Nail biting...if i were the nervous type

I read the opinions of all the talking heads, economists and experts and their take on the market now....NOT!

No, Every time I read a report from one source it is refuted by another. The market is going up, the market is going down and a few that say it is going sideways. My take is always that the market is going to do whatever it is going to do regardless of what anyone says about it...to a point.

Some government announcements, large corporation reports and sector specific activity can obviously affect the market, or the corner that the information release may have bearing upon, but it is very difficult to determine what will actually happen.

Now, I see that there is evidence that the market has reached an intermediate peak and may head down due to a lack of buying enthusiasm to continue to pay the asking prices quoted.... or perhaps it is just taking a breather and will consolidate for a while before deciding to head back up. The current uptrend line has been broken, the last support level may now be resistance and the full moon has peaked and is now waning... who knows.

If I were the nervous type I would be biting my nails. I have a vary large portion of my small accounts tied up in option positions right now, in the neighbourhood of 25 or more, and almost all of them are down, a few are actually at zero. I decided last week that I would continue to hold these positions as many have long expiry dates, one is over a year and many are February and March...plenty of time for a rally in those positions. My one November and a few December positions do not hold much hope, but that is the nature of the game.

What I am nervous about is not having more cash to allocate to really good buys as they become available in the coming days. My overall account total, even though deep in the red, has come back $300 today alone. That is a good sign.

Hmmm... consider that an option near it's bottom has a very low delta. A small move in stock price has little bearing on the option price until the stock returns nearer the strike. All of my current positions are OTM so a return of $300 is considerable and could be treated as a gain of somewhere around 5% based on my total original cash. Based on the current value of the account due to the large drawdown (unrealized yet) that same number might yield a 15% return.

It's all about how I play with the numbers. My overall performance has not changed, my daily average is down due to the fact that I have not cashed any winners but my real gain is still intact. Given the drop in the market and the likelihood of a rally, at least in some sectors or stocks, is reasonable I may yet improve my numbers while mitigating the possible losses.

There is a certain amount of satisfaction in having already accepted a plan regardless as to whether it will profit or not.

On the Optioneer front I placed my first trade on Wednesday for November End Of Month contracts and did not get the order filled. Another placed on Friday for Monday's open also did not get filled. I thought that being able to place my order for the next trading day right after the market closes (soon after anyway) is very interesting but was disappointed that I have no open position yet. Now I will have to wait for a good December expiry trade to materialize.

I have forwarded another cheque in order to allow up to three concurrent trades... I determined that I may require up to five in order to take full advantage of the trade opportunities based on my backtesting results. Once I get things rolling along I will probably fund this up to the level that I feel necessary to take full advantage of the plan.

This is not my typical trial run with a few hundred dollars on the line though as each trade is usually just over $4,500 in value... Put another way, that is the cash required to place the strangle position given the margin allowed. In theory I could lose the entire amount and have seen, in my backtesting, where the loss can go from smallish to absolute in one day... mind you that is near the end of the trade period and the position would have been closed before that point...but the possibility is always there, just not nearly as likely as the regular gains.

I have also seen the trade go from a large loss to full target gains in the last day of the trade...so it does go both ways.

Right now I expect to see today's end of day numbers soon to determine if I will be placing a trade for tomorrow morning's open. As soon as those numbers are in I can take the full 5 minutes it takes to determine that the trade has a large enough target, a short enough time frame, and far enough from my other trades (in S&P points, when I have other trades on the go anyway) for me to take it.

I have set some rules to allow for a certain target for each trade. I did not use them in my backtesting, nor did I account for trades not being able to be filled when desired. I figured that if the trades did not get filled, occasionally, that would be offset by the fact that I couldn't take every setup due to lack of huge funding. I did allow for lower fills and used some smaller targets figuring that would give me the needed "fudge against me" factor.

Jeff.