Spy going forward.

Chart:

The latest arrows are the current strikes for minimum target spreads for me now. Note that the price is in the middle of the current linear regression channel. had the price been near the top, about $2.50 higher, the best strike may have moved up 2 or 3 points to match. That puts me at the prime point to enter a call spread... 119, 120 would feel a whole lot better to me.

Same deal with the puts, more or less. given a price drop to the lower side of the channel I might expect the premiums to jump to place my minimum target strike another $1 lower... just due to the relationship between increases in volatility as the market drops and the premium on put options.

I have two trades expiring Friday and these may free up some capital for me to place trades next week so I have to wait, but I would have waited anyway.

I did February expiry's out of curiosity. Calls would be 119 and puts at 106...not the best even though the puts are well outside of the technical resistance. The call certainly are not.

Jeff

"...but I digress"

I scanned through a few blogs and found one that looked interesting and that was supposed to follow this guy on his journey to get rich through investing. I read the post from March 25, 2007 that outlined initial purchases and the plan going forward was to include some sort of DCA strategy to enter into a few index ETFs. Buy and hold.

The blog petered out as the market dropped out. March 07 was near the peak...there was no index money to be made past that point, in any long term long only method. Market euphoria was still firmly in place and everyone and their dog thought they could make money in the market.

Rather than chronicling his utter failure and attempting to plan an alternate strategy he must have considered the failure as a sign that he should not attempt to dabble in the market at all.

This is typical of the majority of traders, according to the 90% plus that fail at trading, no secondary plan, no diversity in strategies and no wider vision. Jump in, lose and jump out.

I was starting my journey late in 2007 and cashed out all of my mutual funds in December and January. Nicely timed even if it was not designed to capture the peak... but I am not trying to blow my own horn here, but my timing was bang on if only because I recognized that shorter term trading with no or lower MER products was more likely to work out. I was just looking at things at the right time.

A few days ago I talked to a fellow about trading and investing, he was the investing sort. Through the drop he lost, on paper, the typical 30% of his portfolio. His portfolio has returned to an 8% loss to date. Not too shabby of a return, given the circumstances. The trouble I would have is that, in his case, this was his retirement plan. He has had to move hie retirement plan back a number of years.

Jeff.

Timelines and cashflow

I was putting in a bit of time while making sure that all was clear at work for the Holiday and I let my mind wander. The title does not tie two related topics together but addresses two important ones for me.... and neither should be long enough that I feel compelled to create two posts.

First, a comment by a professional trader who is starting to get in to the teaching side of the game. Fellow by the name of Ray Barros. Unlike a lot of the teachers he is looking at teaching his methods and providing insight into one of his chosen indicators as well as one that he had developed. He is successfully managing client's accounts as well as his own trading account and has been trading since 1990 or so.

The comment was that it took him 10 years to become consistently profitable.

Ouch!

I should ask him what that meant for him to quantify the idea of "consistently profitable".

Any of us that seek to become consistently profitable in any short order need to take pause and consider this. Now, I will admit that it may be easier now than it was then with the proliferation of online information, online brokerages and easier direct access to markets but still, 10 years. Don't be in a hurry to quit the day job.

My goal is to be able to rely solely upon trading and investment income as soon as possible... whether I do or not is beside the point. The "as soon as" is a fluid concept even though I have targets and goals. Some of those just have not worked out exactly as I would have liked for a number of reasons, and not all do to missed profitability. The need to continue to hold down a real job has shifted my idea of the timeline for both attaining my primary goal and shifted me into a less time consuming method of managing trades.

Basically I determined that I cannot day trade my way to wealth.

Now, the cashflow issue... I keep re-working my spreadsheets for call and put spreads to include certain target levels and I am finding that they shift easily depending upon the position size. Due to my small capital base the commission makes more of a difference on the bottom line that I would like. If I consider $10 per day based on a $5,000 trade size an acceptable Return On Risk then I can scale that accordingly as long as I leave in the commission factor as it varies with position sizing.

0.2% per day of the trade net commissions. Setting up a sheet to represent this over various timeframes and credit amounts was easy enough, if a bit tedious. I left out commissions but used the risk as if there were no credit applied due to the trade execution...it gets me very close. The rest I work out on the call / put check sheet where I put the bid asks over the OTM option chains.

Rather than get into the particulars, this means that no matter the size of the trade 0.2% ROR after commissions will always yield $10 for every $5000 of gross risk. A 6 contract trade on a $1 spread will need a slightly higher credit off the start than a 25 contract trade with a $2 spread but either will yield my target considering the combined concurrent trades.

Jeff.

Optioneer / Strikepoint Trade Expiry

I forgot to mention that I had my first Optioneer / Strikepoint trade expire on Friday past. I could have closed it a day or two early and still made the full target but decided to just let it expire.

ROR = 8.62%
Annualized = 98.38%

ROI for the entire account even considering my latest deposit is 18.5% annualized... that is one trade of the five trade capability. 5 trades x 18.5% = 92.5% without factoring in compounding. Every 13 trades I can add one more, roughly.

Just spinning the numbers.

Jeff.

S&P 500 SPY spreads vs scaled trades.

I got lazy and just used the same chart here.

Last post I mentioned diversification in trade type, price levels and timeframes. It reminded me that I could scale into a trade to try to effect some sort of similar idea, not really DCAing as I am looking to grow a core position by adding to it at key times.

I can make a general assumption that the spreads were all profitable, as they all would have been based on the price moves and trade entry points.

In order to fudge against me I will use my minimum $2.40 per day yield based on a $1200 risk trade. Even though I already see that a SPY spread even at today's low VIX numbers can be much higher than that I would choose the safe trade as $2.40 per day lets me run the spread strike farther away from the price. This is 0.2% per day ROR or 6% ROR based on a 30 day trade.

So a quick 22 trades at 30 days per trade calculation leaves 660 trade days at $2.40 is $1584. I would want to optimize my trading to allow for certain overlaps depending upon my capital so I might run $2400 trades here and there. Regardless, this is for a comparison only anyway.

At most, four overlapping trades which uses up my $5000 base. That is a 31.7% return on the account base and I can add one more trade capability into the mix to start the compounding effect.

Scaling into this through purchasing shares directly in SPY in 10 share chunks. Buy at the good bottoms and hold through the top.

Buy at $70, $80, $90, $90, $100 and 6 shares at $104. Average cost is $87.93 for 56 shares. Current price is about $110 so $22.07 per share gain for $1236....if sold now. With a tight stop during this uncertain period it might get sold... maybe not. I can only make money as the price goes up and can only compound if I sell and catch a drop...if the drop reverses when I think it ought.

Meanwhile I am trading spreads and seeing profits while the price wallows each month as expiry dates pass. This way there is a cashflow. Buying and holding has no cashflow...although there is a slight tax advantage when it comes to capital gains

Jeff.

Closing more long calls and the going forward TFSA plan

I closed another long call today for somewhere near a 110% gain. I took it out based on an early morning surge in the underlying price that seemed to peak. I had decided to take any 100% gains this week and close others on strength if they were profitable as the week progressed. So this is a little bonus...particularly after Friday's expiration as four positions closed for 100% losses.

Overall, I am 22 winners out of 36 losers which is not a bad win rate, 61%, and I am still profitable. It just is not good enough to continue paying for a service for that kind of rate. Particularly as I will have more 100% losers come January expiration I expect. My overall rate of return is between 12 and 13% and that is for a period of about 3 months.

The trouble with the win rate is that a loser is likely to be a 100% loser which means a winner must always be a 100% gainer, and they are not all that at all.

I will be removing any extra cash from my TFSA this week as it will free up TFSA contribution room for next year. If I wait until January it will not. This allows me to add to my spread trading account which I would rather be working for a far more secure return without relying on any services to provide entry and exit guidance.

The grand plan is to run a sector rotation style trade setup out of the TFSA using ETFs for long and inverse ETFs for short plays against the respective sectors. While I am saving some cash for this I will likely run a live paper trading model to see how it works in "close to real life". I will look at switching back to Canadian ETFs in order to lower my trading costs in the account, even though I know I cannot set stop loss orders... I may find that access to the same information is not readily available for what I am looking for though and the TSX makes poor proxy for NYSE indices and securities.

Jeff.