is a US company and I am not sure how the taxation applies to me yet. They do let me paper trade the service for free first, which is nice, but setting up an account through them could be onerous and I may have to do some sort of online US banking.
They use a proprietary formula to determine trade entries, exits and monitoring. The trades are complicated enough that I would not really want to have to try to set them up myself, at this point. Commissions alone in my current account for a single trade would amount to $152 USD. The paper trade setup accounts for commissions through their system so my testing is not "frictionless".
The trading appears to be easy enough. They make about 10 recommendations each day. I select the style of trade from three styles, select the size of base trade and pick which ever one has the shortest duration, select how many units and hit "Trade"... more or less. Then check the position each day to determine if is remains a keeper or to close it due to high risk factor. They look after making the corresponding trades (up to six trades for a single position) and send a notification as to whether the trade was filled or not. Oh, there is an allowance for how far outside the trade prices that I am willing to go to get the trade filled.
I think that there is also an automatic exit setup that will close a trade at a certain point that I determine ahead of time as well, sort of a stop loss even though that is easily looked after by checking myself.
They make their money from the commissions, data fees (loosely speaking there are data fees monthly) and I don't doubt that they take some from the spreads during the trades as well.
All in all this looks like a decent system and I am seriously considering trying it. There would be a significant cash outlay to test this though. The 10 trade guarantee uses minimum trades that are in the $16,000 range...US. I cannot do this through an RRSP so there would be tax implications in the spring. My 10 trades would take about 10 months to complete if I were not able to do multiple trades, which I won't. Putting up $20K seems like a lot...but how much have I dumped into mutual funds hoping for the best? My wife has just given me the OK to transfer her RRSP account to trade but I really hesitate to do that just yet. My RRSP is play money, hers is not.
My other option would be to dump $10,000 USD into this and go with the smaller trades, about $1000 per trade and run them like a laddered GIC plan, one trade per week and roll them over as they expire or close. I would consider the $4K cost as a trade deficit to start so I would not be tempted to pull cash out for anything and I could continue with my RRSP and TFSA trading in my CDN account.
I am torn as I see the huge long term potential here.
I have been in one of their webinars, done some serious playing in a test account and have booked another webinar next week. Overall I have about 6 hours into this so far. I think that this company is willing to spend the time to get anyone up to speed and help facilitate the account setup and funding...after all, it is their business.
Jeff.
RRSP, TFSA, Margin and option strategies.
I decided that I want to start selling option contracts so I figured that I better know what I can and cannot do within my various accounts.
MARGIN ACCOUNT:
I can do pretty much anything although the complexity of some of the strategies somewhat restricts my activities only due to the platform being not as options strategy friendly as it could be. I might review the Elite platform and see how it fairs compared to the Pro package.
Level 1
I can buy options with a $1000 account startup and can continue to do so as long as the net worth of the account remains above $250.
Level 2
I can sell covered calls as long as the account balance is $2500. For this I have to already hold the underlying stock so it is a bit of a cash creation strategy only based on a core position. The difference between 2 and 3 are slight but are delineated for the purpose of taxation and registered accounts.
Level 3
Spreads and straddles are allowed, although I can trade a straddle without being "authorized" as it is really just two long trades. I think that perhaps the trades are somehow tied together when done as an official "straddle" as it specifies the simultaneous call and put at the same strike price.
The Spread is buying one option and selling another against it. Buy the 20 strike call and sell the 15 strike put for example. The call is a long position that is the same as holding the stock so that if the put is exercised and you are forced to buy the stock, my call is also exercised to cover this as I buy the stock at the call strike price. In that case the premium I made selling the put goes against the loss off being put the stock and executing the option at the higher strike, creating a loss. The spread is a limited risk scenario without holding stocks as even if the stock hit zero my total loss is fixed.
Level 4
$25,000 minimum account size.
Uncovered writing. Basically I can sell calls and puts without any safety net as I may have them exercised at whatever the going prices are. This is a very risky trade plan and not something I would even consider unless I wanted to sell puts and I didn't care if I ended up owning the stock. Selling naked calls is just plain dumb, in my opinion, as if a call gets exercised I don't end up with anything other than a an uncontrolled loss.
Now, in a registered account, RRSP or TFSA, I know I cannot short stocks so I would expect that level 4 is not an option, uncovered writing. Level 3 might not be because the option trades are setup as a money making venture as opposed to a position protection measure. This I was not certain of but I have confirmed it.
Registered accounts can only trade level 1 or 2.
OK, this puts me at a disadvantage in my plans going forward. I would like to be able to trade a variety of strategies that are not allowed in a tax sheltered account so I will have to accommodate the eventual taxation of a portion of my trading activities.
Jeff.
MARGIN ACCOUNT:
I can do pretty much anything although the complexity of some of the strategies somewhat restricts my activities only due to the platform being not as options strategy friendly as it could be. I might review the Elite platform and see how it fairs compared to the Pro package.
Level 1
I can buy options with a $1000 account startup and can continue to do so as long as the net worth of the account remains above $250.
Level 2
I can sell covered calls as long as the account balance is $2500. For this I have to already hold the underlying stock so it is a bit of a cash creation strategy only based on a core position. The difference between 2 and 3 are slight but are delineated for the purpose of taxation and registered accounts.
Level 3
Spreads and straddles are allowed, although I can trade a straddle without being "authorized" as it is really just two long trades. I think that perhaps the trades are somehow tied together when done as an official "straddle" as it specifies the simultaneous call and put at the same strike price.
The Spread is buying one option and selling another against it. Buy the 20 strike call and sell the 15 strike put for example. The call is a long position that is the same as holding the stock so that if the put is exercised and you are forced to buy the stock, my call is also exercised to cover this as I buy the stock at the call strike price. In that case the premium I made selling the put goes against the loss off being put the stock and executing the option at the higher strike, creating a loss. The spread is a limited risk scenario without holding stocks as even if the stock hit zero my total loss is fixed.
Level 4
$25,000 minimum account size.
Uncovered writing. Basically I can sell calls and puts without any safety net as I may have them exercised at whatever the going prices are. This is a very risky trade plan and not something I would even consider unless I wanted to sell puts and I didn't care if I ended up owning the stock. Selling naked calls is just plain dumb, in my opinion, as if a call gets exercised I don't end up with anything other than a an uncontrolled loss.
Now, in a registered account, RRSP or TFSA, I know I cannot short stocks so I would expect that level 4 is not an option, uncovered writing. Level 3 might not be because the option trades are setup as a money making venture as opposed to a position protection measure. This I was not certain of but I have confirmed it.
Registered accounts can only trade level 1 or 2.
OK, this puts me at a disadvantage in my plans going forward. I would like to be able to trade a variety of strategies that are not allowed in a tax sheltered account so I will have to accommodate the eventual taxation of a portion of my trading activities.
Jeff.
Monday, September 14, 2009
Profits taken again
Today was a profit taking day for one position. This was an advisory trade so it remains un-named for now.
It turned a 71.25% profit in the about two weeks that I held it. I bought in for $1 and sold at $1.7125 and I held 4 contracts so that was a nice $285 US.
I also entered two more trades today to keep the action moving. Basically I am building my portfolio based on option trades and hope to add more than I sell to have a regular flow of activity... profits more than losses should be the norm. Seeing as I am four for four winners right now I am satisfied. I still have my Morgan Stanley trade that is wallowing a little south of zero, so I will see where that one goes int he future.
I feel a little reluctant to start posting performance as the performance is starting to be not of my own direct making. I have put my P&F trading on hold while I continue to try these option trading advisories. I will sell off my P&F positions as they become profitable but will, for the time being, enter no new ones.
I need to update my account to allow covered calls and puts, which should give me access to certain types of spread trades...I will need to contact my broker to get trade execution details to be sure that these work as I expect them too.
Jeff.
It turned a 71.25% profit in the about two weeks that I held it. I bought in for $1 and sold at $1.7125 and I held 4 contracts so that was a nice $285 US.
I also entered two more trades today to keep the action moving. Basically I am building my portfolio based on option trades and hope to add more than I sell to have a regular flow of activity... profits more than losses should be the norm. Seeing as I am four for four winners right now I am satisfied. I still have my Morgan Stanley trade that is wallowing a little south of zero, so I will see where that one goes int he future.
I feel a little reluctant to start posting performance as the performance is starting to be not of my own direct making. I have put my P&F trading on hold while I continue to try these option trading advisories. I will sell off my P&F positions as they become profitable but will, for the time being, enter no new ones.
I need to update my account to allow covered calls and puts, which should give me access to certain types of spread trades...I will need to contact my broker to get trade execution details to be sure that these work as I expect them too.
Jeff.
Friday, September 11, 2009
Advisory services... change of heart?
I signed up for one more option trading service to try out. Another 90 day trial. This one has a lot of technical analysis going on. The advantage may be in the stock picks rather than the charting as looking for the particular patterns used in this system would be a lot of work without some nice software to run the scans. I tried some software that would do some of this and it was more expensive than the services, by far.
I have had a bias against signing up for these types of services in the past as I felt that it amounted to trying to take the easy way out and that is not like me. I have always felt the need to "do it myself" so that I know exactly what I am doing and what I am getting into. Even when doing work around the house the only things that I generally will hire out are windows, carpets and roofs.
Anyway, having three currently active services, all still on trial, is kind of cool in that I am getting email alerts every day and can choose to take the trade or not. While most of the work is done for me I begin to wonder if it is like the windows, carpets and roofs. It has never been that I cannot do the work. With windows I get full manufacturer's warranties, same with carpets but I also like my knees too much to do carpets. Roofs...well that is just hot and hard and if I screw it up it can ruin a lot of interior work with water damage.
So with options, I know how to select the right option for my style now. By following a trade plan I know that I can (and have) generated profits. Perhaps using a paid for service is not as bad as I figured it might be.
I may have already mentioned that if any service can cover it's cost in the trial period I may keep it and see where it may go. If all three perform in that manner then it allows me a certain amount of diversification over and above the options themselves as each applies it's own style within the market that they do best in.
So my debunking may have converted me.
Jeff.
I have had a bias against signing up for these types of services in the past as I felt that it amounted to trying to take the easy way out and that is not like me. I have always felt the need to "do it myself" so that I know exactly what I am doing and what I am getting into. Even when doing work around the house the only things that I generally will hire out are windows, carpets and roofs.
Anyway, having three currently active services, all still on trial, is kind of cool in that I am getting email alerts every day and can choose to take the trade or not. While most of the work is done for me I begin to wonder if it is like the windows, carpets and roofs. It has never been that I cannot do the work. With windows I get full manufacturer's warranties, same with carpets but I also like my knees too much to do carpets. Roofs...well that is just hot and hard and if I screw it up it can ruin a lot of interior work with water damage.
So with options, I know how to select the right option for my style now. By following a trade plan I know that I can (and have) generated profits. Perhaps using a paid for service is not as bad as I figured it might be.
I may have already mentioned that if any service can cover it's cost in the trial period I may keep it and see where it may go. If all three perform in that manner then it allows me a certain amount of diversification over and above the options themselves as each applies it's own style within the market that they do best in.
So my debunking may have converted me.
Jeff.
Selloff for profits
I sold off a couple of positions and a partial position today to lock in some profits.
AEO went for a nice $1.60 gain (36%) after a sharp runup today. COP I dropped as I decided to just break even on it, still it was up 30 cents (3.8%) as I used a limit order rather than a stop so I made a couple of bucks. One of my recommendations I sold half of for a 45 cent profit, (100%) and I will let the balance of the position stay active as the profit pays for the entire position as it was bought for 45 cents. In that case I cannot now lose money even if it bottoms out completely so this lets me "let it ride". My trade sizes have typically not allowed this to be an option as commissions were too high to justify the extra trade.
Everything else is green except for my Morgan Stanley position, it hovers around breakeven now so I will put a stop on it I expect so it doesn't get back down to the -$1.50 mark on me again.
Jeff.
AEO went for a nice $1.60 gain (36%) after a sharp runup today. COP I dropped as I decided to just break even on it, still it was up 30 cents (3.8%) as I used a limit order rather than a stop so I made a couple of bucks. One of my recommendations I sold half of for a 45 cent profit, (100%) and I will let the balance of the position stay active as the profit pays for the entire position as it was bought for 45 cents. In that case I cannot now lose money even if it bottoms out completely so this lets me "let it ride". My trade sizes have typically not allowed this to be an option as commissions were too high to justify the extra trade.
Everything else is green except for my Morgan Stanley position, it hovers around breakeven now so I will put a stop on it I expect so it doesn't get back down to the -$1.50 mark on me again.
Jeff.
Thursday, September 10, 2009
On trading advisory services
Well,
I still have two trial subscriptions for option trading services. I find that they are more information scanners for me as I may or may not make the trade that they suggest. One has a 90 day trial which is actually pretty good as that gives me time to really run it through it's paces. They also include a blurb that guarantees 9 money doubling trades in that period but I can still cancel even if those are met, no strings. This one does some decent checking on the stock as well as the typical data scan and they do not pull in much "technical" chart analysis that is easy for anyone to do.
The other only has a 30 day guarantee and uses more chart analysis... although it is a cheaper service.
Having said that both have access to information that I do not, or will not, choose to pay for as it would be more expensive than paying them. I have open trades from each of the services now.
Both have almost covered the initial cost with the trades that I have taken. The more expensive as given more trades and profitable positions so far (none sold yet) and the cheaper only one active trade, as I have had it for less time mainly but it does provide fewer trades overall.
I may keep one or both if they prove fruitful while still running my own trading alongside...seeing as options are cheaper I can do that easily enough.
I have not quoted any figures or trades from these yet but I have 60%, 44%, 55% with one that is -20% and some others just in the green.
These numbers are a little deceptive, or can be. My trades have been deeper ITM so the percentage will be lower even though the actual dollar return may be higher. Some of the service trades were smaller ATM or OTM trades so 60% is not as impressive...until I count that I took a 4 contract position in that case due to the low cost. That is not too high as the trade was for $1 options and I would have bought 300 shares of the underlying stock had I bought the stock and both cash returns would be in the same ballpark.
I need to rethink my loss allowance on these smaller trades and make use of some of the leverage available at some of these $1 or less options. I could have made the one trade with 6 contracts and been at my loss allowance as I would stop them at 50% loss or $300. These have opened my eyes to the ATM trades as being not as scary as some may have led me to believe.
Like anything else in the trading game, risk and loss management are the key to profits, or at least the key to still being around to play the game.
I hope not to gain a reliance on advisory services so I am learning what they use and finding other ways to gain the same sort of information. These two seem to be on the ball where all of the others I have seen and tried (some were very expensive) have missed the mark altogether.
Jeff.
I still have two trial subscriptions for option trading services. I find that they are more information scanners for me as I may or may not make the trade that they suggest. One has a 90 day trial which is actually pretty good as that gives me time to really run it through it's paces. They also include a blurb that guarantees 9 money doubling trades in that period but I can still cancel even if those are met, no strings. This one does some decent checking on the stock as well as the typical data scan and they do not pull in much "technical" chart analysis that is easy for anyone to do.
The other only has a 30 day guarantee and uses more chart analysis... although it is a cheaper service.
Having said that both have access to information that I do not, or will not, choose to pay for as it would be more expensive than paying them. I have open trades from each of the services now.
Both have almost covered the initial cost with the trades that I have taken. The more expensive as given more trades and profitable positions so far (none sold yet) and the cheaper only one active trade, as I have had it for less time mainly but it does provide fewer trades overall.
I may keep one or both if they prove fruitful while still running my own trading alongside...seeing as options are cheaper I can do that easily enough.
I have not quoted any figures or trades from these yet but I have 60%, 44%, 55% with one that is -20% and some others just in the green.
These numbers are a little deceptive, or can be. My trades have been deeper ITM so the percentage will be lower even though the actual dollar return may be higher. Some of the service trades were smaller ATM or OTM trades so 60% is not as impressive...until I count that I took a 4 contract position in that case due to the low cost. That is not too high as the trade was for $1 options and I would have bought 300 shares of the underlying stock had I bought the stock and both cash returns would be in the same ballpark.
I need to rethink my loss allowance on these smaller trades and make use of some of the leverage available at some of these $1 or less options. I could have made the one trade with 6 contracts and been at my loss allowance as I would stop them at 50% loss or $300. These have opened my eyes to the ATM trades as being not as scary as some may have led me to believe.
Like anything else in the trading game, risk and loss management are the key to profits, or at least the key to still being around to play the game.
I hope not to gain a reliance on advisory services so I am learning what they use and finding other ways to gain the same sort of information. These two seem to be on the ball where all of the others I have seen and tried (some were very expensive) have missed the mark altogether.
Jeff.
Plan the trade and trade the plan
I don't know how many times I've said this in the past but I have probably deviated as many times as I say it. Lately I have not followed my plan, with various good reasons I suppose.
I have all of my picks charted and all of the charts have nice clean trigger prices. The previous trades missed were the gold trio that I follow. They peaked and are dropping back again so that would have been two of three nice profitable trades... and could have been executed right by the charts.
I noticed three others this morning that also could have been traded profitably right by the charts and I have only found one or two that would have been questionable flat trades to possibly small losses. What this amounts to is I should have just followed the setups exactly as I planned them.
I think my trouble has been that I am converting to options and am hesitant to get into stock trades so I put off checking the options for each of these setups. I have eight trades in process and I am only using 1/4 of my capital whereas trading the stocks would have me all in. While specifically not trading stocks and not checking the options for these soon to be triggered stocks I am missing the boat.
Next step...
I am going to pare down my stocks as some are not performing according to my criteria. I expect to drop at least ten from the list. Then I will be going back to the drawing board and visually scanning for a slightly wider price range of stocks to choose from. Last time I went from 700 to 50, or so. I ended up with an over weighting of stocks that started with A and C as I was not as discriminating until I got going into the list.
I don't expect to be fully up on option selections and charted stocks until next week now but I do plan on sticking to the plan closer once I am there.
Jeff.
I have all of my picks charted and all of the charts have nice clean trigger prices. The previous trades missed were the gold trio that I follow. They peaked and are dropping back again so that would have been two of three nice profitable trades... and could have been executed right by the charts.
I noticed three others this morning that also could have been traded profitably right by the charts and I have only found one or two that would have been questionable flat trades to possibly small losses. What this amounts to is I should have just followed the setups exactly as I planned them.
I think my trouble has been that I am converting to options and am hesitant to get into stock trades so I put off checking the options for each of these setups. I have eight trades in process and I am only using 1/4 of my capital whereas trading the stocks would have me all in. While specifically not trading stocks and not checking the options for these soon to be triggered stocks I am missing the boat.
Next step...
I am going to pare down my stocks as some are not performing according to my criteria. I expect to drop at least ten from the list. Then I will be going back to the drawing board and visually scanning for a slightly wider price range of stocks to choose from. Last time I went from 700 to 50, or so. I ended up with an over weighting of stocks that started with A and C as I was not as discriminating until I got going into the list.
I don't expect to be fully up on option selections and charted stocks until next week now but I do plan on sticking to the plan closer once I am there.
Jeff.
Wednesday, September 9, 2009
CMC accidental sale...DRAT!
I was looking at my CMC option position just before lunch and decided to place a stop order to secure some profits as it was up to $6.30. I was going to set $6 for today.
By accident, and I have VERY seldom done this, I sold the option at a limit of $6 as I forgot to select the STOP box.
The only good side is that at least I got the $6.30 price so my profit was $1.20 per share. I had been considering selling the option as the stock has hit a recent resistance level at the $18 to $18.50 zone...it was as high as $18.65 and I suspect that it may have more room to move...another $1 I had aimed for anyway.
Seeing as I dumped my CAH put option side of the straddle this morning for a loss, this one covers that loss and change. The call for CAH was increasing at a much loser rate than the put was decreasing... the discrepancy was due to the spin off and symbol changes. I may look for another long straddle for next week, or at least after this run up has run it's course.
I had considered dumping both sides of the straddle and starting with a different call for CAH fully expecting the price of the stock to rise following the change, I decided to save the extra commission and just hold the call that I already had.
Having said that, I would have bought calls that were closer to the strike price, or even the first call that was out of the money. These calls are far cheaper which leads to another thought about ATM call trades.
Jeff.
By accident, and I have VERY seldom done this, I sold the option at a limit of $6 as I forgot to select the STOP box.
The only good side is that at least I got the $6.30 price so my profit was $1.20 per share. I had been considering selling the option as the stock has hit a recent resistance level at the $18 to $18.50 zone...it was as high as $18.65 and I suspect that it may have more room to move...another $1 I had aimed for anyway.
Seeing as I dumped my CAH put option side of the straddle this morning for a loss, this one covers that loss and change. The call for CAH was increasing at a much loser rate than the put was decreasing... the discrepancy was due to the spin off and symbol changes. I may look for another long straddle for next week, or at least after this run up has run it's course.
I had considered dumping both sides of the straddle and starting with a different call for CAH fully expecting the price of the stock to rise following the change, I decided to save the extra commission and just hold the call that I already had.
Having said that, I would have bought calls that were closer to the strike price, or even the first call that was out of the money. These calls are far cheaper which leads to another thought about ATM call trades.
Jeff.
Tuesday, September 8, 2009
Asleep at the wheel...
... or so it would seem.
I just went through and checked my charts this morning and see that I missed entry points on three stocks, COG, GLW and GNK. All would be long positions taken and all would be headed back up now... of course the trigger and entry prices have all been passed. There were two others that also hit my triggers but I don't think I would trade them. In fact I may be dropping a few from my list as they are not moving enough to qualify for my time frame moves.
I am not going to track these for "lost profits" as that is tough to do using options the way the chains and pricing works... although I will mentally note the move as it happens.
I am concentrating on playing with options and lately I have not had the time, or taken the time, to check the various options for each possible trade that comes up. Last week I jumped on CVA and CMC after placing orders for the stocks, then switching the stock orders out for option orders once I had the necessary numbers and option selected.
Today I see enough green in my account to keep me satisfied, now I have to start considering which options I might want to take profits on...or where to take the profits. The one step I have not covered adequately is my intended option profit target based on the stock price move. My spreadsheet has the calculations necessary but I just have not forecasted the stock price to convert.
Jeff.
I just went through and checked my charts this morning and see that I missed entry points on three stocks, COG, GLW and GNK. All would be long positions taken and all would be headed back up now... of course the trigger and entry prices have all been passed. There were two others that also hit my triggers but I don't think I would trade them. In fact I may be dropping a few from my list as they are not moving enough to qualify for my time frame moves.
I am not going to track these for "lost profits" as that is tough to do using options the way the chains and pricing works... although I will mentally note the move as it happens.
I am concentrating on playing with options and lately I have not had the time, or taken the time, to check the various options for each possible trade that comes up. Last week I jumped on CVA and CMC after placing orders for the stocks, then switching the stock orders out for option orders once I had the necessary numbers and option selected.
Today I see enough green in my account to keep me satisfied, now I have to start considering which options I might want to take profits on...or where to take the profits. The one step I have not covered adequately is my intended option profit target based on the stock price move. My spreadsheet has the calculations necessary but I just have not forecasted the stock price to convert.
Jeff.
Sunday, September 6, 2009
Trade signal services...addendum
I received another offer for an options trading advisory service or signal service.
This guarantee is deceiving. All of the others that I have looked at have had unconditional guarantees, satisfaction of money back in x days. This one states guaranteed 37 winning trades in six months or money back. Well, that sounds OK, 6 trades a month winners?
Reading farther, I find that I have to read the whole thing to get the proper perspective on this, there is no mention of the win vs lose rate, just a 37 winning trade threshold. Later it does state 8 - 10 trades per week.
WHOOA! That's a minimum of 192 trades and up to 240 trades...and he is only going guarantee 37 are winners? What constitutes a winner? 5% return? 50% return...probably anything that is not zero or less by definition.
That is fewer than 1 in 5 winning trades and worse, no guaranteed return rate.
The trades appear to be OTM options so the entire trade is risk. Assume straight odds to keep my math to a minimum, and of every 5 trades 1 wins (losing runs at this rate could easily be much longer than 4 losers in a row) then the minimum return needs to be substantial
Discounting commissions each winning trade would have to net 400% for every single winning trade just to break even. With single contracts the return needs to be higher yet as the commissions have to be covered for the losing trades as well which translates into over 520% rate of return minimum to actually break even.
OUCH!
Other services have quoted that they will return double there cost in a certain period as well as the unconditional guarantee in the first place.
It certainly pays to read and understand what is really being said in any offer.
Jeff.
This guarantee is deceiving. All of the others that I have looked at have had unconditional guarantees, satisfaction of money back in x days. This one states guaranteed 37 winning trades in six months or money back. Well, that sounds OK, 6 trades a month winners?
Reading farther, I find that I have to read the whole thing to get the proper perspective on this, there is no mention of the win vs lose rate, just a 37 winning trade threshold. Later it does state 8 - 10 trades per week.
WHOOA! That's a minimum of 192 trades and up to 240 trades...and he is only going guarantee 37 are winners? What constitutes a winner? 5% return? 50% return...probably anything that is not zero or less by definition.
That is fewer than 1 in 5 winning trades and worse, no guaranteed return rate.
The trades appear to be OTM options so the entire trade is risk. Assume straight odds to keep my math to a minimum, and of every 5 trades 1 wins (losing runs at this rate could easily be much longer than 4 losers in a row) then the minimum return needs to be substantial
Discounting commissions each winning trade would have to net 400% for every single winning trade just to break even. With single contracts the return needs to be higher yet as the commissions have to be covered for the losing trades as well which translates into over 520% rate of return minimum to actually break even.
OUCH!
Other services have quoted that they will return double there cost in a certain period as well as the unconditional guarantee in the first place.
It certainly pays to read and understand what is really being said in any offer.
Jeff.
Friday, September 4, 2009
Trade Signal Services... a bit of debunking.
I've been testing some trade signal services in the background, I may have alluded to that in the past but I thought that I would put it out there now as I am doing a fair amount of that now. I figure that I may as well see if there is any truth in the hubbub.
My plan has been to sign up, pay the cost, do some back testing on previous trades that they have logged then do some testing with current trades. If the current trades, during the trial period, cover the entire cost of the membership then I may continue using them. So far I have ended up cancelling every one except two, those two are still in testing as their trial periods have not expired.
Some of these have been $2500 up front which includes an annual membership, others as little as $500 for the same time period. This is certainly not a case of you get what you pay for.
I have found that most are upfront with any guarantees and have been quick with processing any refunds. Usually the trial period is not quite long enough to provide a thorough test, at least not in all cases. I am in one now that has a 90 day trial... so far that is the best guarantee I have run across. Others are usually 30 days only.
Some have given far too many signals as they try to accommodate ANY stock I may select and provide signals on those. Others have provided picks with entry prices but the picks seem to be all over the place as far as numbers are concerned...and too many of them. Others have just plain been losers over the last six months, even though one case the trade that I tried worked out well enough... too few trades setup so I couldn't really do much testing live.
One of the current services, options only, has provided a few trades to get into, none have panned out yet but they are longer term trades, weeks instead of day... good thing it is a 90 day trial. Of four trades I have entered, two were ones that I was already tracking, one I had already entered a few days prior to their signal and I exited a few days prior to their exit signal ... profitable trade but can I give them credit for it? Perhaps. I was in a stock position rather than an option position and they had an interesting twist to trading that one with options. I must give them credit in that they did some research as they timed the entry well and the exit slightly better than I did based on more than just chart reading.
Actually, so far I find their information more thorough than other services I have seen. They are using information and data that I cannot easily get access to with paying a lot for it. They are also processing this data over many different stocks and making recommendations based on their prior trading knowledge...this is not a "system" so much as an advisory service... so far I like it and think that I may keep it running for a while. At least I will compare returns on their system with returns on mine... even though I am still tweaking I am at a point of looking for some profits to start showing up. My trades I have open I let go through the pullback this week past as I figure that the pullback is not going to be as long lived as thought.
What all these services have shown me, that I already knew to be honest, is that they don't really work out as well as advertised. The ads are either misleading, erroneous or just plain subversive. I have stayed away from the ones that talk about making millions, fast or only a few minutes a day and concentrate more on selling a lifestyle than talking about trading. With two unfinished trials as exceptions so far.
For the record, any trades that I have talked about here have all been my picks and trades with no overlapping into any service provided trades.
If anyone reading this wants to ask about a service that they might be considering or one that they tried and liked, drop me an email. If I have looked at that one I can give you my honest opinion. If I haven't seen It I may just give it a try myself.
Jeff.
My plan has been to sign up, pay the cost, do some back testing on previous trades that they have logged then do some testing with current trades. If the current trades, during the trial period, cover the entire cost of the membership then I may continue using them. So far I have ended up cancelling every one except two, those two are still in testing as their trial periods have not expired.
Some of these have been $2500 up front which includes an annual membership, others as little as $500 for the same time period. This is certainly not a case of you get what you pay for.
I have found that most are upfront with any guarantees and have been quick with processing any refunds. Usually the trial period is not quite long enough to provide a thorough test, at least not in all cases. I am in one now that has a 90 day trial... so far that is the best guarantee I have run across. Others are usually 30 days only.
Some have given far too many signals as they try to accommodate ANY stock I may select and provide signals on those. Others have provided picks with entry prices but the picks seem to be all over the place as far as numbers are concerned...and too many of them. Others have just plain been losers over the last six months, even though one case the trade that I tried worked out well enough... too few trades setup so I couldn't really do much testing live.
One of the current services, options only, has provided a few trades to get into, none have panned out yet but they are longer term trades, weeks instead of day... good thing it is a 90 day trial. Of four trades I have entered, two were ones that I was already tracking, one I had already entered a few days prior to their signal and I exited a few days prior to their exit signal ... profitable trade but can I give them credit for it? Perhaps. I was in a stock position rather than an option position and they had an interesting twist to trading that one with options. I must give them credit in that they did some research as they timed the entry well and the exit slightly better than I did based on more than just chart reading.
Actually, so far I find their information more thorough than other services I have seen. They are using information and data that I cannot easily get access to with paying a lot for it. They are also processing this data over many different stocks and making recommendations based on their prior trading knowledge...this is not a "system" so much as an advisory service... so far I like it and think that I may keep it running for a while. At least I will compare returns on their system with returns on mine... even though I am still tweaking I am at a point of looking for some profits to start showing up. My trades I have open I let go through the pullback this week past as I figure that the pullback is not going to be as long lived as thought.
What all these services have shown me, that I already knew to be honest, is that they don't really work out as well as advertised. The ads are either misleading, erroneous or just plain subversive. I have stayed away from the ones that talk about making millions, fast or only a few minutes a day and concentrate more on selling a lifestyle than talking about trading. With two unfinished trials as exceptions so far.
For the record, any trades that I have talked about here have all been my picks and trades with no overlapping into any service provided trades.
If anyone reading this wants to ask about a service that they might be considering or one that they tried and liked, drop me an email. If I have looked at that one I can give you my honest opinion. If I haven't seen It I may just give it a try myself.
Jeff.
Options vs Stocks at the open
I have been playing with stocks for such a long time it is hard to break out of that mindset.
Having said that, there is one important difference between stock and options trading that I am finding very valuable to me.
The bid / ask spread at the open.
Options are priced based on the underlying stock price, implied volatility, strike price and a few other factors that I have not looked at yet. Stocks are priced based on what someone is willing to buy or sell them at at that particular moment. The moment that causes me the most problem is the first moment as the market opens and particularly on stocks that do not trade pre-market.
The reason this is such a hassle is due to my stop loss orders. A stop loss on a stock will be triggered when the bid hits the stop price, then the order is placed as a market order and the position is sold at whatever price it will get. I tend to check the pre-market spread and very often see that the spread is large enough that the bid is under my stop even though the ask is way over my stop.
One day I called my broker and asked them what happens in the case of such a wide spread at the open. "The stop would be triggered and executed".
I have been massaging my stop orders pre-market as a result, move the stop down to accommodate the low bid and move it up after the open to where it was or cancelling VTSOs and hoping to be able to re-establish them afterwards. This is just s nuisance. VTSOs are not so easy to re-establish as a 75 cent VTSO that is up to, say $10, needs the stock to be up to $10.75 in order to re-establish at $10. The stock may only make it up to $10.50 so I have to watch my stop at $10 until the price hits $10.75 to re-order the VTSO.
Stocks that trade pre-market have already gone through this initial spread issue and are trading with a normal spread by 0930h so the issue is not an issue. If the price opens below my stop then it is not artificially there and I will let the order go.
The whole point is that the options do not get re-priced until AFTER the market is open as they need to see the price established by trading FIRST.
There are two ways to look at the option angle.
1) buying options that do NOT require a stop (ITM or OTM)
2) using stops as profit protection and not being concerned about the open spread on the stock
In either case the option still does not go through the volatility at the bell that a stock does by it's very nature.
Chalk one more up for options over stocks...one day I will make a list of these reasons.
Jeff.
Having said that, there is one important difference between stock and options trading that I am finding very valuable to me.
The bid / ask spread at the open.
Options are priced based on the underlying stock price, implied volatility, strike price and a few other factors that I have not looked at yet. Stocks are priced based on what someone is willing to buy or sell them at at that particular moment. The moment that causes me the most problem is the first moment as the market opens and particularly on stocks that do not trade pre-market.
The reason this is such a hassle is due to my stop loss orders. A stop loss on a stock will be triggered when the bid hits the stop price, then the order is placed as a market order and the position is sold at whatever price it will get. I tend to check the pre-market spread and very often see that the spread is large enough that the bid is under my stop even though the ask is way over my stop.
One day I called my broker and asked them what happens in the case of such a wide spread at the open. "The stop would be triggered and executed".
I have been massaging my stop orders pre-market as a result, move the stop down to accommodate the low bid and move it up after the open to where it was or cancelling VTSOs and hoping to be able to re-establish them afterwards. This is just s nuisance. VTSOs are not so easy to re-establish as a 75 cent VTSO that is up to, say $10, needs the stock to be up to $10.75 in order to re-establish at $10. The stock may only make it up to $10.50 so I have to watch my stop at $10 until the price hits $10.75 to re-order the VTSO.
Stocks that trade pre-market have already gone through this initial spread issue and are trading with a normal spread by 0930h so the issue is not an issue. If the price opens below my stop then it is not artificially there and I will let the order go.
The whole point is that the options do not get re-priced until AFTER the market is open as they need to see the price established by trading FIRST.
There are two ways to look at the option angle.
1) buying options that do NOT require a stop (ITM or OTM)
2) using stops as profit protection and not being concerned about the open spread on the stock
In either case the option still does not go through the volatility at the bell that a stock does by it's very nature.
Chalk one more up for options over stocks...one day I will make a list of these reasons.
Jeff.
Thursday, September 3, 2009
The allure of cheap ATM options
Risk.
An option risks only the price paid for the option...no more.
Comparing the two options from today's purchases:
CMC risks $510 and CVA risks $290. Take it one strike closer to the money and the overall cash risked is less. Buying the CVA ATM option right now puts $140 at risk and CMC ATM at $200 (and it is 50 cents OTM).
That makes these ATM options look enticing, but is it just because they are cheap?
Let's think about this for a moment.
Considering that they have no intrinsic value unless the stock price climbs AND the Extrinsic Value will most likely decline as the stock price comes up (Delta is usually around 0.50 for these so the IV goes up by $1 and the EV goes down by 50 cents).
Given this and assuming that I am willing to risk $300 per trade I have three choices:
1) buy stocks (100 shares) and set the stop $3 down
2) buy ITM options (1 contract) and set the stop roughly where the $3 stock price drop would be
3) buy ATM options (2 contracts) and set no stop
WAIT A MINUTE....SET NO STOP?
OK...Let's take CVA as an example, mainly because the closing price today was at the strike price of $17.50...or very close.
I bought one contract for $290 with an IV of $2.35. If the stock moves aginst me by $2.35 I lose all of the IV and some of the EV...total loss of perhaps $255 and I had to have had a stop in place to catch this. If it moves in my favour by $3 I gain $3 of IV and the EV may not change much as it is low already. So slightly less than a $300 gain for the position. Figuring out where to place the stop is tough as it is a moving target for a variety of reasons.
The current asking price for the ATM option for CVA is $1.40. I could buy 2 contracts for $280, slightly less than my loss allowance and slightly less than my actual ITM purchase. With the near 0.5 delta 2 contracts can produce the same option price move relative to the stock price move as 1 contract deeper ITM with a delta of 0.8 or greater.
If the stock price moves against me I lose no IV as there is none, only EV. As an example the next strike for CVA is $20...or $2.50 away but the option is only down by about $1. So the same $2.35 move against me would lose less than $1 overall per contract. About $200 for the entire 2 contract trade...less than the single ITM contract loss. Worst case is still $280.
Here is the catch. If the price moves in my favour by the $3, and I have the two contracts, the total IV for the position is now $600. The EV will likely drop but it cannot drop any more than the $280 it had in the first place, likely somewhat less...but let's take worst case. Lose all EV and the IV alone is still $600, I paid $280 so the gain is $320. Seeing as the $2.35 ITM option still has an EV of 55 cents it would stand to reason that the new option price would have close to that under similar circumstances...so the real number will be $110 more...that's $420 gain.
When we enter any position we do so with the expectation that the price will move in the direction that we anticipate, otherwise why make the trade. This means that having built in Intrinsic Value, by itself, is not as important as it may seem. Once the price moves in our favour the IV will move along with the price.
So taking a trade with no more risk and slightly better upside and not having to worry about anything other than a profit protection stop loss looks like a better all around trade to make.
The trick is finding those stocks that are ATM or slightly OTM that are poised for the next move and have the options priced accordingly. In hindsight I would have made those two trades today using this option thinking instead of what I did... so back to the charts to see what I can scare up for tomorrow... or with the long weekend this weekend, I may just wait until Tuesday.
Jeff.
An option risks only the price paid for the option...no more.
Comparing the two options from today's purchases:
CMC risks $510 and CVA risks $290. Take it one strike closer to the money and the overall cash risked is less. Buying the CVA ATM option right now puts $140 at risk and CMC ATM at $200 (and it is 50 cents OTM).
That makes these ATM options look enticing, but is it just because they are cheap?
Let's think about this for a moment.
Considering that they have no intrinsic value unless the stock price climbs AND the Extrinsic Value will most likely decline as the stock price comes up (Delta is usually around 0.50 for these so the IV goes up by $1 and the EV goes down by 50 cents).
Given this and assuming that I am willing to risk $300 per trade I have three choices:
1) buy stocks (100 shares) and set the stop $3 down
2) buy ITM options (1 contract) and set the stop roughly where the $3 stock price drop would be
3) buy ATM options (2 contracts) and set no stop
WAIT A MINUTE....SET NO STOP?
OK...Let's take CVA as an example, mainly because the closing price today was at the strike price of $17.50...or very close.
I bought one contract for $290 with an IV of $2.35. If the stock moves aginst me by $2.35 I lose all of the IV and some of the EV...total loss of perhaps $255 and I had to have had a stop in place to catch this. If it moves in my favour by $3 I gain $3 of IV and the EV may not change much as it is low already. So slightly less than a $300 gain for the position. Figuring out where to place the stop is tough as it is a moving target for a variety of reasons.
The current asking price for the ATM option for CVA is $1.40. I could buy 2 contracts for $280, slightly less than my loss allowance and slightly less than my actual ITM purchase. With the near 0.5 delta 2 contracts can produce the same option price move relative to the stock price move as 1 contract deeper ITM with a delta of 0.8 or greater.
If the stock price moves against me I lose no IV as there is none, only EV. As an example the next strike for CVA is $20...or $2.50 away but the option is only down by about $1. So the same $2.35 move against me would lose less than $1 overall per contract. About $200 for the entire 2 contract trade...less than the single ITM contract loss. Worst case is still $280.
Here is the catch. If the price moves in my favour by the $3, and I have the two contracts, the total IV for the position is now $600. The EV will likely drop but it cannot drop any more than the $280 it had in the first place, likely somewhat less...but let's take worst case. Lose all EV and the IV alone is still $600, I paid $280 so the gain is $320. Seeing as the $2.35 ITM option still has an EV of 55 cents it would stand to reason that the new option price would have close to that under similar circumstances...so the real number will be $110 more...that's $420 gain.
When we enter any position we do so with the expectation that the price will move in the direction that we anticipate, otherwise why make the trade. This means that having built in Intrinsic Value, by itself, is not as important as it may seem. Once the price moves in our favour the IV will move along with the price.
So taking a trade with no more risk and slightly better upside and not having to worry about anything other than a profit protection stop loss looks like a better all around trade to make.
The trick is finding those stocks that are ATM or slightly OTM that are poised for the next move and have the options priced accordingly. In hindsight I would have made those two trades today using this option thinking instead of what I did... so back to the charts to see what I can scare up for tomorrow... or with the long weekend this weekend, I may just wait until Tuesday.
Jeff.
CVA and CMC revisited with options
I keep looking at the options that I am trading now and consider that what I am doing is the best method for the style of trading that I am pursuing... but those cheap ATM or OTM options look awfully tempting.
I bought two new option contracts this morning, CVA and CMC...both of which I have trade stocks in my new plan recently and both are using the Point and Figure entry method.
In CVA my entry trigger for the stock was between $17.25 and $17.50, and I even entered a stock order at that limit initially as I wanted into the market at that price. This gave me time to investigate the options. The price hovered around $17.30 for a while, I entered the option data into my spreadsheet, decided upon the option, cancelled the stock order and placed an option order. Strike was $15, expiry Jan '10. In at $2.90 after playing with $2.80 and $2.85 for a while.
Option cost $2.90, $2.25 ITM so 65 cents Extrinsic Value, 22.4% of the price was EV.
CMC was, more or less the same deal. $16.75 to $17. Option was the $12.50 strike, Jan '10 expiry.
Option cost $5.10, $4.25 ITM so 85 cents Extrinsic Value, 16.7% of the price was EV.
Looking at my sheet comparing the various strike prices with their EV based on paying the asking price (which I didn't) makes these look like the best deal as the Deltas are high and the EV was relatively low.
Then I consider the element of risk. Options reduce risk in the sense that they are somewhat unaffected by some attributes of the stock activity...CAH example as I would have lost over 50% of the value of my stock only position where I did better holding my own in the options.
Let's just see where these trades take me going forward.
Jeff.
I bought two new option contracts this morning, CVA and CMC...both of which I have trade stocks in my new plan recently and both are using the Point and Figure entry method.
In CVA my entry trigger for the stock was between $17.25 and $17.50, and I even entered a stock order at that limit initially as I wanted into the market at that price. This gave me time to investigate the options. The price hovered around $17.30 for a while, I entered the option data into my spreadsheet, decided upon the option, cancelled the stock order and placed an option order. Strike was $15, expiry Jan '10. In at $2.90 after playing with $2.80 and $2.85 for a while.
Option cost $2.90, $2.25 ITM so 65 cents Extrinsic Value, 22.4% of the price was EV.
CMC was, more or less the same deal. $16.75 to $17. Option was the $12.50 strike, Jan '10 expiry.
Option cost $5.10, $4.25 ITM so 85 cents Extrinsic Value, 16.7% of the price was EV.
Looking at my sheet comparing the various strike prices with their EV based on paying the asking price (which I didn't) makes these look like the best deal as the Deltas are high and the EV was relatively low.
Then I consider the element of risk. Options reduce risk in the sense that they are somewhat unaffected by some attributes of the stock activity...CAH example as I would have lost over 50% of the value of my stock only position where I did better holding my own in the options.
Let's just see where these trades take me going forward.
Jeff.
Wednesday, September 2, 2009
Long Straddle, Spinoffs and symbol changes
Well, I didn't expect anything major to be happening with CAH. It has been spun into KCF now. Seeing as I don't pay any attention to news or much about the stocks that I play with, whether options or stocks, I guess I can get blindsided the odd time.
My straddle was based on chart activity and it looked ready to head for a drop, as I said before I would have just played it short as a stock trade or just bought a put...but I wanted to play.
Yesterday they switched symbols on the NYSE while spinning off to KCF (Care Freedom I think). I would have received, had I shares in CAH, a 50% transfer, I would only get 1 share of KCF for every 2 shares of CAH. That would have sucked as they closed last night at around $35 and opened under $25 today.
That was the ride though, all I saw was the share price drop from $35 to $25... I waited for the options to be priced and was expecting my put to balloon by $10 per share and my call to lose $2 per share. I was surprised to see that the option chain symbols had changed. This means that I could not sell my options until they are transferred to the new symbols, which happened today.
Interestingly the options, as they only give me control of 100 shares, are not affected by the share exchange rate. Seeing as I was on both sides of the trade and the relationship between option price and stock price is not linear, I really was not concerned about this, once I realized what was going on.
There is an advantage to playing both sides simultaneously.
While the option pair was not the greatest I learned a few things and had some others reinforced, like that options can provide protection from unforeseen events. Just thought I would share.
The new options cost was changed though.
The call was at $2.85 it is now $2.4873 and the put was $2.50 and is now $2.8743
The old difference was 35 cents and the new difference is 38.7 cents
Another change was the delta, seeing as the strike price of the options is still $35 and the new stock price is $25, the price difference remained similar but the Delta is now 0.365 and 1.00 for the call and put respectively compared to the original 0.527 and 0.46. This makes the option pair skewed in my favour if the price of the stock continues to drop.
I have a feeling that the price is not going to do a whole lot for a while and I might lean toward it going up instead of down...which might not work in my favour unless it REALLY goes up a lot, like $10 or more. I will hold this to see what happens though.
My straddle was based on chart activity and it looked ready to head for a drop, as I said before I would have just played it short as a stock trade or just bought a put...but I wanted to play.
Yesterday they switched symbols on the NYSE while spinning off to KCF (Care Freedom I think). I would have received, had I shares in CAH, a 50% transfer, I would only get 1 share of KCF for every 2 shares of CAH. That would have sucked as they closed last night at around $35 and opened under $25 today.
That was the ride though, all I saw was the share price drop from $35 to $25... I waited for the options to be priced and was expecting my put to balloon by $10 per share and my call to lose $2 per share. I was surprised to see that the option chain symbols had changed. This means that I could not sell my options until they are transferred to the new symbols, which happened today.
Interestingly the options, as they only give me control of 100 shares, are not affected by the share exchange rate. Seeing as I was on both sides of the trade and the relationship between option price and stock price is not linear, I really was not concerned about this, once I realized what was going on.
There is an advantage to playing both sides simultaneously.
While the option pair was not the greatest I learned a few things and had some others reinforced, like that options can provide protection from unforeseen events. Just thought I would share.
The new options cost was changed though.
The call was at $2.85 it is now $2.4873 and the put was $2.50 and is now $2.8743
The old difference was 35 cents and the new difference is 38.7 cents
Another change was the delta, seeing as the strike price of the options is still $35 and the new stock price is $25, the price difference remained similar but the Delta is now 0.365 and 1.00 for the call and put respectively compared to the original 0.527 and 0.46. This makes the option pair skewed in my favour if the price of the stock continues to drop.
I have a feeling that the price is not going to do a whole lot for a while and I might lean toward it going up instead of down...which might not work in my favour unless it REALLY goes up a lot, like $10 or more. I will hold this to see what happens though.
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