Today I did a little house cleaning in the option position department. I had a few oversized positions that I wanted to pare but they were languishing in the "Gee, look how much I will lose" zone. One $4 option was down near $1 for a while, today it made it just over $3. Seeing as I take a wait and see approach to judging where the market may head next I decided to drop a few while the dropping was not so painful. Some of the expirations were nearing as well, December and January...one November but it has zeroed and I MAY actually see a jump, although I really doubt it. It was a leftover from a previous service trial but I will count it in with my general trading numbers.
I did close another for a small profit as well.
Now, I cannot take full credit for these as the service I am using also pegged them for house cleaning but they were ripe regardless. I have been watching them closely and aiming for a small bounce. The winners I took out yesterday I did before the advisory and for more than they suggested I could get. That just reminds me that nothing is completely brainless...or cannot be improved upon by thinking things through and monitoring the situation.
My spreadsheet certainly helps in this department as I have the expiry count down colour coded by number of days left so the near term options get flagged as they hit 90, then again at 60 and once more at 30 days out. Under 30 days they are in serious need of some hands on monitoring and should already have been exited if they were in a profit position. The only reason to hold a position in the last thirty days is if I sold the option, not if I bought it.
I still have a few that have zeroed out but they are not the largish ones, thankfully.
My realized loss today was $175 including commission costs. The main point of getting rid of these, other than to cut some losers loose is to free up some capital as I was all in up to yesterday and had to use some of my margin account to add a couple of positions lately...that is not a problem but does mean possible taxation, something I am trying to not have to deal with in this trade setup. That loss was for four losers and one small winner.
Meanwhile, over at Optioneer, no trade set for today, the target was under my minimum but I learned a few things while emailing back and forth with my broker...something that is hard to accomplish with a discount online broker.
Plan M is still in the back of my mind...my Stockcharts.com subscription had expired so I need to sign back up for that before I can do any substantial work on that plan. I might look at switching my charting back over to Esignal for delayed information as they have some better tools to work with that might be advantageous for me...even if the charts are not wuite as nice looking. Scaling the chart to allow head room is a bonus as that has always been a bit of an issue for me.
Jeff.
Questrade, My direct access discount broker.
Friday, November 6, 2009
Thursday, November 5, 2009
EOD numbers
Well I closed two trades for some nice gains today ahead of the service recommendation. In both cases I already had my stop orders in place before getting the email to close the positions for profits.
One was closed for a 126% profit and the other was 89%, net. Even in the downturn there is profit to be had...although the day was pretty good as the S&P took a nice jump.
My other positions regained another $227... although that is after removing the winners from the calculations so the number would be over $300 if the gains in the closed trades were considered.
Oh, the service recommends limit orders at particular prices but I like to use stops once I reach a certain point then move them up tight to the bid if the price moves up any more. In one case I gained and additional 5 cents and the other 15 cents. Considering that I may have missed out if the limit did not fill and the price dropped I preferred the stop method. Had I just placed market to get out at the time I decided to consider closing I would have still received good returns as well.
I will update my stat page today I expect now that I have some closed positions to note.
Jeff.
One was closed for a 126% profit and the other was 89%, net. Even in the downturn there is profit to be had...although the day was pretty good as the S&P took a nice jump.
My other positions regained another $227... although that is after removing the winners from the calculations so the number would be over $300 if the gains in the closed trades were considered.
Oh, the service recommends limit orders at particular prices but I like to use stops once I reach a certain point then move them up tight to the bid if the price moves up any more. In one case I gained and additional 5 cents and the other 15 cents. Considering that I may have missed out if the limit did not fill and the price dropped I preferred the stop method. Had I just placed market to get out at the time I decided to consider closing I would have still received good returns as well.
I will update my stat page today I expect now that I have some closed positions to note.
Jeff.
Funny day today.
I started the day with a mixed open followed by most of my positions heading up...the stock prices anyway as the option prices don't move that fast when they are way out of the money.
As of this moment every single stock, with one exception, that represents the options I have positions for has started moving up, from yesterday's close anyway. DPS was the worst as it had dropped $2 off the start and is now back in the 50 cent under area...not a bad recovery. The worst about that is it is a new trade...BAH!
The S&P is up overall and has surpassed yesterday's high...so we have a higher high and a higher low... perhaps this is the re-assertion of the uptrend for this year as the S&P comes off of the low trading range and crosses above the 50sma...yesterday's resistance and today's support.
Whatever.
I now have 7 option positions that are either at breakeven or positive which is better than them all being in the red. I'll run the numbers after the market closes today and see how I am making out.
I placed an Optioneer trade last night for today's trading, I doubt the order will get filled.
When placing a trade I choose the market, the style of trade and the size of the order. Then I decide how much I am willing to bend in order to have the trade filled. I am aiming for 1.9 points as a minimum and, as a full point is worth $250, that makes a trade target of $397 after commissions. If I allow 0.1 points I may give up $25 in profits to give the broker more room to move, basically it is a limit order and I allow more limit room, or a lower profit target.
At 1.9 points I will allow no room, or leniency as they call it, but as the point target goes up I will allow more room according to the difference in my target.
1.9 = none
2.0 = 0.1 or none depending on the market and my desire to make the trade
2.1 = 0.1
2.2 = 0.2
2.3 = 0.3
2.4 = 0.4
The largest I have seen is 2.4, which is $522 target. Sometimes the orders are filled at the target or higher, sometimes lower and sometimes not at all due to being too far out from the allowed leniency.
In my testing I saw the average target was $414 so the tendency is toward the smaller side. Depending on how often I get filled with this method I may have to lower my minimum target. The interesting thing about that is that I can also lower the timeframe that I am willing to be in a trade.
For example, today's target puts me at $397 over the next 45 days....$8.82 per day. I could choose to take the same target but not until the time to expiry is down to 35 days or $11.34 per day. That increases the time return on my money and keeps me in a shorter trade, which is actually safer as the market would have to move faster and harder in order to cause me to lose any of the target profit.
The other difference in the time trades is the annualized return. the 45 day trade vs the 35 day trade would be 70% vs 90%. So if I always traded in the 35 day range I could force my cash to work harder for me as I could turn it around quicker. I suspect that I will have to allow a greater leniency as the time to expiry shortens in order to accommodate the greater volatility as the expiry approaches. This may offset the advantage. Having said that, I will always take the largest return and the shortest timeframe.
All this is nothing proprietary, this is just the nature of options and strangle strategies, time is very important.
Jeff.
As of this moment every single stock, with one exception, that represents the options I have positions for has started moving up, from yesterday's close anyway. DPS was the worst as it had dropped $2 off the start and is now back in the 50 cent under area...not a bad recovery. The worst about that is it is a new trade...BAH!
The S&P is up overall and has surpassed yesterday's high...so we have a higher high and a higher low... perhaps this is the re-assertion of the uptrend for this year as the S&P comes off of the low trading range and crosses above the 50sma...yesterday's resistance and today's support.
Whatever.
I now have 7 option positions that are either at breakeven or positive which is better than them all being in the red. I'll run the numbers after the market closes today and see how I am making out.
I placed an Optioneer trade last night for today's trading, I doubt the order will get filled.
When placing a trade I choose the market, the style of trade and the size of the order. Then I decide how much I am willing to bend in order to have the trade filled. I am aiming for 1.9 points as a minimum and, as a full point is worth $250, that makes a trade target of $397 after commissions. If I allow 0.1 points I may give up $25 in profits to give the broker more room to move, basically it is a limit order and I allow more limit room, or a lower profit target.
At 1.9 points I will allow no room, or leniency as they call it, but as the point target goes up I will allow more room according to the difference in my target.
1.9 = none
2.0 = 0.1 or none depending on the market and my desire to make the trade
2.1 = 0.1
2.2 = 0.2
2.3 = 0.3
2.4 = 0.4
The largest I have seen is 2.4, which is $522 target. Sometimes the orders are filled at the target or higher, sometimes lower and sometimes not at all due to being too far out from the allowed leniency.
In my testing I saw the average target was $414 so the tendency is toward the smaller side. Depending on how often I get filled with this method I may have to lower my minimum target. The interesting thing about that is that I can also lower the timeframe that I am willing to be in a trade.
For example, today's target puts me at $397 over the next 45 days....$8.82 per day. I could choose to take the same target but not until the time to expiry is down to 35 days or $11.34 per day. That increases the time return on my money and keeps me in a shorter trade, which is actually safer as the market would have to move faster and harder in order to cause me to lose any of the target profit.
The other difference in the time trades is the annualized return. the 45 day trade vs the 35 day trade would be 70% vs 90%. So if I always traded in the 35 day range I could force my cash to work harder for me as I could turn it around quicker. I suspect that I will have to allow a greater leniency as the time to expiry shortens in order to accommodate the greater volatility as the expiry approaches. This may offset the advantage. Having said that, I will always take the largest return and the shortest timeframe.
All this is nothing proprietary, this is just the nature of options and strangle strategies, time is very important.
Jeff.
Wednesday, November 4, 2009
Cherry picking to sell a serivce...some ramblings about Plan M
I get lots of emails from people trying to sell their service, that comes from doing tons of investigating of a variety of services while scoping out their plan and method and, as it turns out, even try some on for size.
I am down to one advisory service now...I will wait until after this pullback is complete to give a final comment on it.
Suffice it to say that I have not stuck with any other service that I tried and I checked out far more than I tried.
Today I received an email from one that chattered on and on about a pick that is currently at the 27% return mark. Now I must admit that the dividend yield, due to the purchase price, was something like 21%...but high yielding stocks are easy to find right now I suppose. I have not been looking as I do not have the capital to buy and hold a stock for a good yield.
I usually skipped the emails altogether that made claims of success based on a single position, usually, but not always, an un-named one. In order to find out what the trade was I would have to sign up or at least click on their link... oh, do they mention that they get some sort of payback even for that?
If I were to decide to sell a service, newsletter...or whatever I could very easily cherry pick some of my picks and come up with some decent winners. Of course I could ignore the losers and really paint it nice but I don't really want to do that.
Since I have been playing and trying to stay within my cash allowances while picking trades and strategies I have necessarily restricted myself to trades that work for me in my situation, otherwise I would have been wasting my time.... of course if I chose to sell information I could virtually do the trades and pass them about and just draw in cash for the information. No restrictions on valuations, position size, loss allowances... I would be willing to bet that almost any of my more tested strategies would have been profitable in a virtual situation. I know they mostly all backtested very well.
That is not my thing though. Due to playing with options now I can widen my scope so some of the nicer picks are available where they were not previously. Loss allowances can be built into the option trade easier than with a $60 or $70 stock trade.
This, of course, leads me back to my latest "Plan M"... which is in the works... but then even that leads me in another direction again.
Focus, simplicity and repetition will be the new keys.
Small position sizing and tight loss allowances the regulations.
Trend channeling and predetermined targets the triggers.
Put and call options the medium.
Even though my TFSA is committed in full I plan on aiming this at a $5000 account size anyway and providing for at least a 15 to 25 position portfolio... even with only 32 stocks (or so) options allow for multiple time frame trading, rolling positions and profit crystallization...some things not possible with a stock trade. The "headroom" allows for an initial drawdown without affecting the number of positions possible as $5000 could hold as many as 35 active $120 positions and allow for commission costs
Well, enough babbling for today. Hopefully I can post some trades by early next week, or at least some ideas applied to some older picks that I did not follow through previously....or maybe even get some charts back in here. I do like playing with charts.
Jeff.
I am down to one advisory service now...I will wait until after this pullback is complete to give a final comment on it.
Suffice it to say that I have not stuck with any other service that I tried and I checked out far more than I tried.
Today I received an email from one that chattered on and on about a pick that is currently at the 27% return mark. Now I must admit that the dividend yield, due to the purchase price, was something like 21%...but high yielding stocks are easy to find right now I suppose. I have not been looking as I do not have the capital to buy and hold a stock for a good yield.
I usually skipped the emails altogether that made claims of success based on a single position, usually, but not always, an un-named one. In order to find out what the trade was I would have to sign up or at least click on their link... oh, do they mention that they get some sort of payback even for that?
If I were to decide to sell a service, newsletter...or whatever I could very easily cherry pick some of my picks and come up with some decent winners. Of course I could ignore the losers and really paint it nice but I don't really want to do that.
Since I have been playing and trying to stay within my cash allowances while picking trades and strategies I have necessarily restricted myself to trades that work for me in my situation, otherwise I would have been wasting my time.... of course if I chose to sell information I could virtually do the trades and pass them about and just draw in cash for the information. No restrictions on valuations, position size, loss allowances... I would be willing to bet that almost any of my more tested strategies would have been profitable in a virtual situation. I know they mostly all backtested very well.
That is not my thing though. Due to playing with options now I can widen my scope so some of the nicer picks are available where they were not previously. Loss allowances can be built into the option trade easier than with a $60 or $70 stock trade.
This, of course, leads me back to my latest "Plan M"... which is in the works... but then even that leads me in another direction again.
Focus, simplicity and repetition will be the new keys.
Small position sizing and tight loss allowances the regulations.
Trend channeling and predetermined targets the triggers.
Put and call options the medium.
Even though my TFSA is committed in full I plan on aiming this at a $5000 account size anyway and providing for at least a 15 to 25 position portfolio... even with only 32 stocks (or so) options allow for multiple time frame trading, rolling positions and profit crystallization...some things not possible with a stock trade. The "headroom" allows for an initial drawdown without affecting the number of positions possible as $5000 could hold as many as 35 active $120 positions and allow for commission costs
Well, enough babbling for today. Hopefully I can post some trades by early next week, or at least some ideas applied to some older picks that I did not follow through previously....or maybe even get some charts back in here. I do like playing with charts.
Jeff.
Plan C...or maybe I'm on M by now...
Without going into detail I started trading with one plan in mind, plan A, and have since changed plans a number of times. In some cases one plan merged into another so there was no real delineation, just a progression of changes that resulted in something different enough that it could be called plan B.
There have been some parts of each plan that tended to stick, particularly the money management rules and loss allowances. Today I am looking at where I am at overall and I am satisfied with my progress except that I am not using my own system or plan in selection and execution of my trades. While that is disappointing, perhaps it was inevitable.
I mentioned yesterday that my portfolio of options had returned some of the paper losses, today, so far, it has returned another $120. Once again, taken as a dollar amount it does not sound like much but the percentage is a reasonable re-gain.of about 2.5% or 8% depending on how I choose to spin it. My zero value options are still zero but the others that had some value left are returning here and there. I did not place an Optioneer trade as the target was just a hair too low for my liking.
I have entered a few more trades as I would hate to be at the bottom of a pullback and not be there when some nice new positions rally. Trading someone else's plan does involve making every trade... if I stopped right now I could very easily rack up some losses and not take advantage of new positions making good gains from this low point.
So all in all I like the place that I am at in my trading right now.
Having said all that I am pining for my own trading plan. I am hoping that a break from playing with my own plans will give me a slightly different perspective...or return one of my previous perspectives that I had for a while. I still like the idea of using a handful of familiar stocks and keeping the trade entry trigger or indicators extremely simple. Seeing as most of my cash is allocated now, I may try some paper trading or do some curve fitting to select a method for my next foray into formulating a trading plan.... I must be on plan M by now.
I figure that I should do dome targeting... four high volume stocks from each main sector...that makes 32 depending on how many sectors I choose. I will stick with the eight main ones. Set up each sector separately, do a bit of loose backtesting to get a feel for the S&P correlations and temperments. Then apply one decent indicator (not MACD, it never really did it for me) and stick primarily to trend lines again. Maybe go back to P&F charts as they were dead simple to work with.
So, Plan M it is.
Jeff.
There have been some parts of each plan that tended to stick, particularly the money management rules and loss allowances. Today I am looking at where I am at overall and I am satisfied with my progress except that I am not using my own system or plan in selection and execution of my trades. While that is disappointing, perhaps it was inevitable.
I mentioned yesterday that my portfolio of options had returned some of the paper losses, today, so far, it has returned another $120. Once again, taken as a dollar amount it does not sound like much but the percentage is a reasonable re-gain.of about 2.5% or 8% depending on how I choose to spin it. My zero value options are still zero but the others that had some value left are returning here and there. I did not place an Optioneer trade as the target was just a hair too low for my liking.
I have entered a few more trades as I would hate to be at the bottom of a pullback and not be there when some nice new positions rally. Trading someone else's plan does involve making every trade... if I stopped right now I could very easily rack up some losses and not take advantage of new positions making good gains from this low point.
So all in all I like the place that I am at in my trading right now.
Having said all that I am pining for my own trading plan. I am hoping that a break from playing with my own plans will give me a slightly different perspective...or return one of my previous perspectives that I had for a while. I still like the idea of using a handful of familiar stocks and keeping the trade entry trigger or indicators extremely simple. Seeing as most of my cash is allocated now, I may try some paper trading or do some curve fitting to select a method for my next foray into formulating a trading plan.... I must be on plan M by now.
I figure that I should do dome targeting... four high volume stocks from each main sector...that makes 32 depending on how many sectors I choose. I will stick with the eight main ones. Set up each sector separately, do a bit of loose backtesting to get a feel for the S&P correlations and temperments. Then apply one decent indicator (not MACD, it never really did it for me) and stick primarily to trend lines again. Maybe go back to P&F charts as they were dead simple to work with.
So, Plan M it is.
Jeff.
Tuesday, November 3, 2009
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.
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.
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