Today the market opened on unusually low volume and we, as a group, almost decided not to trade at all as nothing looked good. John suggested an AAPL trade and we got in and out for a decent single trade profit, 34 cents.
Then we all decided that was it for the day, finish way early and take a break...then John decided that a play in X might work out. Well, we forced the trade that really was not there and the market makers were rigging the price. The low of day stock price was $65.01 and the option was in the 1.70's. Later it hit $65 again and the option price was lower again, it normally wouldn't be as this is a very liquid stock and a very liquid option chain, the spread was a penny or two. It made for easy entry and exit as a market order was the cleanest method but that does not make up for some funky business in the option pricing.
I was down for the day around $220, which has not happened often at all. My daily average is now likely in the $30's. Monday will be the start of a new week and my TFSA account is still up overall so I cannot complain too loudly... after all it is only week one of the TFSA plan. Lots of time to work things out.
Jeff.
Questrade, My direct access discount broker.
Friday, April 9, 2010
Thursday, April 8, 2010
Day three and position sizing comes up again
Today we had a busy day, 7 trades open and closed. The session ran on though and there were some that had to stay after class... in the interest of finding out what they did wrong to end up stuck in some positions when they should have been out. These were a handful of the new people this week, so it was interesting. I stuck around just out of curiosity.
Today was a $148 day, tax free so it is equivalent to a $246 taxable day. Seeing as $250 was my initial target I figure that $150 in he TFSA is the same target and a decent start. My TFSA average day is $119... yesterday was a $2.30 day... it happens.
We are starting to make more use of stop losses rather than continuing to ride a trade as all of the trades entered this week have been closed on the same day. I don't mind as the longer term plays I am getting into with the other services are for that style of swing trading anyway.
Position sizing today was ranging as I had everything from 1 to 6 contracts per trade... 6 was actually two 3 contract positions in the same contract though. If I considered all trades taken in the three days of TFSA trading thus far as 5 contract trades my daily average would bump up to $403. Now I would need to have a larger capital base to work from and I expect to be there in some short order. I know that $500 days are the target but I would like to aim higher. That may just mean sharpening my trading skills to get in and out of trades faster than the rest of the group and to that end I played with the trading platform a bit today to try out some trade entry tricks to streamline the process.
I have been entering the stock symbol in the option box window to get the contract chains up, which is fine, but was finding the price entry cumbersome trying to click on the price box and enter the price. I found that opening an alternate window gives all the level two style bid / asks which lets me just click on the price I want. Adjusting the price by pennies is just a matter of hitting the arrow keys then hit buy/sell.
Our entries have gone from holding firm to suggested limit order prices to entering "around the range" suggested. I have to have faith that paying a nickle or dime more will not adversely affect the final outcome enough to worry about. In that vein I figure that selecting the ask then entering the order as a limit will get me in with an upper limit on what I will pay. Hitting the ask is about as fast as a market order without the risk of getting a poor fill. In fact I did that today and on one trade I got a 17 better price than expected, which was also 17 cents lower than the highest suggested entry. I made a better trade than the group as a result...sadly it was for a single contract and my exit was later than I wanted as it was closed later in the day... but still at target.
The biggest topic discussed tends to be the importance of a good direct access broker. I like the speed of execution and prices attained through Questrade so I don't expect to switch. I know there are some cheaper brokers in the US that I might be able to use but I figure that the tax advantage of the TFSA far outweighs the possible lower commissions.
I am looking forward to tomorrow's trading and honing my speed of executions some more. As much as I like the idea of trading with a bunch of like minded people I am finding that in order to be successful the others almost have to be considered competition... after all, we are all after the same trades. Today I managed to get into every single trade. Yesterday I think that I missed two... I recall them being two of the more profitable ones two. I've got to take them all to average out the possibility of loser trades eating up capital.
Today was a $148 day, tax free so it is equivalent to a $246 taxable day. Seeing as $250 was my initial target I figure that $150 in he TFSA is the same target and a decent start. My TFSA average day is $119... yesterday was a $2.30 day... it happens.
We are starting to make more use of stop losses rather than continuing to ride a trade as all of the trades entered this week have been closed on the same day. I don't mind as the longer term plays I am getting into with the other services are for that style of swing trading anyway.
Position sizing today was ranging as I had everything from 1 to 6 contracts per trade... 6 was actually two 3 contract positions in the same contract though. If I considered all trades taken in the three days of TFSA trading thus far as 5 contract trades my daily average would bump up to $403. Now I would need to have a larger capital base to work from and I expect to be there in some short order. I know that $500 days are the target but I would like to aim higher. That may just mean sharpening my trading skills to get in and out of trades faster than the rest of the group and to that end I played with the trading platform a bit today to try out some trade entry tricks to streamline the process.
I have been entering the stock symbol in the option box window to get the contract chains up, which is fine, but was finding the price entry cumbersome trying to click on the price box and enter the price. I found that opening an alternate window gives all the level two style bid / asks which lets me just click on the price I want. Adjusting the price by pennies is just a matter of hitting the arrow keys then hit buy/sell.
Our entries have gone from holding firm to suggested limit order prices to entering "around the range" suggested. I have to have faith that paying a nickle or dime more will not adversely affect the final outcome enough to worry about. In that vein I figure that selecting the ask then entering the order as a limit will get me in with an upper limit on what I will pay. Hitting the ask is about as fast as a market order without the risk of getting a poor fill. In fact I did that today and on one trade I got a 17 better price than expected, which was also 17 cents lower than the highest suggested entry. I made a better trade than the group as a result...sadly it was for a single contract and my exit was later than I wanted as it was closed later in the day... but still at target.
The biggest topic discussed tends to be the importance of a good direct access broker. I like the speed of execution and prices attained through Questrade so I don't expect to switch. I know there are some cheaper brokers in the US that I might be able to use but I figure that the tax advantage of the TFSA far outweighs the possible lower commissions.
I am looking forward to tomorrow's trading and honing my speed of executions some more. As much as I like the idea of trading with a bunch of like minded people I am finding that in order to be successful the others almost have to be considered competition... after all, we are all after the same trades. Today I managed to get into every single trade. Yesterday I think that I missed two... I recall them being two of the more profitable ones two. I've got to take them all to average out the possibility of loser trades eating up capital.
Wednesday, April 7, 2010
TFSA day two.
This was a poor day, $7 in profits... better than a loss at least and all trades were closed, no hold overs.
I have been doing all the math showing some really nice numbers based on $10,000 trade sizes and what not. Today we had a talk, well, John did all the talking, in the direction of trade sizing. Apparently we are to keep out trades to a maximum of 5 contracts. I have no trouble with that initially as I am aiming for $1000 trades which makes most of the $2-$4 trades in the under 5 contract range. In a few weeks that will change. I had planned on at least hitting 10 contracts on larger options and up to 20 on smaller options.
The idea of limiting to this size is troublesome. I figure that I can trade the stocks and make use of larger trading capital by entering the stock at the same point as the options and exiting using trailing stops. The entries would be fine as the contract price entries are at or near low points, buy on weakness, and sold at high points, sell on strength. The thing about getting out of an option trade is that just placing a market order screws up the bid / ask for anyone else trying to get out at the same point. Market order exits in a liquid stock are just a matter of course and hardly have any real bearing on the price.
The trouble is I am using a TFSA and margin is not available and I cannot even just plunk a hoard of cash in there instead due to the $5,000 annual contribution limit.
So, back to options in the TFSA and stocks in the margin once I get things rolling along. I will aim for at least 100 share orders and will need to keep the price range under the $200 price range.
I worked out the trades for today based on time of entry in the options orders and the profits would have been in the $670 range if I had my $25,000 in the margin account. In the long run I will still be making the larger trades and may only use the options when they are being sold to open for some premium capture. I want to get my TFSA built up to be able to do the larger trades without going into margin use for these.
I am looking forward to a good day tomorrow and tuning my order entry to be sure to get into these options before the prices run up as they are lately... more people in the group will affect entries. 150 - 200 were about right. 300 is getting pretty full and we will have to be more selective on the stocks we are using. 500, the ultimate group size target seems like it may be too cumbersome, we will see.
Jeff.
I have been doing all the math showing some really nice numbers based on $10,000 trade sizes and what not. Today we had a talk, well, John did all the talking, in the direction of trade sizing. Apparently we are to keep out trades to a maximum of 5 contracts. I have no trouble with that initially as I am aiming for $1000 trades which makes most of the $2-$4 trades in the under 5 contract range. In a few weeks that will change. I had planned on at least hitting 10 contracts on larger options and up to 20 on smaller options.
The idea of limiting to this size is troublesome. I figure that I can trade the stocks and make use of larger trading capital by entering the stock at the same point as the options and exiting using trailing stops. The entries would be fine as the contract price entries are at or near low points, buy on weakness, and sold at high points, sell on strength. The thing about getting out of an option trade is that just placing a market order screws up the bid / ask for anyone else trying to get out at the same point. Market order exits in a liquid stock are just a matter of course and hardly have any real bearing on the price.
The trouble is I am using a TFSA and margin is not available and I cannot even just plunk a hoard of cash in there instead due to the $5,000 annual contribution limit.
So, back to options in the TFSA and stocks in the margin once I get things rolling along. I will aim for at least 100 share orders and will need to keep the price range under the $200 price range.
I worked out the trades for today based on time of entry in the options orders and the profits would have been in the $670 range if I had my $25,000 in the margin account. In the long run I will still be making the larger trades and may only use the options when they are being sold to open for some premium capture. I want to get my TFSA built up to be able to do the larger trades without going into margin use for these.
I am looking forward to a good day tomorrow and tuning my order entry to be sure to get into these options before the prices run up as they are lately... more people in the group will affect entries. 150 - 200 were about right. 300 is getting pretty full and we will have to be more selective on the stocks we are using. 500, the ultimate group size target seems like it may be too cumbersome, we will see.
Jeff.
Tuesday, April 6, 2010
NEW TFSA day
Today was a short day for me and I was only able to trade until 1000h due to a funeral. There are always other days. I actually figured that my cash would not have been transferred to the TFSA and tradeable yet so I was likely to pass on the day overall... but that was not the case.
I split the account into $1000 trading pieces, 16.7% per piece which is high but I anticipate either some sort of stop losses on future trades so the entire amount is not necessarily the possible loss all the time. It seems to be the consensus in the group that we set some sort of stop if a trade is not going anywhere to at least clear the books, at least there was a stop level posted today on one of our languishing trades at 15% loss. That would be $150 for me or 2.5% of the account, which is acceptable. The high win rate offsets the possibility of a total trade loss anyway.
So, I made two trades, netted $212 which is not huge until I consider that it represents just over $350 in pretax income...which is higher than my typical $250 target. My TFSA minimum target would be $150.
Also, I checked the other group trades to see what profits I missed out on.
20 cent, 45 cent and 17 cent trades which, based on the position sizing represents $60, $90 and $51 respectively. I must mention that the 17 cent was a stock trade in the margin account and I may have passed on that one anyway seeing as I am focusing on options in the TFSA. Potentially the day would have been a $312 day...net commissions and tax free.
My return was 3.12% and could have been 5% on the total account.
I will stick with $1000 sizing for now and worry about bumping that up next week based on this week's trading. I may leave it there and add another trade at $1000 if we trade often enough to warrant it then compound up from there depending upon market risk at the time.
All in all it was a good day considering it was so short.
Jeff.
I split the account into $1000 trading pieces, 16.7% per piece which is high but I anticipate either some sort of stop losses on future trades so the entire amount is not necessarily the possible loss all the time. It seems to be the consensus in the group that we set some sort of stop if a trade is not going anywhere to at least clear the books, at least there was a stop level posted today on one of our languishing trades at 15% loss. That would be $150 for me or 2.5% of the account, which is acceptable. The high win rate offsets the possibility of a total trade loss anyway.
So, I made two trades, netted $212 which is not huge until I consider that it represents just over $350 in pretax income...which is higher than my typical $250 target. My TFSA minimum target would be $150.
Also, I checked the other group trades to see what profits I missed out on.
20 cent, 45 cent and 17 cent trades which, based on the position sizing represents $60, $90 and $51 respectively. I must mention that the 17 cent was a stock trade in the margin account and I may have passed on that one anyway seeing as I am focusing on options in the TFSA. Potentially the day would have been a $312 day...net commissions and tax free.
My return was 3.12% and could have been 5% on the total account.
I will stick with $1000 sizing for now and worry about bumping that up next week based on this week's trading. I may leave it there and add another trade at $1000 if we trade often enough to warrant it then compound up from there depending upon market risk at the time.
All in all it was a good day considering it was so short.
Jeff.
Monday, April 5, 2010
Could have's and all in with the TFSA vs Margin and taxation
With the decision I made based on my last post, to cash in my Optioneer capital to trade my current plans, I ran some numbers to see where best I might use the transferred cash. I had already put all of the option trades into a spreadsheet in order to see what my 3 weeks of trading would produce if I extrapolated the same results forward. I considered that if I only used the three weeks that it accommodates a possible poor fourth week performance and sort of treats it as if the fourth week only broke even...unlikely but possible. I also set this up as if I were following a truly equal weighted trading plan.
I ran six separate "studies" as follows:
Three used a margin account... which does not help with the option trading except that I could start with more cash. The other three use the TFSA account.
Margin:
$20,000 start up, 4, 5 and 6 concurrent trades (basically using three trade sizes, 25%, 20% and 16.7%)
Taxes are deducted at 40% at the end of each year.
Trade size is only adjusted at the end of each month... so monthly instead of daily compounding.
TFSA
$6,000 start up, 4, 5 and 6 concurrent trades (basically using three trade sizes, 25%, 20% and 16.7%)
Taxes are not deducted, none owing.
Trade size is only adjusted at the end of each month... so monthly instead of daily compounding.
Maximum trade size is $10,000.
Results:
Margin:
Balance at year one: 4 trade = $256,892, 5 trade = $248,855, 6 trade = $239,867
Balance at year two: 4 trade = $526,271, 5 trade = $518,264, 6 trade = $509,245
Maximum trade size reached in months June, June and July respectively.
TFSA:
Balance at year one: 4 trade = $352,452 , 5 trade = $322,513, 6 trade = $291,108
Balance at year two: 4 trade = $787,416, 5 trade = $757,457 , 6 trade = $726,072
Maximum trade size reached in months August, September and October respectively.
I thought about bumping the TFSA up $5000 after next January but what would be the point? The income is already flowing well above worrying about that, in fact the maximum trade size is already achieved well ahead of that. I expect that I will be peeling off cash in order to fund other trading that may involve needing margin, or perhaps not.
The long and short is that the TFSA, once again, beats margin hands down... taxes take their toll. It might be different if I were able to leverage the 3:1 margin for these trades but the max trade size is max for reasons of affecting the trades within the group so margin is a secondary issue.
Having said that I will be using margin for the stock trades that we take, we have taken a few, two today in fact, so restricting my study to only options traded is a bit narrow minded. I don't mind that as it skews the results against me, if you can call those two year forecasts "against". I also did not count the other two services that I subscribe to, which are both in the green. I used very little cash to fund these so I expect to turn up the heat on those shortly.
So, I "could have" been that much farther ahead already had I started "all in".
I am waiting for the cash to settle in my TFSA as I type this, request to transfer was placed immediately after trading on Thursday last week. It takes three business days due to the way that they convert and transfer the cash. Had I known I could have done it same day in a different manner....oh well. I will consider April month one and will reset my stats to match this as time progresses.
Jeff.
I ran six separate "studies" as follows:
Three used a margin account... which does not help with the option trading except that I could start with more cash. The other three use the TFSA account.
Margin:
$20,000 start up, 4, 5 and 6 concurrent trades (basically using three trade sizes, 25%, 20% and 16.7%)
Taxes are deducted at 40% at the end of each year.
Trade size is only adjusted at the end of each month... so monthly instead of daily compounding.
TFSA
$6,000 start up, 4, 5 and 6 concurrent trades (basically using three trade sizes, 25%, 20% and 16.7%)
Taxes are not deducted, none owing.
Trade size is only adjusted at the end of each month... so monthly instead of daily compounding.
Maximum trade size is $10,000.
Results:
Margin:
Balance at year one: 4 trade = $256,892, 5 trade = $248,855, 6 trade = $239,867
Balance at year two: 4 trade = $526,271, 5 trade = $518,264, 6 trade = $509,245
Maximum trade size reached in months June, June and July respectively.
TFSA:
Balance at year one: 4 trade = $352,452 , 5 trade = $322,513, 6 trade = $291,108
Balance at year two: 4 trade = $787,416, 5 trade = $757,457 , 6 trade = $726,072
Maximum trade size reached in months August, September and October respectively.
I thought about bumping the TFSA up $5000 after next January but what would be the point? The income is already flowing well above worrying about that, in fact the maximum trade size is already achieved well ahead of that. I expect that I will be peeling off cash in order to fund other trading that may involve needing margin, or perhaps not.
The long and short is that the TFSA, once again, beats margin hands down... taxes take their toll. It might be different if I were able to leverage the 3:1 margin for these trades but the max trade size is max for reasons of affecting the trades within the group so margin is a secondary issue.
Having said that I will be using margin for the stock trades that we take, we have taken a few, two today in fact, so restricting my study to only options traded is a bit narrow minded. I don't mind that as it skews the results against me, if you can call those two year forecasts "against". I also did not count the other two services that I subscribe to, which are both in the green. I used very little cash to fund these so I expect to turn up the heat on those shortly.
So, I "could have" been that much farther ahead already had I started "all in".
I am waiting for the cash to settle in my TFSA as I type this, request to transfer was placed immediately after trading on Thursday last week. It takes three business days due to the way that they convert and transfer the cash. Had I known I could have done it same day in a different manner....oh well. I will consider April month one and will reset my stats to match this as time progresses.
Jeff.
Friday, April 2, 2010
Another one bites the dust.
I have not named services for a variety of reasons. One was that if I mentioned a service that appeared to be a good deal and turned out to be not so good...well, if anyone actually signed up based on anything I said in here... I just skipped names.
I made one exception for the Optioneer service as I had faith that their trade selection methodology would be as sound as the theory behind the trade style. Iron Condor option trades can have a sound application if used correctly. It turns out that the Optioneer model is not as sound as it would appear.
Now, I still feel that it could be a good service if traded with a more conservative approach, longer time frames on the trades with the plan to exit the trade earlier, perhaps when the value of the trade exceeds the initial time value. This can increase the overall returns to a degree.
Having said that I have had a number of trades lose money, enough that recovering from the loss would be a longish process. The nature of iron condors is that the amount of cash at risk is much higher than the potential profit. One short falling was I was not aware that certain trades that I made were not going to fall under the terms of the performance agreement which means that the overall agreement timeline was too short to enable me to place all the trades necessary to meet the requirement. If I worked the trades to the minimum times right now I would be short by one trade. Given that having trades filled is less frequent than having them not fill means that it is unlikely that I could pull it off. Besides, even if I did the chances are that I would make the minimum profit requirement and not get to cash in on the refund.
The long story turned short is that I would be wasting my time with daily returns of one tenth of what I am returning right now in my Questrade account. So I will be shutting this service down, taking my lumps of the loss and the up front setup fees and putting my money to better use.
Could I have made it work over the long term? Sure.
Do I want to? No.
Do I regret mentioning the service by name here? Sort of.
If I decide to dabble in spread trades again I will do it either in my Questrade account or with an option specialty broker that does not attempt to make money off of services other than the commissions. I didn't begrudge the "other than commission" fees but perhaps I was too quick to get into this service when I could have setup something similar through someone like OptionXpress for very good commission rates... commissions only.
So, another one bites the dust and I should have done more homework in advance of signing up... or at least before making the main commitment.
Jeff.
I made one exception for the Optioneer service as I had faith that their trade selection methodology would be as sound as the theory behind the trade style. Iron Condor option trades can have a sound application if used correctly. It turns out that the Optioneer model is not as sound as it would appear.
Now, I still feel that it could be a good service if traded with a more conservative approach, longer time frames on the trades with the plan to exit the trade earlier, perhaps when the value of the trade exceeds the initial time value. This can increase the overall returns to a degree.
Having said that I have had a number of trades lose money, enough that recovering from the loss would be a longish process. The nature of iron condors is that the amount of cash at risk is much higher than the potential profit. One short falling was I was not aware that certain trades that I made were not going to fall under the terms of the performance agreement which means that the overall agreement timeline was too short to enable me to place all the trades necessary to meet the requirement. If I worked the trades to the minimum times right now I would be short by one trade. Given that having trades filled is less frequent than having them not fill means that it is unlikely that I could pull it off. Besides, even if I did the chances are that I would make the minimum profit requirement and not get to cash in on the refund.
The long story turned short is that I would be wasting my time with daily returns of one tenth of what I am returning right now in my Questrade account. So I will be shutting this service down, taking my lumps of the loss and the up front setup fees and putting my money to better use.
Could I have made it work over the long term? Sure.
Do I want to? No.
Do I regret mentioning the service by name here? Sort of.
If I decide to dabble in spread trades again I will do it either in my Questrade account or with an option specialty broker that does not attempt to make money off of services other than the commissions. I didn't begrudge the "other than commission" fees but perhaps I was too quick to get into this service when I could have setup something similar through someone like OptionXpress for very good commission rates... commissions only.
So, another one bites the dust and I should have done more homework in advance of signing up... or at least before making the main commitment.
Jeff.
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