Credits, points and trades.

My TFSA account is up another $150 or more as the market surges ahead some more. I have AEM sitting at zero as the option expires this week. I doubt that it can surge enough to bring this back to reduce the loss at all... a $1.70 option is a bit more than I would allow normally...now ... but this was a legacy from another service that I cancelled but I will still count it in my tally.


My first Optioneer trade was executed today. It filled at the settlement price so the target is on line with 1.9 points even though I allowed 0.3 points for it to fill I didn't need it this time. So my daily target return is $12.41 over 31 days.

Now, I am aiming for $10 days... I had used DDD to describe this target (DecaDollar Days) but the easiest way to view this is as points or credits (saves getting confused with points in the market). I don't know why but dropping a zero seems to make the whole thing feel more like a game but it certainly makes the math less onerous though.

Bear with me on this one as I ramble one using a credit and trade system rather than using dollars.

Right now the gains are in points which are worth $250 per point. I like 1.9 as it creates, after commissions, $397. For a 30 day trade this makes a 0.063 point daily gain or $13.23 daily gain. These are not round numbers. The trades are worth $4500-$4700 per trade, returns are in the 8.6% range which is 0.286% per day...again, not nice round numbers. As much as I like to play with numbers I also like to simplify things greatly.

In the name of over simplification let's break this all down.

Every trade cost between $4500 and $4700 to execute and usually have similar targets for gains, so let's just call them all "trades" as they are mostly identical. I figure that my capital can be broken into the number of trades I can manage with it so at $4600 per trade $13,800 would yield three trades. This allows a little leeway for trades that require a bit more as I actually have $14,000 in the account.

For every trade my minimum target is a realized $10 per day. Like the trades this makes every single day for every single trade the same. Take it farther and $10 is equal to 1 "credit".

Every trade yields one credit per day that it is active. A 45 day trade will yield 45 credits or more, a 30 day trade will yield 30 credits or more. If I close a trade early it will only be if it has seen 1 credit per day unless I am closing to reduce a loss.

I have 3 trades in my account at any given time and I have a goal of 1 credit per day per trade and I want to have these trades in play for as much of the time as possible. Ideally this would have three trades active each month yielding 30 credits per trade per month, or 90 credits per month. The credits per month are not as important as just having each trade produce a credit for as many days as possible.

Keep in mind that a trade is on average $4600 and a credit is $10 so each trade's value is actually 460 credits. In order to place one more trade in play I need to have 460 credits in profit.

At 90 per month that is 5.1 months.

Add that new trade into the mix the monthly becomes 120 credits which lets me add another trade in 3.8 months.

At 5 trades and 150 per month I can add another trade in 3.1 months.

Considering this is a minimum target (we'll see what reality brings) that equal going from a three trade capacity to a six trade capacity in (5.1+3.8+3) 12 months is the very same as doubling my money in that period.... to the part month, and I didn't plan it that way.

I see a few decimal values in there and trades expire only at two times each month, third Friday's and EOM but I can close a trade at any point as long as it meets the realized 1 point per day minimum so I can actually close a trade early and reuse the trade for another trade that is ready to enter. As long as the trades are active and producing 1 credit per day it does not matter if I close a trade early or let it ride, it will always be producing credits.

I checked with the broker on this last point. If I close a trade today the cash is available to me to trade with on the same day. If I am letting a trade expire on a Friday and I want to catch a 30 or 31 day trade on a Thursday they will allow me the margin use for the one day overlap. I need to go over a calendar to see the day of the weeks on some of the EOM expirys and where the minimum 30 days would fall with regular expirys. I did work out a schedule that allows me to keep trades in play constantly, missing only a day or two here and there, but it needs some work and is rather complicated. I'll try to put it in a format that works here and also try to keep it simple. In reality I doubt that I need the calendar as I can just be sure to roll the trades over quickly and use the possible one day overlap to ensure this happens.

The real issue becomes placing trades to keep some sort of diversity as three trades expiring at the same time means entering three trades close together and the market may not have moved enough to really do this safely. AS much as the number of loosing trades should be very small it would not do to have three all in a losing position at the same time. This gives more emphasis on exiting early to take advantage of market moves as they happen. Again, just observing the credit rule is important here.

Still a work in progress and perhaps not exactly what the Optioneer guys had in mind when it comes to using their system for trading.

Jeff.