Update, the good and the bad...or the bad and the good....

It's been a few days since I've blogged anything as I have been busy. Between a conference last week, ULC inspections this week and other personal stuff going on in the middle I just have not had time.

AS far as my trading is concerned there is no real movement to talk about. With the pullback in the market I expect to realize a few losses soon as one position expires in November and it likely will not move fast enough to recoup me much. A bunch of others are way down but have longer to go so there may be some promise there. I have a few that are in the green after spending some time in the red and one or two that the stock gapped down dragging the option price with it.

Having said that, if I had been in these stock positions instead of options I would be losing my shirt in most cases. The downside to the options is the expiry though. At least with the stocks I could choose to hold them if they looked like they were going to come back, some are not going to fast enough for me though.

Even though many are down it is a comforting feeling to know that, in the few cases that the option has hit zero...it cannot go any lower.

I should mention my overall strategy mistake.

I had decided that $120 is my loss allowance and that dictates the position size of the trade. I will take positions of a single contract that are higher than $1.20, as high as $2 but I will not take multiple contract positions that are any higher than the $1.20 or maybe $1.30. The issue is not that decision, the issue is that I still had a few positions that were far larger than this and I have let them go rather than placing a stop loss. So I have some $400 plus trades that I should have pared down at least or just stopped at worst.

Also, a few of these are from service advisories that I no longer subscribe to, even though I can chart and track them easy enough to determine where they are going (the cancelled services really only used some basic technical studies and a bunch of guesswork afterall) I had gotten lazy about them.

Perhaps I should have just cleaned house and brought everything in line. Hindsight is wonderful. At least I had a decent profit to also work with on this.

So my strategy is to hold out for the expected rally, if it does not materialize I will close some losing positions, let a few expire to save the commissions as they are not worth trading now, regroup and keep on slugging.

On the Optioneer/Strikepoint side I placed a trade yesterday that did not get filled...due to market conditions. It was nice to choose the setup and just send the request to my broker and get the email at the end of the day telling me what had happened with the trade...no watching the screen and making trades to setup the strangle...nice.

Today the numbers are not so good so I will wait until Monday to place another for a better profit target. Yesterday's was about $420 profit to expire on November 30th, today the trade was only worth $309, same expiry. I am going to aim for $400 targets or higher mainly as this gets my return per trade up near 10% and my annualized return close to 100%.

The goals are going to start at making the first $4000 to cover all my fees for the year, then the next $5000 is going to cover adding another trade to the concurrent trade number OR start doubling one trade in the mix. Based on some backtesting goal one is possible in the first 3 or 4 months unless I maximize my trade quantity. My testing was using up to five concurrent trades and I could place up to seven.

The idea is to be able to diversify the trades so that I spread my risk of a major market move over many trades. A strangle takes advantage of selling options for profit and buying options for protection so the net profit results from the sales being worth more than the protection. Seeing as these are based on the S&P500 the call spread is set much higher than the current level and the puts are much lower. As long as the S&P remains within those boundaries there is profit to be had. Placing trades as the market moves every 20 to 30 points allows the strangles to stagger and "bracket" the market at varying levels, this amounts to diversification. As the market goes up the next trade will bracket higher and as it moves down it will bracket lower. This has my trades moving with the market and a sharp up move may only affect a trade that was placed at, a much lower level but not the three or four others at a higher level. Most trades are, at most 45 days in duration.

I'll set up a chart to show this another time.

Jeff.