Revival today, sort of.

I expected another non-event day today... or at least some small gainer trades again... while I was not completely wrong it ended up on a better note than I initially anticipated.

Seven trades closed, 5 new ones from today and two older ones from last month that I decided to hold even though the group closed them for losses already... group dynamic thing. I still have two more that I have set very modest sell targets on but my account looks MUCH better now than it did this morning.

I updated my stats for June on my main page.

I almost doubled my profits for the month to date just today (yah, June was THAT bad)... it was a $421 day. Nice note to end the month on. I held positions today ranging from 2 to 12 contracts. The best part was catching the end of the day plunge as I watched the market sell off heavily in the last 30 minutes. I setup all my remaining positions so I could market order to sell them with one click per trade so I closed five trades between 1539h and 1543h for pretty close to maximum gains as the huge down move lost momentum. Actually I called the bottom well enough as it hit bottom at 1545h and bounced for less than 3 minutes before recovering a few points.

I checked the difference in commissions. Not all of my trades were under the new lower rates as two were open from before but even so it would have cost me over 35% more. That's about $62. Nice to have a little extra in my pocket like that. I think switching to IB may only be a break even game now...except for the increased efficiencies in the platform and the i-phone trading application.

I think that this may be the last month that I run two sets of charts to compare various methods of sizing as I have hit upon what looks like the best method now. That will save some time in setting up July's tracking chart at least.

Jeff.

Position sizing re-visited yet once again

I know I keep coming back to this topic often and, although this is not a change since last time I mentioned it, it is worth observing.

I had raised my trade sizing up to an average of the entry prices and considered that every trade was going to be equal sized, and that looked like a decent plan. The trouble was that it out sized a few losers and under sized a few winners which will tend to skew the result to the negative... even though, historically speaking, it worked out very well. But "very well" isn't my thing.

I set up a spreadsheet to give me scale entries based on option prices based on 50 cent increments and it calculated the appropriate quantities for me. That was OK... but "OK" also isn't my thing. This method restricts me to increments that jump 4 and five contract increments in the lower range which left me guessing a bit when the price was between, say $2.00 and $.50, or even worse when it was between 50 cents and $1.00.

So rather than reducing the pricing I decided to let the trade size determine the entry price levels. So for every single contract increase in trade size the price self adjusts to my trade value based on cash and number of trades with a 20% cash holding buffer (basically I will only trade up to 80% of the account cash left and I figure that I will not actually get all trades filled anyway so it ends up being larger cash holding). This way the 50 cent trade sets the bar by using the trade value to produce the largest trade in the bunch, then it auto-increments down to 1. At certain points I have it set to decrement in 2's, 3's and 4's as the trade size gets larger to make the chart more manageable... but then again by that point I will probably be trading with IB and they have this as a setting to auto size the orders.

My point was that my average contract count per trade ends up being just OVER my estimated trade size if it were based on same sizing. Right now it is at 5.81 for June when I did 400 for the first week, 500 for the second week and now value sizing for the last two weeks.

The other thing that I just realized is that when averaging down on a trade after the price of the option has moved down against the entry price I can increase the contract count for the second entry which will serve two purposes.

1) it will average the price lower than an equal contract count second entry

2) which will allow a greater leverage of the entire position

A trade that I am in right now, for example:

FSLR first entry at $3.55 for 2 contracts (total value $710)

FSLR second entry at $2.90 for 2 contracts puts me at $3.225 average (total value $1,290)

I could have entered the second for 3 contracts and brought my average to $3.16 for a total value of $1,580. Seeing as my trade value is set at $736 the first trade is under and the total position puts me a bit over based on it counting as two trades.

When the stock moves I will see a higher absolute profit...if it moved against me the reverse is also true though. But that is the nature of the market.

Jeff.

Apparent new plan...timing or what.

It would appear that John is shaking the tree to weed out the small accounts and the uninitiated or inexperienced traders. Today's trade were small and could have been let run for larger gains instead of the 10% gross returns. This plays hard against small accounts due to the larger relative commission cost and the net profits not being large enough to cover operating expenses.

The last three days have barely netted me $100. That would make a month barely cover the cost of the service without counting any other data services and whatnot. Even taking June altogether the daily average is about $41 due to the largish losses due to expiry's and closing a few positions in the interest of starting from scratch.

Even just going to IB for the exact same trades I would be at almost $200. My daily June average would be $99 and I would have at least doubled the expenses for the month.

Then taking all my current capital and doubling the trades my daily average would have been $198. More respectable but I am planning on tripling my startup right away as a minimum which has me at the $297 mark. Keeping in mind that I have not been equal weighting my trades this month and this includes taking a $15,000 loss in the mix... that would not happen given the new trading plan. Just reducing the big loss to a smaller loss, which I did the calculations already once, puts me at a $700+ daily average.

Of course, as always, these are projected numbers but they serve to give me an idea of where to place my expectations.

Yesterday I had made a list of action items to take me to the next phase of my trading and it included buying an i-phone to allow trading while away. Upon looking into doing this I see that the i-phone 4 is due out next month. Given some of the increased functionality (multi-tasking is a big one for me) I will wait and get one of those instead. The larger battery will be nice as well as the newer email setup.

Among the other things to do this week were transferring my free cash into my margin account, completing the IB account application, continuing trading in the TFSA for now to finish out this month, liquidating my stocks.

So my timing is very good. I am just getting ready to increase my daytrade capital when we are shaking out small accounts, buying a new i-phone when the i-phone 4 is due out, setting up an IB account at the time when I might expect to be able to fund it properly next month.

I'll update my stats after the end of this month, as poor as they are going to look.

Jeff.

Consolidation and extrapolation

Time for some hard thinking about my day trading... what is the next level?

Between yesterday and today I posted somewhere under $60 in net profits based on a gross profit of $165.03 less commissions. With IB my take would have been around $146... which is 240% higher than my return. The trades are only between 9 and 21 cents per contract so I need to consider increasing my capital to trade more contracts as well as decreasing my costs as I am not certain that there will be as many large profit trades going forward. The format we are using now, although a return to the original, has a twist. We are not holding ANYTHING over night or even into the later day. While that may change I cannot bank on it and therefore I need to consider that we may just be taking more smaller and incremental profits.

Having said that, Tuesday and Wednesday were not bad due partially to more trades and partially to some better gains. My concern is that many posted that they were able to make the $500, or close, gain for the day and there may be a move toward keeping to the lower profile format trades. This would not bode well for a smaller account like mine.

The IB route will help but is not going to happen until my current momentum trades are completed later in July and even that timing may depend upon what profits that are to be had from those trades still in progress. If they are not so great then I am going to have to build up cash with day trading first. Also, I cannot use less than $25,000 which is a benefit in and of itself.

So the plan now becomes one of consolidation of my capital. Taking my current trading and extrapolating the results based on possible cash transfer balances results in a relative increase of my profits once I take the switch to IB. That and applying the decreasing relative commission costs should give me a rough guide as to where I might expect to be.

As it stands I can double my cash by moving it into the margin account then work with those increased profits to create a larger base to move to IB faster even given the high commissions. This assumes that I take 100% losses on all of my current positions, just as a worst case scenario.

Seeing as we are not going to hold trades overnight I can eliminate the June 18th losses as they were expired contracts. This gives a better idea of where June may have been otherwise, then doubling my profits and applying the IB commission structure for a comparative purpose only. I dropped all the losers to a 20% loss to simulate the current plan...we are looking at about that for stop losses right now so it is about right even though some of the losers were from the prior month... I will remove those as well for realistic results.

TFSA with Questrade:

Profit = $4900

Monthly ROI to date = 38%

IB recalculated:

Profit = $6349

Monthly ROI to date = 49%

Questrade recalculated after consolidation at June startup figures:

Profit = $8183

Monthly ROI to date = 38%

IB recalculated after consolidation at June startup figures:

Profit = $10,602

Monthly ROI = 49%

IB recalculated using a $30,000 base for June startup:

(my minimum target deposit, which I will likely overshoot once profits are taken into account at the time of transfer)

Profit = $14,602

Monthly ROI to date = 49%

Well, taking the current TFSA recalculated June profits of $4900 and the IB based on $30,000 base of $14,602... or $8761 after worst case taxation, I am obviously ahead doing a full consolidation and transfer. Had I realized that IB was an option at the very beginning I would already be there and be seeing the results directly instead of having to wait for cash to become free in order to get this plan rolling along. I was too focused on the tax free implications and lost sight of the fact that there were other cheaper and better brokers for the plan that I was going to implement. Nothing against Questrade. They have been a very good first choice while I played with my small account balances to see where I would end up, something I could not have done with IB from the start anyway. April I could have switched but to be honest it was not the right time... now is.

Jeff.

BP and annoying email offers

I keep getting emails that have the tag line "Last chance to buy BP at$##.##".

Of course the whole email is a marketing ploy to get me to sign up for some service or other that is based around this individual's television personality...no not Cramer, but a similar name. Funny thing is that the price to buy BP keeps getting lower and lower each time. What a load. I think it started around $36 and change.

Rather than rant about any of this I thought I might take a quick look at the technicals for BP...given the Gulf crisis I think that the foreseeable future looks pretty bleak for the stock prices.

Here is a monthly chart that covers the stock since listing. I noted three major monthly support and resistance levels and some of the important periods that the price was playing near these levels. Note the next support level is around the old $20 mark... it has a bit of a ways to go but if I were even considering trading BP I would be shorting it heavily... in fact had I been watching it at all I would have just bought some 55 strike July or August puts back when the price was toying with $62.50 as it is an old resistance level from 1999. But that would not have been the only reason although this would have been pre-gulf disaster time so that was not a factor at all, it has just been a huge catalyst.



Taking this down to a weekly chart I left the same S/R lines and added a rising wedge trend. I started using the Aroon indicator lately as it shows trends as they establish. I am not familiar with how it does this as I am with other indicators and oscillators but it seems to work. I'll get around to the math some other time.

Meanwhile, the downtrend was indicated as established late March while the price was approaching the retest just over $60. Given that the resistance and moving averages were converging it was a nice setup to short or buy a put.

Looking at the price move through the lower red resistance line I would have to say that resistance at this point is next to nothing.

Looking at the daily chart it is plain to see the day things turned nasty. The rig explosion took place on April 20th and everything that followed just added to the mayhem.

The green support is about $21 and is the next possible stop for the price...depending on what happens in the gulf and some government actions. I would still consider getting in on this railroad ride but I have all of my trading capital allocated right now and I would rather not over extend myself.

I wonder when they are going to stop trying to call the bottom. Best is to trade it when it appears.

Jeff.

The jury is back on TFSA vs margin and new brokers

I did a commission comparison for Interactive Brokers compared to Questrade for strictly option trades.

Questrade is $9.95 for the trade and $1 per option each way. That is $29.90 for a 5 contract trade round trip. Doing 5 of those per day is $149.50 for the day...but that will be a smallish day.

Interactive Brokers charge $0.70 per contract with a $1 per trade minimum. A single contract trade would be $1 in and $1 out. The 5 contract example would cost $7 and the 5 trade cost would be $35.

The difference in costs are $114.50. Substantial, especially if it were a breakeven day without commissions.

Using my spreadsheets with all my data since April 1st to date I ran the trades as if they were using IB commission rates and saw a difference of $4121.29 in commissions that I could put into my pocket as profits...for less than three months trading.

OK, there must be a downside.

Well, no TFSA or RRSP accounts. These guys take options trading seriously and figure that anyone using them are serious or professional traders and will not be trading the retirement money.

They observe the $25,000 minimum levels with regard to pattern daytrading. Anything less and the account cannot be daytraded. Back to serious. No playing about with $10,000.

This all boils down to full taxation on the profits. Well, I ran some numbers comparing TFSA with the limited balance vs using a typical account, again. I set them up a bit differently this time as I noticed a slight error on some references (I was using one balance to apply a return for the following three months... fudged against me so it was fair, I just thought I would correct it).

This time I set the ROI per month to decrease each month by a variable amount (1% - 5%) to reflect the growth of the account and the lowered efficiency of trading a larger account. I set the stop to hold at 9% monthly return once it hit that level.

Running all my numbers of TFSA vs margin account starting the TFSA at $15,000 and the margin at $30,000 has the TFSA outstripping the margin in 3.5 years at the earliest. This assumes identical returns for each, so both Questrade commissions.

Using Questrade vs Interactive Brokers and some loose estimated commission differences I stand to save over $130,000 in commissions in those 3.5 years.

WOW!

Now, the account balances are much higher than I might expect given my trading right now, but they may not be once I really get rolling along later so I won't discount them as possible. Using my fudgyist fudge of a 5% per month decrease in return based on each month's balance I will be down to making an ROI of 8% in a year. That is starting at 50% now. I had 45% last month so that is not out of line. Even at that I show a balance of over $2,000,000.

So, is it worth it to struggle with the TFSA and higher commissions? Not really. After 3 or 4 years I won't complain if my multi million dollar account is not quite up to par with the possible tax savings to be had in the TFSA.

I actually expect that the government will cap the allowable profits once they see people starting to use them as their sole source of income anyway. More likely they will just start taxing the income withdrawn once it reaches a certain point as the intent of the account is not to produce an income and, like those who tried to take advantage of the over contribution loophole, they will find the loophole closed.

Other advantages will be that the IB platform is really nice and fairly intuitive with more selection in order types and a better layout for pre-setting up options for immediate trade executions. They also have a setting for trade value that automatically selects the contract count based on a dollar limit. Nice with my shift to same value over same size.

So, time to start the paperwork to get this going. I only have to wait for my medium term trades to turn the profits, liquidate my TFSA, close the stock trades and pull all my cash together to transfer over in order to start trading the account in July...or perhaps use July profits to pad the account as I don't want to have just $25,000 in the account. A couple of losing trades will sap it enough that it could halt trading for me... that would suck. I see a few in the room that have had that happen to.

Jeff.