I've moved our trade history and record and activities over to ELITE TRADER.
Currently using OEX WEEKLY OPTIONS
We were on SPX Credit Spread Trader for a while in the ELITE TRADER forums, but eventually moved from there to OEX WEEKLY OPTIONS for debating, reporting and educational purposes.
If you wish to follow our option trading education and success or failure, follow it here.
Monday, September 27, 2010
Friday, May 21, 2010
JUNE OPTION MONTH TRADES ( report #32 )
Report #32
JUNE OPTION MONTH STARTING 21ST OF MAY TO JUNE 18 TH ( Third Monday of May, to third Friday of June month )
TRADES: Goal is to duplicate the success of May with 16 trades entered and won. It has taken 10 months to get to this point in the evolving trading methodology. This is the June Trading Month as we go along.
Number of trades to date: 4 ---- June 1st ---
Number of winning trades: 0
Number of trades exited at breakeven: 2
Number of losing trades: 0
Open trades pending working: 2
Percentage of total annual wins to losing trades: 100%
_________________________________________
Return on GROSS ACCOUNT CAPITAL is running between 3% and a little over 5% per month. Individual trade returns vary slightly.
___________________________
Trade 1 with ThinkorSwim: 1 Long Call Aug 490 @ 26.30 May 27th OEX 494.52
( Trade 1 exited at breakeven one week later ) Failed to get timing right.
Trade 2 with Option House: 1 Long Call Aug 490 @ 26.65 May 28th OEX 495
( Trade 2 exited at breakeven one week later ) Failed to get timing right.
Trade 3 with Thinkorswim an IRON CONDOR
a) * 10 - 510/510 Bear Calls at .50 cents Vertical Spread -- OEX 493.75
b) * 10 - 480/475 Bull Puts at .65 cents Vertical Spread __ " ___
_________________________________________________________
JUNE OPTION MONTH STARTING 21ST OF MAY TO JUNE 18 TH ( Third Monday of May, to third Friday of June month )
TRADES: Goal is to duplicate the success of May with 16 trades entered and won. It has taken 10 months to get to this point in the evolving trading methodology. This is the June Trading Month as we go along.
Number of trades to date: 4 ---- June 1st ---
Number of winning trades: 0
Number of trades exited at breakeven: 2
Number of losing trades: 0
Open trades pending working: 2
Percentage of total annual wins to losing trades: 100%
_________________________________________
Return on GROSS ACCOUNT CAPITAL is running between 3% and a little over 5% per month. Individual trade returns vary slightly.
___________________________
Trade 1 with ThinkorSwim: 1 Long Call Aug 490 @ 26.30 May 27th OEX 494.52
( Trade 1 exited at breakeven one week later ) Failed to get timing right.
Trade 2 with Option House: 1 Long Call Aug 490 @ 26.65 May 28th OEX 495
( Trade 2 exited at breakeven one week later ) Failed to get timing right.
Trade 3 with Thinkorswim an IRON CONDOR
a) * 10 - 510/510 Bear Calls at .50 cents Vertical Spread -- OEX 493.75
b) * 10 - 480/475 Bull Puts at .65 cents Vertical Spread __ " ___
_________________________________________________________
Friday, May 7, 2010
Report #31, Trades status TEST SPREADS
REPORT #31 TRADES STATUS UPDATE
MAY 21st., 2010 May Expiration Friday for options.
Number of trades to date: 16
Number of winning trades: 16
Number of losing trades: 0
Open trades pending working: 0
Percentage of wins to losing trades: 100%
_________________________________________
THE LOWEST RISK, EVOLVING TRADING SYSTEM
I was looking for the lowest risk trading system possible. In ten months, we have tried numerous things and discarded anything that had regular losing trades as part of the methodology.
What is evolving is a LOW RISK, TRADING MONEY MAKING MACHINE!
What is the actual risk I am not yet sure? We haven’t lost anything yet.
Some statistics can be extrapolated from trading so far:
1) The trading method is earning an average of 4% on invested capital / per month.
2) That means $10,000 will earn $ 400 gross profit return per month on average.
3) Dependent on the size of your account, you can judge whether you will have enough money on a monthly basis to use as an income flow.
4) This is gross income, and I have not yet found an accurate figure for income tax payments. But these seem to be between 28% and 30% per year off the gross income.
5) Annual income would be on average, 48% per year of capital invested. Income tax would reduce this to a gross income of 48% per year, to a net income FLOW OF 33.6% of capital invested, return on capital.
6) There are several things involved in RISK MANAGEMENT. To get the lowest RISK PROFILE, the available account capital to trade on a per month basis is divided into 8 trades. This is called diversification. The individual return on capital per each trade varies, dependent on the part of the month the trade is implemented. More diversification of trades can lower the 4% gross return on capital invested somewhat. Concentration of trades into fewer choices increases the profit profile but increases RISK. Some months; the opportunities only allow 6 trades, leaving some account money unused for that month with which to trade. This lowers the return slightly.
7) INCREASING THE PROFIT monthly profile, requires changing the risk profile and increasing RISK.
8) There are two ways to increase the PROFIT PROFILE. The first is to consolidate the 8 diversification trades into only 3 trades per month and place these at the early part of the monthly trading strategy, when the premium gap is largest. You can get increased profit return, over 5% per trade this way. This of course increases your risk of loss from concentration.
9) The other way is to increase your number of contracts traded on a per trade basis. Or more selectively throughout the month. We are working on this study.
10) It would seem that $250,000 would be a comfortable trading account to work with? The particular market I am trading, which is the OEX CASH INDEX is very liquid and can absorb this amount and the gross return would be $10,000 per month. Or $120,000 per year, GROSS.
11) For larger amounts of money, you would have to go into parallel cash indexes, or stock screening and run a number of parallel operations at the same time.
12) This cash machine utilizes ALL your capital each month. It is a monthly / weekly trading system.
MAY 21st., 2010 May Expiration Friday for options.
Number of trades to date: 16
Number of winning trades: 16
Number of losing trades: 0
Open trades pending working: 0
Percentage of wins to losing trades: 100%
_________________________________________
THE LOWEST RISK, EVOLVING TRADING SYSTEM
I was looking for the lowest risk trading system possible. In ten months, we have tried numerous things and discarded anything that had regular losing trades as part of the methodology.
What is evolving is a LOW RISK, TRADING MONEY MAKING MACHINE!
What is the actual risk I am not yet sure? We haven’t lost anything yet.
Some statistics can be extrapolated from trading so far:
1) The trading method is earning an average of 4% on invested capital / per month.
2) That means $10,000 will earn $ 400 gross profit return per month on average.
3) Dependent on the size of your account, you can judge whether you will have enough money on a monthly basis to use as an income flow.
4) This is gross income, and I have not yet found an accurate figure for income tax payments. But these seem to be between 28% and 30% per year off the gross income.
5) Annual income would be on average, 48% per year of capital invested. Income tax would reduce this to a gross income of 48% per year, to a net income FLOW OF 33.6% of capital invested, return on capital.
6) There are several things involved in RISK MANAGEMENT. To get the lowest RISK PROFILE, the available account capital to trade on a per month basis is divided into 8 trades. This is called diversification. The individual return on capital per each trade varies, dependent on the part of the month the trade is implemented. More diversification of trades can lower the 4% gross return on capital invested somewhat. Concentration of trades into fewer choices increases the profit profile but increases RISK. Some months; the opportunities only allow 6 trades, leaving some account money unused for that month with which to trade. This lowers the return slightly.
7) INCREASING THE PROFIT monthly profile, requires changing the risk profile and increasing RISK.
8) There are two ways to increase the PROFIT PROFILE. The first is to consolidate the 8 diversification trades into only 3 trades per month and place these at the early part of the monthly trading strategy, when the premium gap is largest. You can get increased profit return, over 5% per trade this way. This of course increases your risk of loss from concentration.
9) The other way is to increase your number of contracts traded on a per trade basis. Or more selectively throughout the month. We are working on this study.
10) It would seem that $250,000 would be a comfortable trading account to work with? The particular market I am trading, which is the OEX CASH INDEX is very liquid and can absorb this amount and the gross return would be $10,000 per month. Or $120,000 per year, GROSS.
11) For larger amounts of money, you would have to go into parallel cash indexes, or stock screening and run a number of parallel operations at the same time.
12) This cash machine utilizes ALL your capital each month. It is a monthly / weekly trading system.
Friday, April 30, 2010
Option House spread trading ELIMINATION STRATEGY account trials. May 1ST, 2010. ( Report #30 )
OPTION HOUSE FOR MONTHLY SPREAD TRADES ( Report # 30 )
Starting balance: hypothetical $20,000, paper trading virtual platform. ( started roughly middle first half of month ? )
MAY - 2010 OPTION HOUSE BROKERAGE
______________________________________
Trade 1 :May 4th, 2010 ( MONTHLY trade May) OPTION HOUSE BROKERAGE
10 contracts - Sell OEX 560/Buy 565 strikes @ .30 cents spread
Order I.D. 251 49211
+$300 credit, expenses $22.50 (commission + fee )
SPREAD IS WORKING TOWARD EXPIRATION ON MAY 22ND. Basically the bet is that the trend is down, for next two weeks or so.
-- WIN--
__________________________________________
Trade # 1 for THINKORSWIM WEEKLY THURSDAY TRADE
10 oex 540/545 CALLS @ .20 cents limit order FILLED
+$200 - $40 commissions
Net profit: $ 160---- WIN -----
__________________________________________
MONTHLY TRADE FOR OPTION HOUSE
Trade 2
SELL 10 oex 550 Calls, Buy 10 OEX 555 Calls for spread of .30 cents.
( credit $300 - $22.50 commissions and fees )
---WIN --- Expires Dec. 22nd.
___________________________________________
**** I just noticed that ThinkorSwim costs per trade are double that of Option House! In the above case; Option House does not offer WEEKLY EXPIRATIONS, so there is no choice. Unless it is the 4 th weekly, which overlaps the last week of option period ( 3rd Friday ending of Month )
_______________________________
Trade 3 Weekly - Option House ( LAST WEEK OF OPTION TRADING MONTH( expiration is third Friday of May ) Monday first hour trade.
seel 12 535 Calls/Buy 540 Calls @ limit order .25 cents + $300 - $24.50 costs
= +$275.50 --- WIN ---
____________________________________
Trade 2 for thinkorswim brokerage Monday a.m. trade.
WEEKLY sell 10 535/540 CALLS Limit order was for .25 cents, but they executed at a .30 cents spread. $300 - $70 costs = +$280
--- WIN --- _________________________________
Trade 1 Experimental PUT - Paper Trading straight 1 PUT BUY August 520, @$30,80
Trying to see what 10 OEX points would bring, on a safer 3 month out option. You need more index point moves to get dollar moves, for less TIME DECAY trade off.
+$370 WIN ( OEX moved 10 points on a 1 PUT August $3080 trade for a gain of + $370 Net after commissions.WIN
______________________________________
Starting balance: hypothetical $20,000, paper trading virtual platform. ( started roughly middle first half of month ? )
MAY - 2010 OPTION HOUSE BROKERAGE
______________________________________
Trade 1 :May 4th, 2010 ( MONTHLY trade May) OPTION HOUSE BROKERAGE
10 contracts - Sell OEX 560/Buy 565 strikes @ .30 cents spread
Order I.D. 251 49211
+$300 credit, expenses $22.50 (commission + fee )
SPREAD IS WORKING TOWARD EXPIRATION ON MAY 22ND. Basically the bet is that the trend is down, for next two weeks or so.
-- WIN--
__________________________________________
Trade # 1 for THINKORSWIM WEEKLY THURSDAY TRADE
10 oex 540/545 CALLS @ .20 cents limit order FILLED
+$200 - $40 commissions
Net profit: $ 160---- WIN -----
__________________________________________
MONTHLY TRADE FOR OPTION HOUSE
Trade 2
SELL 10 oex 550 Calls, Buy 10 OEX 555 Calls for spread of .30 cents.
( credit $300 - $22.50 commissions and fees )
---WIN --- Expires Dec. 22nd.
___________________________________________
**** I just noticed that ThinkorSwim costs per trade are double that of Option House! In the above case; Option House does not offer WEEKLY EXPIRATIONS, so there is no choice. Unless it is the 4 th weekly, which overlaps the last week of option period ( 3rd Friday ending of Month )
_______________________________
Trade 3 Weekly - Option House ( LAST WEEK OF OPTION TRADING MONTH( expiration is third Friday of May ) Monday first hour trade.
seel 12 535 Calls/Buy 540 Calls @ limit order .25 cents + $300 - $24.50 costs
= +$275.50 --- WIN ---
____________________________________
Trade 2 for thinkorswim brokerage Monday a.m. trade.
WEEKLY sell 10 535/540 CALLS Limit order was for .25 cents, but they executed at a .30 cents spread. $300 - $70 costs = +$280
--- WIN --- _________________________________
Trade 1 Experimental PUT - Paper Trading straight 1 PUT BUY August 520, @$30,80
Trying to see what 10 OEX points would bring, on a safer 3 month out option. You need more index point moves to get dollar moves, for less TIME DECAY trade off.
+$370 WIN ( OEX moved 10 points on a 1 PUT August $3080 trade for a gain of + $370 Net after commissions.WIN
______________________________________
Monday, April 26, 2010
RE-FOCUSING ON DIRECTION OF TRADING STRATEGIES ( report # 29)
Report # 29
RE-FOCUSING ON CORE STRATEGIES
I'm eliminating all other trading right now and concentrating on Credit Spreads. Am also concentrating on only one BROKER, which is THINKORSWIM, as they give the detail and capability needed for trading both MONTHLY AND WEEKLY SPREADS.
a) Option House account has been raised to $20,000 for monthly spread trading, except possibly for a position directional trade in sure thing type trend starts, when the volatility is high. Though for a LOSS FREE trading system, money earner, I think I'm going to have to eliminate the taking of any position directional trades?
b) Position trading, based on market direction guessing has been terminated with my THINKORSWIM account, since that loss last week on a directional trade. There were too many losses. It works, but the results were not consistant enough. One position directional trade loss can wipe out all the accumulation of months of small steady incremental profits from spread trading, small as they are. It is more important in my mind, not to EVER have a losing trade.
My goal is as far as possible a LOSS FREE trading system. I realize this is not totally possible, but as close to it as I can get, is the goal.
For this reason, I'm concentrating on Vertical Credit Spreads, IRON Condors and IRON Butterflys. I have not even started to try, or study Butterflys yet. These three systems are CREDIT SPREAD strategy systems.
TRADES OPEN April 26th.THINKORSWIM BROKERAGE
MONTHLY Expiring third Friday in May/ 2010
1) Vertical Call Bear Spread 5 OEX 565/570 Calls @ .50 cents + $225 --results pending - trade working
2) Vertical Call Bear Spread 5 OEX 570/575 Calls @ .55 cents+ $250 --- results pending - trade working
____________________________________________
WEEKLY EXPIRATION April 26 - 30th/2010
1) Vertical Call Bear Spread 5 OEX 560 Call/ 565 @ .45 cents + $200 --- WIN
___________________________________
2) WEEKLY TRADE - THINKORSWIM This trade was made on Wednesday morning. I attempted to put a limit order, at .10 cents, but got a FILL at .05 cents. I don't know why?
(2) Vertical Call Bear Spread 20 OEX 550/555 Calls at .05 cents Wednesday trade expiring on Friday evening. At only a (+ $100) I''m not sure what the brokerage fees and commissions will do to this? The 5 cents is too little.-- WIN! ---
Net profit: $100 - $70 commission = $30.
_________________________________________
I do have plans to POSITION TRADE, but only when a NEW TREND starts, at the point of highest VOLATILITY. When the meat is in the trend position trading, in the first third of the trend BEFORE volatility drops off and it no longer is practical. There are only 6 to 8 trends a year, so there are not many high quality trades otherwise, that more or less guarantee winning. That's the theory anyway. We shall see how it works out in practice.
____________________________________________
FOR VERTICAL CREDIT SPREAD RESULTS SEE REPORT #25
I'm studying on how much margin would be required to do a steady set of staggered, or overlapping Vertical Credit Spreads. One 5 contract Vertical Credit Spread requires $2500 in margin. So it looks like in one month, I might like to do up to 8 Vertical Credit Spreads. That would mean an account size of $20,000. If I can get a local faster internet service provider. In the meantime, will continue the practice and learning process using ThinkorSwim funny paper money account for another 6 weeks or so.
RE-FOCUSING ON CORE STRATEGIES
I'm eliminating all other trading right now and concentrating on Credit Spreads. Am also concentrating on only one BROKER, which is THINKORSWIM, as they give the detail and capability needed for trading both MONTHLY AND WEEKLY SPREADS.
a) Option House account has been raised to $20,000 for monthly spread trading, except possibly for a position directional trade in sure thing type trend starts, when the volatility is high. Though for a LOSS FREE trading system, money earner, I think I'm going to have to eliminate the taking of any position directional trades?
b) Position trading, based on market direction guessing has been terminated with my THINKORSWIM account, since that loss last week on a directional trade. There were too many losses. It works, but the results were not consistant enough. One position directional trade loss can wipe out all the accumulation of months of small steady incremental profits from spread trading, small as they are. It is more important in my mind, not to EVER have a losing trade.
My goal is as far as possible a LOSS FREE trading system. I realize this is not totally possible, but as close to it as I can get, is the goal.
For this reason, I'm concentrating on Vertical Credit Spreads, IRON Condors and IRON Butterflys. I have not even started to try, or study Butterflys yet. These three systems are CREDIT SPREAD strategy systems.
TRADES OPEN April 26th.THINKORSWIM BROKERAGE
MONTHLY Expiring third Friday in May/ 2010
1) Vertical Call Bear Spread 5 OEX 565/570 Calls @ .50 cents + $225 --results pending - trade working
2) Vertical Call Bear Spread 5 OEX 570/575 Calls @ .55 cents+ $250 --- results pending - trade working
____________________________________________
WEEKLY EXPIRATION April 26 - 30th/2010
1) Vertical Call Bear Spread 5 OEX 560 Call/ 565 @ .45 cents + $200 --- WIN
___________________________________
2) WEEKLY TRADE - THINKORSWIM This trade was made on Wednesday morning. I attempted to put a limit order, at .10 cents, but got a FILL at .05 cents. I don't know why?
(2) Vertical Call Bear Spread 20 OEX 550/555 Calls at .05 cents Wednesday trade expiring on Friday evening. At only a (+ $100) I''m not sure what the brokerage fees and commissions will do to this? The 5 cents is too little.-- WIN! ---
Net profit: $100 - $70 commission = $30.
_________________________________________
I do have plans to POSITION TRADE, but only when a NEW TREND starts, at the point of highest VOLATILITY. When the meat is in the trend position trading, in the first third of the trend BEFORE volatility drops off and it no longer is practical. There are only 6 to 8 trends a year, so there are not many high quality trades otherwise, that more or less guarantee winning. That's the theory anyway. We shall see how it works out in practice.
____________________________________________
FOR VERTICAL CREDIT SPREAD RESULTS SEE REPORT #25
I'm studying on how much margin would be required to do a steady set of staggered, or overlapping Vertical Credit Spreads. One 5 contract Vertical Credit Spread requires $2500 in margin. So it looks like in one month, I might like to do up to 8 Vertical Credit Spreads. That would mean an account size of $20,000. If I can get a local faster internet service provider. In the meantime, will continue the practice and learning process using ThinkorSwim funny paper money account for another 6 weeks or so.
Wednesday, April 21, 2010
Report #28 Difference between CONDORS and IRON CONDORS
Some profit numbers for SPREADS (Report #28)
1 Condor Spread - 2 Iron Condor Spread - 3 Butterfly Spread - 4)Iron Butterfly Spread
Debit/Credit: 1 Debit - 2 Credit - 3 Debit - 4 Credit
Max Profit: - Low - High - Higher - Highest
Max Loss: - Highest - Higher - High - Low
Cost of Position: - High - NIL - Low - NIL
Profitable Range: - Wide - Widest - Narrow - Wider
_______________________________________________
I have learned the difference between the CONDOR SPREAD and the IRON CONDOR. Something I did not know? The CONDOR spread is either the upper and lower channels only in CALLS, or in PUTS. Whereas the IRON CONDOR SPREAD is the playing of; out-the-money, on the bottom of a channel, as in PUTS for a BULL move, or as in CALLS out-the-money, in a BEAR move at the top of a channel. In other words the VERTICAL BULL PUT Spread is on the bottom of the channel and the VERTICAL BEAR CALL SPREAD is on the top of the channel. Since so far, I always leg in, I hadn't made that realization. Yet I see in THINKORSWIM, they list the CONDOR a debit Spread channel, as different, to the IRON CONDOR a credit spread channel.
I had not realized this difference. In fact, I had not even considered the CONDOR as something separate, much less a DEBIT SPREAD TYPE CHANNEL.
So an amateur learns! Guess what I want are IRON CONDORS which are credit spreads and will remember that in future.
Perhaps in the not too distant future I will study the IRON BUTTERFLY? Sounds interesting? It does sound like the IRON CONDOR and the IRON BUTTERFLY seem the best spread strategies? These are credit strategies.
1 Condor Spread - 2 Iron Condor Spread - 3 Butterfly Spread - 4)Iron Butterfly Spread
Debit/Credit: 1 Debit - 2 Credit - 3 Debit - 4 Credit
Max Profit: - Low - High - Higher - Highest
Max Loss: - Highest - Higher - High - Low
Cost of Position: - High - NIL - Low - NIL
Profitable Range: - Wide - Widest - Narrow - Wider
_______________________________________________
I have learned the difference between the CONDOR SPREAD and the IRON CONDOR. Something I did not know? The CONDOR spread is either the upper and lower channels only in CALLS, or in PUTS. Whereas the IRON CONDOR SPREAD is the playing of; out-the-money, on the bottom of a channel, as in PUTS for a BULL move, or as in CALLS out-the-money, in a BEAR move at the top of a channel. In other words the VERTICAL BULL PUT Spread is on the bottom of the channel and the VERTICAL BEAR CALL SPREAD is on the top of the channel. Since so far, I always leg in, I hadn't made that realization. Yet I see in THINKORSWIM, they list the CONDOR a debit Spread channel, as different, to the IRON CONDOR a credit spread channel.
I had not realized this difference. In fact, I had not even considered the CONDOR as something separate, much less a DEBIT SPREAD TYPE CHANNEL.
So an amateur learns! Guess what I want are IRON CONDORS which are credit spreads and will remember that in future.
Perhaps in the not too distant future I will study the IRON BUTTERFLY? Sounds interesting? It does sound like the IRON CONDOR and the IRON BUTTERFLY seem the best spread strategies? These are credit strategies.
THE NUANCES OF VERTICAL CREDIT SPREADS ( ( report # 27 )
The NUANCES of CREDIT SPREAD VERTICALS Report #27
In studying the Vertical Credit Spread, there are some misleading stuff out there. It only takes ONE TRADE in which the market sweeps through your CREDIT SPREAD to maximum destruction, to wipe out the small accumulation of profits you gained for the whole year. In 2008 a lot of CREDIT SPREAD TRADERS got wiped out. COMPLETELY! They of course were pyramiding. They had to start back again from rock bottom. The 90% winners garbage quoted for CREDIT SPREADS is very misleading.
The best advice I read was a guy who said he closed his CREDIT SPREAD when he had gained 80% of the TIME DECAY and swallowed the cost of paying the extra commissions. I've tried this in practice. It works out, but the CREDIT SPREAD is a low earner at the best of times, versus the money you have in margin at risk. Closing out when you have only 80% of the value earned is not I feel the right answer.
On the other hand, I've experimented ( paper trading and virtual account trading ) and there are some rules you can apply. A bull market goes up more slowly than a BEAR down market. If you are going to be threatened, it is most likely a rapid DOWNWARD BEAR MARKET drop will wipe you out. You will not have the time to place the order, or get it executed, Particularly in short term weekly trading expirations. Maybe in Longer monthly expirations? Mostly the problem is GREED and the tendency to keep pyramiding profits. You should be taking money off the table, or out of the account regularly. Say every quarter?
In a BULL MARKET you can start entering your order, about 2 OEX points before your SOLD side is touched by the market action. In a BEAR MARKET plunge, you should be closing out your SPREAD at least 6 points away from your SOLD side being touched. Better to end up with nothing, or a minor plus couple of dollars than lose everything?
Narrow channels and weeklies are most dangerous. You don't have enough time! A Friday expiration that coincides with news reports can drop right out from under you and in such short term trading, will sweep through your bet so fast, all your profits for the year will be gone.
- Just something to think about! -
In studying the Vertical Credit Spread, there are some misleading stuff out there. It only takes ONE TRADE in which the market sweeps through your CREDIT SPREAD to maximum destruction, to wipe out the small accumulation of profits you gained for the whole year. In 2008 a lot of CREDIT SPREAD TRADERS got wiped out. COMPLETELY! They of course were pyramiding. They had to start back again from rock bottom. The 90% winners garbage quoted for CREDIT SPREADS is very misleading.
The best advice I read was a guy who said he closed his CREDIT SPREAD when he had gained 80% of the TIME DECAY and swallowed the cost of paying the extra commissions. I've tried this in practice. It works out, but the CREDIT SPREAD is a low earner at the best of times, versus the money you have in margin at risk. Closing out when you have only 80% of the value earned is not I feel the right answer.
On the other hand, I've experimented ( paper trading and virtual account trading ) and there are some rules you can apply. A bull market goes up more slowly than a BEAR down market. If you are going to be threatened, it is most likely a rapid DOWNWARD BEAR MARKET drop will wipe you out. You will not have the time to place the order, or get it executed, Particularly in short term weekly trading expirations. Maybe in Longer monthly expirations? Mostly the problem is GREED and the tendency to keep pyramiding profits. You should be taking money off the table, or out of the account regularly. Say every quarter?
In a BULL MARKET you can start entering your order, about 2 OEX points before your SOLD side is touched by the market action. In a BEAR MARKET plunge, you should be closing out your SPREAD at least 6 points away from your SOLD side being touched. Better to end up with nothing, or a minor plus couple of dollars than lose everything?
Narrow channels and weeklies are most dangerous. You don't have enough time! A Friday expiration that coincides with news reports can drop right out from under you and in such short term trading, will sweep through your bet so fast, all your profits for the year will be gone.
- Just something to think about! -
THINKORSWIM beats out OPTION HOUSE ! ( report #26 )
THINKORSWIM BEATS OUT OPTION HOUSE IN EXPERIMENTAL TRIALS Report #26
We've had a month or more to diddle with both Option House and ThinkorSwim brokerage online web platforms. In the process have decided to go with THINKORSWIM. They cost a little more in commissions, but the data and detail and complexity of their software is outstanding. Also the deciding criteria was that I was going through eliminating any LOSING TRADE IDEAS. This is narrowing down through trial and error, to SPREAD TRADING. One of the most successful trading ideas was the VERTICAL SPREAD and since this is a non directional trade, within parameters, channels or brackets, works fairly well. Took some learning though, and I'm not sure I've figured out all the nuances yet. The WEEKLY EXPIRATIONS in the OEX were the deciding factor for me. OPTION HOUSE do not offer them. THINKORSWIM do.
I had another problem with OPTION HOUSE, tried to do a long put the other day and it said my account was worth $3200 but refused my trade, saying I was only allowed option trades up to $547. The point in learning I was at, I just gave up, not wanting to fight with it anymore. I did not understand their figuring.
On the other hand, THINKORSWIM do not have good customer service. They are overloaded with cash traders, and do not have the time, to deal with the paper trading learners. So trying to figure out the complexity of their software - web based package is confusing and slow for me. Been at it around two weeks now. Picking up tricks as I go along, but a slow process. Still, they are giving me the trading information I need to make a decision on when to go into CASH TRADING with my life savings. Looks like about 6 to 8 weeks away, if I stay successful?
There is still a lot to learn for me. I've decided to drop all directional LONG trades, or singles and concentrate on non-directional SPREAD TRADING. I've actually only learned roughly one method so far, the VERTICAL SPREAD, or at least half of this method.
They also have DEBIT VERTICALS, CREDIT VERTICALS, SINGLES, BACK RATIO, CALENDAR, DIAGONAL, STRADDLE, STRANGLE, BUTTERFLY, CONDOR, IRON CONDOR, VERTICAL ROLL.
Right now I'm having trouble EXITING, or CLOSING the VERTICAL SPREAD on their web based platform, but did successfully close a long single PUT yesterday, entering the opposing trade. So I'm guessing it will be more or less the same for the SPREADS?
We've had a month or more to diddle with both Option House and ThinkorSwim brokerage online web platforms. In the process have decided to go with THINKORSWIM. They cost a little more in commissions, but the data and detail and complexity of their software is outstanding. Also the deciding criteria was that I was going through eliminating any LOSING TRADE IDEAS. This is narrowing down through trial and error, to SPREAD TRADING. One of the most successful trading ideas was the VERTICAL SPREAD and since this is a non directional trade, within parameters, channels or brackets, works fairly well. Took some learning though, and I'm not sure I've figured out all the nuances yet. The WEEKLY EXPIRATIONS in the OEX were the deciding factor for me. OPTION HOUSE do not offer them. THINKORSWIM do.
I had another problem with OPTION HOUSE, tried to do a long put the other day and it said my account was worth $3200 but refused my trade, saying I was only allowed option trades up to $547. The point in learning I was at, I just gave up, not wanting to fight with it anymore. I did not understand their figuring.
On the other hand, THINKORSWIM do not have good customer service. They are overloaded with cash traders, and do not have the time, to deal with the paper trading learners. So trying to figure out the complexity of their software - web based package is confusing and slow for me. Been at it around two weeks now. Picking up tricks as I go along, but a slow process. Still, they are giving me the trading information I need to make a decision on when to go into CASH TRADING with my life savings. Looks like about 6 to 8 weeks away, if I stay successful?
There is still a lot to learn for me. I've decided to drop all directional LONG trades, or singles and concentrate on non-directional SPREAD TRADING. I've actually only learned roughly one method so far, the VERTICAL SPREAD, or at least half of this method.
They also have DEBIT VERTICALS, CREDIT VERTICALS, SINGLES, BACK RATIO, CALENDAR, DIAGONAL, STRADDLE, STRANGLE, BUTTERFLY, CONDOR, IRON CONDOR, VERTICAL ROLL.
Right now I'm having trouble EXITING, or CLOSING the VERTICAL SPREAD on their web based platform, but did successfully close a long single PUT yesterday, entering the opposing trade. So I'm guessing it will be more or less the same for the SPREADS?
Friday, April 16, 2010
Trade results of spreads, April 12th to 16th, 2010 ( Report # 25 )
Report #25, end of monthly expiration week of April 16th. The BEAR MARKET or CHANGE OF TREND occurred.
Summary: Made five Vertical Spread Trades and one Iron Condor channel trade. All were winning trades!
I did one vertical with thinkorswim brokerage and this was more to test the ability to CLOSE out a Spread Trade. They were overwhelmed and unable to advise me, and I couldn't figure it out, so had them close the spread trade early for me.
5 Vertical PUTS 535/530 for a credit of +$150
The early closing cost me .10 cents, so end result was =$100
Two commissions were - $50. Net profit + $50 -- WIN
______________________________________
Option House brokerage trade
5 sell 534/530 for .30 cents which was +$150
Less one commission of $25 ( went to expiration ) = $150 - $25 = $125 net profit --- WIN
______________________________________
PAPER TRADING independently
5 April Puts 530/525 for .30 cents = +$150
Less commission of one due to going to expiration: $150 - $25 = + $125 net profit --- WIN
______________________________________________
Vertical CALL BEAR SPREAD on THURSDAY noon, 5 sell April Call 560/565 for +$125
Less -$25 commission = + $100 --- WIN
___________________________________
Vertical Put BULL spread on THURSDAY noon, before next day expiration.
5 April Puts 535/530 for $150 ( went to expiration )
Less $25 commission = +$125 -- WIN
________________________________________
IRON CONDOR TRADE ( bracketing channel ) Done on noon Thursday, day before Expiration Friday.
20 sell April PUTS 545/540 for .10 cents or + $200
This side of the Condor got threatened and had to be close early. We actually closed it 3 index points away and received .10 cents, so broke even on the cash, but lost $50 for the two commissions. Trade loss - $50
The other side of the Condor made money though and covered the loss.
20 sell April CALLS 560/565 or .20 cents x 2000 = + $400
Less commissions - $50 = $400 - $50 = $300. After deducting losing side of the IRON CONDOR we had a net profit for the CONDOR channel of + $300 --- WIN
**** This week was all CREDIT SPREADS using weeklies! The TREND changed on Friday and we will be going to a different strategy. Probably LONG PUTS and a shift to VIRTUAL BROKERAGE TRADING as we gain more confidence in our decision making.
+++++++++++++++++++++++++++++++++++++++++++++++
BALANCES IN DIFFERENT STRATEGIES TRIED UP UNTIL APRIL 16TH, 2010.
Virtual Account: OPTION HOUSE-
Option House balance: $3109 + $125 = $3234 (- 35% ) Made a slight gain to getting out of the hole here.
Paper trading in Quickie Trading: +6%(reduced from 12% to +6%) I'm planning to stop quickie trades. They lose too often.
Credit Spread singles: ( paper trading ) +10% last week. This week + 20% New Balance: $6025
I did five Vertical Spread trades. One on Option House brokerage for + $125 and one on sinkorswim brokerage. Haven't figure out how to close out trades in Sinkorswim brokerage yet and that will be the lesson for the coming week. Anyway, closed early, because of the panic with the help of the broker and cleared + $50.
All told for the FIVE Vertical Spreads I made + $525. In normal trading I would not have the capital beginning like this, to have the reserve margin, to put on so many trades at the same time. So the result is distorted.
Channel credit spreads called CONDORS (paper trading) + 18% Previous Balance was $5600 and new balance at end of this week is: $5,900. Because of the Sinkorswim large account, I was able to put the IRON CONDOR with 20 contracts, and the results reflected that improved earnings. Starting out with a $5000 account that would not be possible, only 5 contracts would have been possible and probably not worthwhile. I have mixed feelings about IRON CONDORS. Sort of thing to do, if the opportunity arises, but otherwise forget it, is my feeling. Anyway Condor trading is now + 18%, at $5900, but I'm probably going to drop doing them, except rarely.
Debit Spreads ( haven't started studying them yet ) (I'm also interested in eventually studying ratio spreads, diagonals and horizontals, and butterflies sometime. Got too much on my plate right now, trying to learn and absorb this stuff above.)
VIRTUAL ACCOUNT WITH "thinkorswim" brokerage VIRTUAL BULL CREDIT PUT SPREADS + 3.5 % WEEKLY EXPIRATION. I'm leaning toward concentrating on less risky, lower profit steady income flow from Vertical Spreads. Will know more after running this BEAR MARKET just started using some mix of Vertical spreads and long PUTS.
Trend longer trading (6 or 8 per yr)( hasn't started yet )zero neutral
Summary: Made five Vertical Spread Trades and one Iron Condor channel trade. All were winning trades!
I did one vertical with thinkorswim brokerage and this was more to test the ability to CLOSE out a Spread Trade. They were overwhelmed and unable to advise me, and I couldn't figure it out, so had them close the spread trade early for me.
5 Vertical PUTS 535/530 for a credit of +$150
The early closing cost me .10 cents, so end result was =$100
Two commissions were - $50. Net profit + $50 -- WIN
______________________________________
Option House brokerage trade
5 sell 534/530 for .30 cents which was +$150
Less one commission of $25 ( went to expiration ) = $150 - $25 = $125 net profit --- WIN
______________________________________
PAPER TRADING independently
5 April Puts 530/525 for .30 cents = +$150
Less commission of one due to going to expiration: $150 - $25 = + $125 net profit --- WIN
______________________________________________
Vertical CALL BEAR SPREAD on THURSDAY noon, 5 sell April Call 560/565 for +$125
Less -$25 commission = + $100 --- WIN
___________________________________
Vertical Put BULL spread on THURSDAY noon, before next day expiration.
5 April Puts 535/530 for $150 ( went to expiration )
Less $25 commission = +$125 -- WIN
________________________________________
IRON CONDOR TRADE ( bracketing channel ) Done on noon Thursday, day before Expiration Friday.
20 sell April PUTS 545/540 for .10 cents or + $200
This side of the Condor got threatened and had to be close early. We actually closed it 3 index points away and received .10 cents, so broke even on the cash, but lost $50 for the two commissions. Trade loss - $50
The other side of the Condor made money though and covered the loss.
20 sell April CALLS 560/565 or .20 cents x 2000 = + $400
Less commissions - $50 = $400 - $50 = $300. After deducting losing side of the IRON CONDOR we had a net profit for the CONDOR channel of + $300 --- WIN
**** This week was all CREDIT SPREADS using weeklies! The TREND changed on Friday and we will be going to a different strategy. Probably LONG PUTS and a shift to VIRTUAL BROKERAGE TRADING as we gain more confidence in our decision making.
+++++++++++++++++++++++++++++++++++++++++++++++
BALANCES IN DIFFERENT STRATEGIES TRIED UP UNTIL APRIL 16TH, 2010.
Virtual Account: OPTION HOUSE-
Option House balance: $3109 + $125 = $3234 (- 35% ) Made a slight gain to getting out of the hole here.
Paper trading in Quickie Trading: +6%(reduced from 12% to +6%) I'm planning to stop quickie trades. They lose too often.
Credit Spread singles: ( paper trading ) +10% last week. This week + 20% New Balance: $6025
I did five Vertical Spread trades. One on Option House brokerage for + $125 and one on sinkorswim brokerage. Haven't figure out how to close out trades in Sinkorswim brokerage yet and that will be the lesson for the coming week. Anyway, closed early, because of the panic with the help of the broker and cleared + $50.
All told for the FIVE Vertical Spreads I made + $525. In normal trading I would not have the capital beginning like this, to have the reserve margin, to put on so many trades at the same time. So the result is distorted.
Channel credit spreads called CONDORS (paper trading) + 18% Previous Balance was $5600 and new balance at end of this week is: $5,900. Because of the Sinkorswim large account, I was able to put the IRON CONDOR with 20 contracts, and the results reflected that improved earnings. Starting out with a $5000 account that would not be possible, only 5 contracts would have been possible and probably not worthwhile. I have mixed feelings about IRON CONDORS. Sort of thing to do, if the opportunity arises, but otherwise forget it, is my feeling. Anyway Condor trading is now + 18%, at $5900, but I'm probably going to drop doing them, except rarely.
Debit Spreads ( haven't started studying them yet ) (I'm also interested in eventually studying ratio spreads, diagonals and horizontals, and butterflies sometime. Got too much on my plate right now, trying to learn and absorb this stuff above.)
VIRTUAL ACCOUNT WITH "thinkorswim" brokerage VIRTUAL BULL CREDIT PUT SPREADS + 3.5 % WEEKLY EXPIRATION. I'm leaning toward concentrating on less risky, lower profit steady income flow from Vertical Spreads. Will know more after running this BEAR MARKET just started using some mix of Vertical spreads and long PUTS.
Trend longer trading (6 or 8 per yr)( hasn't started yet )zero neutral
Thursday, April 15, 2010
Report # 24 SHAKING THE MONEY TREE!
SHAKING THE MONEY TREE - DAY TRADING!
Well it's 3:32 p.m. and I'm finally back at my computer. The sky is blue, low puffy white clouds and the atmosphere is clear after a morning shower of short duration. You can see the cloud shadows moving across the green of the Yalbac Hills some 8 miles away across the Belize River Valley. Very pretty picture to the eye.
Back to puzzling what the big guys are doing in Spread Trading? I trade small, right now as a beginner, only 5 contracts and my margin required is $2500 a trade. Yesterday I found out that my margin requirements are $500 for each point apart between strike prices, times the number of contracts. I hope to get up to 20 contracts sometime this year, if not too far away. That would be $10,000 margin for each trade. Currently in my beginning trials I am buying Spreads that run between .20 cents and .30 cents. Sometimes .25 cents. A spread is where you sell some contracts and buy some contracts at a different price.
There are guys on the brokerage that are trading 300 or 400 or 500 contracts at a time. Which would require you to put up and lock in $150,000 cash margin for the duration of the trade. I'm new at this and trying to figure out the relationships of what happens, in the WHAT IF scenarios.
I look at the quote machine and I am wondering what are they doing? Spreads normally run through until EXPIRATION. There are two kinds of markets, European style, which you must hold until expiration and American style, which you can close out anytime. From what I can surmise from watching the bid - ask quote board, the big guys are at least some of them trading for .5 cents. Meaning that if the market moves a point in either direction, the spread might widen by .05 cents and you close it out. There are 100 options in a contract, so if you are trading 300 contracts and you manage to buy a spread at say .20 cents and sell it at .25 cents,- you gain .05 cents. Times this by 300 x 100 = 30,000 times .05 cents. ( I'm thinking with my fingertips here! ) which should net you $1500 and you can do this in an hour, if you pick a time when there is market volatility. Hmmmmn! I'm not sure of the brokerage fees on 300 contracts, but on 5 contracts, it comes to $50 for opening and closing, or $25 each. Will go check on the fees and see how that works? I haven't found anything in the literature on spread trading on the web that explains this short term strategy. So maybe there is something wrong with my thinking? On 5 contracts that would not be worthwhile I think. Let's see? $2500 margin, .05 cents x 500 = $25. No! that wouldn't work small scale. Let's see 20 contracts .05 cents x 2000 = $100. Less the $50 cost of entering and closing the spread, leaving you with $50. So 20 contracts is workable. Have to think about that for a bit.
The bigger the bet of course, the more the profit!
Well it's 3:32 p.m. and I'm finally back at my computer. The sky is blue, low puffy white clouds and the atmosphere is clear after a morning shower of short duration. You can see the cloud shadows moving across the green of the Yalbac Hills some 8 miles away across the Belize River Valley. Very pretty picture to the eye.
Back to puzzling what the big guys are doing in Spread Trading? I trade small, right now as a beginner, only 5 contracts and my margin required is $2500 a trade. Yesterday I found out that my margin requirements are $500 for each point apart between strike prices, times the number of contracts. I hope to get up to 20 contracts sometime this year, if not too far away. That would be $10,000 margin for each trade. Currently in my beginning trials I am buying Spreads that run between .20 cents and .30 cents. Sometimes .25 cents. A spread is where you sell some contracts and buy some contracts at a different price.
There are guys on the brokerage that are trading 300 or 400 or 500 contracts at a time. Which would require you to put up and lock in $150,000 cash margin for the duration of the trade. I'm new at this and trying to figure out the relationships of what happens, in the WHAT IF scenarios.
I look at the quote machine and I am wondering what are they doing? Spreads normally run through until EXPIRATION. There are two kinds of markets, European style, which you must hold until expiration and American style, which you can close out anytime. From what I can surmise from watching the bid - ask quote board, the big guys are at least some of them trading for .5 cents. Meaning that if the market moves a point in either direction, the spread might widen by .05 cents and you close it out. There are 100 options in a contract, so if you are trading 300 contracts and you manage to buy a spread at say .20 cents and sell it at .25 cents,- you gain .05 cents. Times this by 300 x 100 = 30,000 times .05 cents. ( I'm thinking with my fingertips here! ) which should net you $1500 and you can do this in an hour, if you pick a time when there is market volatility. Hmmmmn! I'm not sure of the brokerage fees on 300 contracts, but on 5 contracts, it comes to $50 for opening and closing, or $25 each. Will go check on the fees and see how that works? I haven't found anything in the literature on spread trading on the web that explains this short term strategy. So maybe there is something wrong with my thinking? On 5 contracts that would not be worthwhile I think. Let's see? $2500 margin, .05 cents x 500 = $25. No! that wouldn't work small scale. Let's see 20 contracts .05 cents x 2000 = $100. Less the $50 cost of entering and closing the spread, leaving you with $50. So 20 contracts is workable. Have to think about that for a bit.
The bigger the bet of course, the more the profit!
Wednesday, April 14, 2010
Report #23 Figuring Vertical Spread margin.
The learning experience continues!
I was puzzling out what the margin requirements are for credit spreads. I got really confused over it. Pete Stolcer a famous option guru with several websites on option trading, I occasionally check for reference and teaching, one of his sites. 1option.com
Anyway he responded to my query and with my subconcious over a couple of nights of calculating the thing, finally realized that my margin formula was:
$500 for a spaced one strike spread of five points x number of contracts I wish to trade. You can get a little picky here and subtract the CREDIT you receive from selling the TIME DECAY, which does not reduce it much. So for a 5 contract spread you need $2500 margin, less any miniscule credit you received, to be paid for by the TIME DECAY as the Spread runs out daily to EXPIRATION.
The way I'm trading is going out for SAFETY, which means I'm gambling $2500 margin against a profit credit of 2.5 % of that, should I do right. Huge potential loss, versus the profit. However, it is offset by the safety factor, if you figure it right. The only real threat I can see, is if the market makes a sudden BEAR PLUNGE very rapidly in one day and I cannot close out my spread quick enough, to catch it running through my bet. Haven't learned how to close out yet. That experience will come eventually I suppose? Which is why we do virtual paper trading first.
That's the new lesson for this week so far!
________________________________________
If you leg in with another Vertical Spread forming a price channel, above and below, currently called an IRON CONDOR, the margin stays the same, as you only have to put margin on one side of the channel. Because only one side can get hit, if price action is volatile enough, or you put it in too close to the movement. I'm told that this usually wipes out both sides of the channel profit. The goal is to swallow an extra set of commissions and close out BEFORE you get hit, should the price go against you. That way if you had collected enough TIME DECAY already, you might even break even, or perhaps take a little cash home with you. It is very little, if you are lucky about +$15. Which is better than losing $300 by letting your threatened STRIKE PRICE get hit. Or even worse, by the price action going through your spread and consuming your margin at $500 a point. ( $2500 loss potential ) At least in a 5 contract spread, which I'm currently trading. The losses get bigger if you are hit, multiplied by the number of contracts you hold.
Some recommend closing out when you have 80% of the TIME DECAY, if you are close to the last day before EXPIRATION. Others say, you can do a ROLL OVER which means implementing ANOTHER Vertical Spread, another strike further away. Not faced those decisions or problems YET!
________________________________
I was puzzling out what the margin requirements are for credit spreads. I got really confused over it. Pete Stolcer a famous option guru with several websites on option trading, I occasionally check for reference and teaching, one of his sites. 1option.com
Anyway he responded to my query and with my subconcious over a couple of nights of calculating the thing, finally realized that my margin formula was:
$500 for a spaced one strike spread of five points x number of contracts I wish to trade. You can get a little picky here and subtract the CREDIT you receive from selling the TIME DECAY, which does not reduce it much. So for a 5 contract spread you need $2500 margin, less any miniscule credit you received, to be paid for by the TIME DECAY as the Spread runs out daily to EXPIRATION.
The way I'm trading is going out for SAFETY, which means I'm gambling $2500 margin against a profit credit of 2.5 % of that, should I do right. Huge potential loss, versus the profit. However, it is offset by the safety factor, if you figure it right. The only real threat I can see, is if the market makes a sudden BEAR PLUNGE very rapidly in one day and I cannot close out my spread quick enough, to catch it running through my bet. Haven't learned how to close out yet. That experience will come eventually I suppose? Which is why we do virtual paper trading first.
That's the new lesson for this week so far!
________________________________________
If you leg in with another Vertical Spread forming a price channel, above and below, currently called an IRON CONDOR, the margin stays the same, as you only have to put margin on one side of the channel. Because only one side can get hit, if price action is volatile enough, or you put it in too close to the movement. I'm told that this usually wipes out both sides of the channel profit. The goal is to swallow an extra set of commissions and close out BEFORE you get hit, should the price go against you. That way if you had collected enough TIME DECAY already, you might even break even, or perhaps take a little cash home with you. It is very little, if you are lucky about +$15. Which is better than losing $300 by letting your threatened STRIKE PRICE get hit. Or even worse, by the price action going through your spread and consuming your margin at $500 a point. ( $2500 loss potential ) At least in a 5 contract spread, which I'm currently trading. The losses get bigger if you are hit, multiplied by the number of contracts you hold.
Some recommend closing out when you have 80% of the TIME DECAY, if you are close to the last day before EXPIRATION. Others say, you can do a ROLL OVER which means implementing ANOTHER Vertical Spread, another strike further away. Not faced those decisions or problems YET!
________________________________
Tuesday, April 13, 2010
SO YOU FIGURE YOU CAN GET RICH QUICK TRADING OPTIONS OR STOCKS? ( report #22 )
SO YOU FIGURE YOU CAN GET RICH QUICK - TRADING OPTIONS, OR STOCKS? Report #22
Can An Option Trader With A $100k Account Consistently Make $500 A Day?
Posted by Pete Stolcers on January 6
Option Trading Question
My question is simple, but best explained by telling what I want to do. I want to invest 100% of my money into stocks and make a net profit of .5% everyday. Buy, hold for 1 - 7 hours, sell and bank the .5%. Compounding everyday at .5% would be very profitable and I could retire in only a few years. Here is my thinking: stocks go up, down or sometimes do nothing. So all I need is to know is which stocks will move today, by at least .5%, and in which direction. It is true that most stocks move everyday! The expected return .5% is normal within most stocks daily range. The problem I have is pulling all the information together to say that there is a 95% chance that XYZ will drop today. The 0.5% is net after trading cost $10 + $1.50 per contract and the spread.
Option Trading Answer
In today’s option trading blog I’ll answer a question that makes it all sound easy. I’ve seen similar numbers used in infomercials. If I have $100k and I make $500 each day, that is 10k a month and $120k a year. All I would have to do is to make a half a point on a 1000 share stock trade each day to make it all work. If I compound that .5% daily, in the course of 10 years… I should be able to wipe out global starvation with my riches. I don’t want to sound demeaning in my response. The question is frequently asked and there are many “gurus” who claim it can be done.
First, let me bring you back down to earth and say that a 120% annual return is not achievable on a consistent basis. If a life-long trader does it once in his career, it is quite an accomplishment. I know that there are people who have turned $10k into $1 million but they were in the right place at the right time and luck played a huge role in their success. For every “rags to riches” example, there are 10,000 people who blew their account out. If these returns were easily attainable, one out of every five people you meet would be a stay-at-home trader. Stay at home, spend time with your kids, be your own boss, live the good life… these are the heart strings that are pulled by “snake oil” salesman who want to show you the path for a mere $3000. I’ve been in this business for over 17 years and you might have interest in reading about my experience of “going pro”. My story made the cover of Active Trader Magazine - September 2006.
Now, let me address some other parts of you question. Can a person trade in and out of positions, scalp the market and make profits - yes. Because of the short term nature of the trade, slippage and commissions take a huge bite out of profits. That means that options are out of the question. You have to trade stock and you need to find a company that caters to proprietary stock traders and offers a $.005 (half a penny) flat per share rate. Live data feeds, charting and advanced order entry features are a must. This is a very hard living and having done it, you’ll be tired at the end of the day. When you add up data feeds, health insurance, internet connections, software applications and computer hardware, you can expect the first $2k/month to go to overhead expenses. This type of trading is a grind and it is a very emotional experience. It can take 2-4 years just to get profitable. In the question you addressed the issue of being able to predict the direction of a stock. Bingo, that’s the whole problem! Expect to spend months reading about technical analysis and money management. Then expect to spend at least two years finding an edge and developing an approach. We’ve been in a major 4-year bull market and the trading has been fast and relatively predictable. When that ends, so will the careers of many scalpers (until the next major trend).
I believe the better way to trade is to form an opinion and to spend your time on research and analysis as opposed to reacting to every tick and blip on the screen. If you think about the richest traders in the world (George Soros and Warren Buffet) they did not scalp markets. They did extensive macro research and took long term positions. In day trading stock, you are not taking any overnight risk so you can’t expect to make large returns. If you form an opinion and take a directional stance for at least a week, your returns (and risk) go up dramatically.
As a professional trader, I expect to make 25% a year regardless of market conditions. This “tiny” return will drive many glory seekers away and that’s ok. There are many other people that will sell you a pipe-dream of riches. I have a systematic approach that has taken me years to develop and there are many years when I exceed my expectations. Day traders and option traders who have been around the block recognize the quality of my research and rely on it for trading ideas. Since I used your question, you can try a OneOption research report free for a month.
This is the easiest business to start and the hardest one to grow. Anyone with a wallet can pull up a chair.
Can An Option Trader With A $100k Account Consistently Make $500 A Day?
Posted by Pete Stolcers on January 6
Option Trading Question
My question is simple, but best explained by telling what I want to do. I want to invest 100% of my money into stocks and make a net profit of .5% everyday. Buy, hold for 1 - 7 hours, sell and bank the .5%. Compounding everyday at .5% would be very profitable and I could retire in only a few years. Here is my thinking: stocks go up, down or sometimes do nothing. So all I need is to know is which stocks will move today, by at least .5%, and in which direction. It is true that most stocks move everyday! The expected return .5% is normal within most stocks daily range. The problem I have is pulling all the information together to say that there is a 95% chance that XYZ will drop today. The 0.5% is net after trading cost $10 + $1.50 per contract and the spread.
Option Trading Answer
In today’s option trading blog I’ll answer a question that makes it all sound easy. I’ve seen similar numbers used in infomercials. If I have $100k and I make $500 each day, that is 10k a month and $120k a year. All I would have to do is to make a half a point on a 1000 share stock trade each day to make it all work. If I compound that .5% daily, in the course of 10 years… I should be able to wipe out global starvation with my riches. I don’t want to sound demeaning in my response. The question is frequently asked and there are many “gurus” who claim it can be done.
First, let me bring you back down to earth and say that a 120% annual return is not achievable on a consistent basis. If a life-long trader does it once in his career, it is quite an accomplishment. I know that there are people who have turned $10k into $1 million but they were in the right place at the right time and luck played a huge role in their success. For every “rags to riches” example, there are 10,000 people who blew their account out. If these returns were easily attainable, one out of every five people you meet would be a stay-at-home trader. Stay at home, spend time with your kids, be your own boss, live the good life… these are the heart strings that are pulled by “snake oil” salesman who want to show you the path for a mere $3000. I’ve been in this business for over 17 years and you might have interest in reading about my experience of “going pro”. My story made the cover of Active Trader Magazine - September 2006.
Now, let me address some other parts of you question. Can a person trade in and out of positions, scalp the market and make profits - yes. Because of the short term nature of the trade, slippage and commissions take a huge bite out of profits. That means that options are out of the question. You have to trade stock and you need to find a company that caters to proprietary stock traders and offers a $.005 (half a penny) flat per share rate. Live data feeds, charting and advanced order entry features are a must. This is a very hard living and having done it, you’ll be tired at the end of the day. When you add up data feeds, health insurance, internet connections, software applications and computer hardware, you can expect the first $2k/month to go to overhead expenses. This type of trading is a grind and it is a very emotional experience. It can take 2-4 years just to get profitable. In the question you addressed the issue of being able to predict the direction of a stock. Bingo, that’s the whole problem! Expect to spend months reading about technical analysis and money management. Then expect to spend at least two years finding an edge and developing an approach. We’ve been in a major 4-year bull market and the trading has been fast and relatively predictable. When that ends, so will the careers of many scalpers (until the next major trend).
I believe the better way to trade is to form an opinion and to spend your time on research and analysis as opposed to reacting to every tick and blip on the screen. If you think about the richest traders in the world (George Soros and Warren Buffet) they did not scalp markets. They did extensive macro research and took long term positions. In day trading stock, you are not taking any overnight risk so you can’t expect to make large returns. If you form an opinion and take a directional stance for at least a week, your returns (and risk) go up dramatically.
As a professional trader, I expect to make 25% a year regardless of market conditions. This “tiny” return will drive many glory seekers away and that’s ok. There are many other people that will sell you a pipe-dream of riches. I have a systematic approach that has taken me years to develop and there are many years when I exceed my expectations. Day traders and option traders who have been around the block recognize the quality of my research and rely on it for trading ideas. Since I used your question, you can try a OneOption research report free for a month.
This is the easiest business to start and the hardest one to grow. Anyone with a wallet can pull up a chair.
Friday, April 9, 2010
Report # 21, End of April 9th weekly accounting.
Photo of Grandpa Ray, OEX Option trader, with wife Silvia on left and daughter Diane on the right. 2010.GAINS OR LOSSES YEAR TO DATE ( March start )
EACH TYPE OF TRADING STARTED WITH A $5000 ACCOUNT, IN ORDER TO COMPARE THE RESULTS DURING THE LEARNING CURVE. The VIRTUAL ACCOUNT with the broker is supposed to evolve into a medly of the other three types of trading, depending on results and the learning process, of when to implement them in different market conditions. Since Option House does not offer weekly OEX option EXPIRATIONS, we will have to open an account with another broker for that part.
Virtual Account: OPTION HOUSE- no trading - remains at Balance of:( -37% )
Paper trading in Quickie Trading: +6%(reduced from 12% to +6%)
Credit Spread singles: ( paper trading ) +10%
Channel credit spreads called CONDORS (paper trading) +12%
Debit Spreads ( haven't started studying them yet ) (I'm also interested in eventually studying ratio spreads, diagonals and horizontals, and butterflies sometime. Got too much on my plate right now, trying to learn and absorb this stuff above.)
VIRTUAL ACCOUNT WITH "thinkorswim" brokerage VIRTUAL BULL CREDIT PUT SPREAD + 2.5 % WEEKLY EXPIRATION
Trend longer trading (6 or 8 per yr)( hasn't started yet )zero neutral
____________________________________
This week trade was only; a VERTICAL CREDIT BULL PUT SPREAD. Was only able to leg into one side and unable to complete a CONDOR CHANNEL.
Sold Weekly ( 5 contracts - $2500 margin ) 530 PUT for credit of + $150
Bought Weekly 525 PUT for debit = difference + .30 cents in spread
Expired for credit of + $150 - $25 commission = profit + $125, or 2 1/2% on $5000
I'd kept $2500 of the $5000 account in reserve for the other side of a CONDOR, which didn't happen.
_________________________________________________
LESSONS LEARNED THIS WEEK!
I was trying to confirm the CHANNELS for a CONDOR,also the parameters of safety, versus the spread allowable to give a decent return. One guy on the internet was saying; he bought on a Thursday to expire on Friday, using WEEKLIES. I tried that and it didn't work within my safety parameters and the decent return expected. In fact, it wasn't possible except at closer in - higher risk parameters. My accidental entry based on volatility seemed a good one. Will try it next week, on both sides of a CONDOR and see what happens?
For past trade details scroll down to Report # 12 of trade action.
http://oexoptiontradingexperience.blogspot.com ( history of learning experience )
http://westernbelizehappenings.blogspot.com ( photos and articles of living in Western Belize, foothills of the rural Belize Alps. )
Tuesday, April 6, 2010
report #20 OPTION SPREAD TRADING EXPERIENCES
CHIT CHAT WITH A TRADER FRIEND ON EXPERIENCES AND VIEW Report #20
Hi Doug;
I don't really like reading other peoples stuff on their market opinions, or stuff like that. It is a good way to lose money. The effect on your own analysis is usually bad. I think a trader has to stand on his own two feet. Sort of like the GIVE A MAN A FISH and you feed him for one meal idea. BUT TEACH A MAN TO FISH and you feed him for life.
That said; in looking up experiences and references to different option trading strategies I did run across an interesting site the other day called LIVE OPTIONS TRADING EVENT, by Peter Stolcer which was pretty good. It more or less mirrored my own conclusions, so I guess that is why I felt it was okay? ( grin! )
I have opened an account with THINKORSWIM brokerage ( paper money ) as they offer WEEKLIES expirations in the OEX and have one side of a BRACKETING, CHANNEL SPREAD ( iron condor) completed and will try to put the other side on today. For expiration on Friday, settlement Saturday. Their FREE ACCOUNT size is $100,000 so I feel quite wealthy. ( grin! ) I'm sticking with a $5000 limit for training purposes though. I'll probably use OPTION HOUSE for everything else, in straight buying, or single VERTICAL SPREADS.
Lost money last week on my quickie trade, so I don't have much going right now. The volume is so low. At least with WEEKLY EXPIRATION spreads I can have something to do and pass the time.
http://oexoptiontradingexperience.blogspot.com
I think if you do the channel credit spreads, with safety in mind and pyramid every two months, you could get some serious annual profit returns over 150%? Anyway, working on it and studying it. Trying it. Mostly I'm interested to see what happens in a rapid BEAR MARKET and if I could get out of the losing side of the BULL IRON CONDOR in reality, without too big a loss, during a rapid plunge. That seems to be the only danger to credit spread trading? The skew for losses is very bad. Trend following and CREDIT SPREADS seem to be the best choices so far tried.
The QUICKIE TRADES do not seem to be working out? My longer very few ( 6 or 8 ) trend following trades are pretty much settled and do work. So I'm very pleased with that aspect. Now over the rest of this year, to see if I do okay? The trends tend to follow the monthly bar chart over each two month period. I think the QUICKIE trades with any reliability will only work in a BEAR PLUNGE.
So my trading philosphy is crystalizing and getting sorted out. Going to study DEBIT SPREADS after I get through with these CREDIT SPREADS. Got me a 4 page work sheet on CREDIT SPREAD TRADING do's and don'ts. Culled from all over the web chat forums. Set myself up some rules to follow. The SECRETS and TRICKS which one can find if one reads enough and tries some things yourself.
About 20 years ago, I read about 5 books on SPREAD TRADING by an old trader in the Florida International University library. It was really exciting reading, as he went blow by blow on each trade, as he juggled the market conditions. At the time I thought I want to do that. The sources on market data is a lot more today and it becomes easier to understand what he was doing back then. There is a lot more information on how these things work in real life now through the internet. Back then I found it mystifying and lost some money trying it through a discount broker. ( who was still very expensive ) Sort of like guys saying you have to use real money, to play poker. In the army I lost my first $5 trying to learn poker and gave it up. Didn't make any sense to me, that modus operandi.
--- On Mon, 4/5/10, Doug Morris wrote:
Hi Doug;
I don't really like reading other peoples stuff on their market opinions, or stuff like that. It is a good way to lose money. The effect on your own analysis is usually bad. I think a trader has to stand on his own two feet. Sort of like the GIVE A MAN A FISH and you feed him for one meal idea. BUT TEACH A MAN TO FISH and you feed him for life.
That said; in looking up experiences and references to different option trading strategies I did run across an interesting site the other day called LIVE OPTIONS TRADING EVENT, by Peter Stolcer which was pretty good. It more or less mirrored my own conclusions, so I guess that is why I felt it was okay? ( grin! )
I have opened an account with THINKORSWIM brokerage ( paper money ) as they offer WEEKLIES expirations in the OEX and have one side of a BRACKETING, CHANNEL SPREAD ( iron condor) completed and will try to put the other side on today. For expiration on Friday, settlement Saturday. Their FREE ACCOUNT size is $100,000 so I feel quite wealthy. ( grin! ) I'm sticking with a $5000 limit for training purposes though. I'll probably use OPTION HOUSE for everything else, in straight buying, or single VERTICAL SPREADS.
Lost money last week on my quickie trade, so I don't have much going right now. The volume is so low. At least with WEEKLY EXPIRATION spreads I can have something to do and pass the time.
http://oexoptiontradingexperience.blogspot.com
I think if you do the channel credit spreads, with safety in mind and pyramid every two months, you could get some serious annual profit returns over 150%? Anyway, working on it and studying it. Trying it. Mostly I'm interested to see what happens in a rapid BEAR MARKET and if I could get out of the losing side of the BULL IRON CONDOR in reality, without too big a loss, during a rapid plunge. That seems to be the only danger to credit spread trading? The skew for losses is very bad. Trend following and CREDIT SPREADS seem to be the best choices so far tried.
The QUICKIE TRADES do not seem to be working out? My longer very few ( 6 or 8 ) trend following trades are pretty much settled and do work. So I'm very pleased with that aspect. Now over the rest of this year, to see if I do okay? The trends tend to follow the monthly bar chart over each two month period. I think the QUICKIE trades with any reliability will only work in a BEAR PLUNGE.
So my trading philosphy is crystalizing and getting sorted out. Going to study DEBIT SPREADS after I get through with these CREDIT SPREADS. Got me a 4 page work sheet on CREDIT SPREAD TRADING do's and don'ts. Culled from all over the web chat forums. Set myself up some rules to follow. The SECRETS and TRICKS which one can find if one reads enough and tries some things yourself.
About 20 years ago, I read about 5 books on SPREAD TRADING by an old trader in the Florida International University library. It was really exciting reading, as he went blow by blow on each trade, as he juggled the market conditions. At the time I thought I want to do that. The sources on market data is a lot more today and it becomes easier to understand what he was doing back then. There is a lot more information on how these things work in real life now through the internet. Back then I found it mystifying and lost some money trying it through a discount broker. ( who was still very expensive ) Sort of like guys saying you have to use real money, to play poker. In the army I lost my first $5 trying to learn poker and gave it up. Didn't make any sense to me, that modus operandi.
--- On Mon, 4/5/10, Doug Morris
Sunday, April 4, 2010
THE STEEP LEARNING CURVE FOR SPREAD TRADING - report #19
THE STEEP LEARNING CURVE FOR SPREAD TRADING!
Been perusing the web to learn about credit spread experiences. I've been picking brains and actual experiences, to make a list of DO's and DON'TS, for my credit spread and particularly the CHANNEL (condors) CREDIT SPREADS as it pertains to my OEX INDEX trading. Should I EVER get good enough at this, to make steady money, would try some other index's. They all run in parallel more or less anyway, I notice. Ships float in harbor with the tide!
Hope I've got all my rules in place? ( grin! ) The only real big danger seems to be a one day BEAR MARKET sudden plunge? Buying back the SOLD PUTS would be my strategy to reacting to that; preferably BEFORE it hit my SOLD side of the CHANNEL. Otherwise you would get whopped with a big loss, maybe in your account, 50% gone!
Starting this week in early APRIL will be trying my ideas with the CREDIT SPREADS using THINK OR SWIM. Just got into their web site this morning and registered. Bit of a learning curve again, to putting on a spread and stuff to go through. I wanted to trade WEEKLIES on the OEX and don't know eventually if other indexes have weeklies? Unfortunately, OPTION HOUSE does not have OEX WEEKLIES. We shall see how it goes with THINK or SWIM?
Have to laugh, when somebody commented you can learn CREDIT SPREAD trading and IRON CONDORS in a few hours. Wheeew! Took me two weeks to figure it out, and look for the problems and the tricks to dealing with those problems. I notice a lot of SELLERS are advertising for MONEY, special tricks. Don't go that route myself. Don't need a BLACK BOX, like to be in charge of my own destiny. That way, nobody to blame but myself.
I had just read some guy's comments on the 90% brag that CREDIT SPREADS tout, as a profitable percentage. Whoever it was said that, commented; "that was misleading". Which I figured already, being an old fart, with enough experience in charlatans and soft soap sales pitches. I figure if you don't close your side of a CONDOR when threatened, you are going to lose 50% of your trading account, should the index trade through the sold side.
Anyway, just a running commentary, mostly for myself. To remind me when I look back at all this, to see if I was right or wrong in my opinions?
Something I'm trying to figure out? Is there actually any capability, or anybody really trading 50 contracts, per side on OEX WEEKLIES in IRON CONDORS? That is over a $100,000.
The 90% winning trades, versus 10% losing trades garbage, they say on some websites as a sales pitch, doesn't seem to cover that the 10% losing trades, only actually have to be ONE LOSING TRADE, to wipe out 'half your account' is what I'm figuring here for a CHANNEL CREDIT SPREADING called CONDOR? But I'm an amateur, untested with real cash, so what do I know? In the meantime, I think one has to periodically take some money off the table as a solution. Maybe every quarter?
Been perusing the web to learn about credit spread experiences. I've been picking brains and actual experiences, to make a list of DO's and DON'TS, for my credit spread and particularly the CHANNEL (condors) CREDIT SPREADS as it pertains to my OEX INDEX trading. Should I EVER get good enough at this, to make steady money, would try some other index's. They all run in parallel more or less anyway, I notice. Ships float in harbor with the tide!
Hope I've got all my rules in place? ( grin! ) The only real big danger seems to be a one day BEAR MARKET sudden plunge? Buying back the SOLD PUTS would be my strategy to reacting to that; preferably BEFORE it hit my SOLD side of the CHANNEL. Otherwise you would get whopped with a big loss, maybe in your account, 50% gone!
Starting this week in early APRIL will be trying my ideas with the CREDIT SPREADS using THINK OR SWIM. Just got into their web site this morning and registered. Bit of a learning curve again, to putting on a spread and stuff to go through. I wanted to trade WEEKLIES on the OEX and don't know eventually if other indexes have weeklies? Unfortunately, OPTION HOUSE does not have OEX WEEKLIES. We shall see how it goes with THINK or SWIM?
Have to laugh, when somebody commented you can learn CREDIT SPREAD trading and IRON CONDORS in a few hours. Wheeew! Took me two weeks to figure it out, and look for the problems and the tricks to dealing with those problems. I notice a lot of SELLERS are advertising for MONEY, special tricks. Don't go that route myself. Don't need a BLACK BOX, like to be in charge of my own destiny. That way, nobody to blame but myself.
I had just read some guy's comments on the 90% brag that CREDIT SPREADS tout, as a profitable percentage. Whoever it was said that, commented; "that was misleading". Which I figured already, being an old fart, with enough experience in charlatans and soft soap sales pitches. I figure if you don't close your side of a CONDOR when threatened, you are going to lose 50% of your trading account, should the index trade through the sold side.
Anyway, just a running commentary, mostly for myself. To remind me when I look back at all this, to see if I was right or wrong in my opinions?
Something I'm trying to figure out? Is there actually any capability, or anybody really trading 50 contracts, per side on OEX WEEKLIES in IRON CONDORS? That is over a $100,000.
The 90% winning trades, versus 10% losing trades garbage, they say on some websites as a sales pitch, doesn't seem to cover that the 10% losing trades, only actually have to be ONE LOSING TRADE, to wipe out 'half your account' is what I'm figuring here for a CHANNEL CREDIT SPREADING called CONDOR? But I'm an amateur, untested with real cash, so what do I know? In the meantime, I think one has to periodically take some money off the table as a solution. Maybe every quarter?
Thursday, April 1, 2010
report #18 on trading ending March, 2010, OEX Experiments
Good Friday long weekend
GAINS OR LOSSES YEAR TO DATE ( March start )
EACH TYPE OF TRADING STARTED WITH A $5000 ACCOUNT, IN ORDER TO COMPARE THE RESULTS DURING THE LEARNING CURVE. The VIRTUAL ACCOUNT with the broker is supposed to evolve into a medly of the other three types of trading, depending on results and the learning process, of when to implement them in different market conditions. Since Option House does not offer weekly OEX option EXPIRATIONS, we will have to open an account with another broker for that part.
Virtual Account: no trading - remains at Balance of:( -37% )
Paper trading in Quickie Trading: +6%(reduced from 12% to +6%)
Credit Spread singles: ( paper trading ) +7%
Channel credit spreads called CONDORS (paper trading) +12%
Debit Spreads ( haven't started studying them yet ) (I'm also interested in eventually studying ratio spreads and butterflies sometime. Got too much on my plate right now, trying to learn and absorb this stuff above.)
Trend longer trading (6 or 8 per yr)( hasn't started yet )zero neutral
For details scroll down to Report # 12 of trade action.
http://oexoptiontradingexperience.blogspot.com ( history of learning experience )
http://westernbelizehappenings.blogspot.com ( photos and articles of living in Western Belize, foothills of the rural Belize Alps. )
GAINS OR LOSSES YEAR TO DATE ( March start )
EACH TYPE OF TRADING STARTED WITH A $5000 ACCOUNT, IN ORDER TO COMPARE THE RESULTS DURING THE LEARNING CURVE. The VIRTUAL ACCOUNT with the broker is supposed to evolve into a medly of the other three types of trading, depending on results and the learning process, of when to implement them in different market conditions. Since Option House does not offer weekly OEX option EXPIRATIONS, we will have to open an account with another broker for that part.
Virtual Account: no trading - remains at Balance of:( -37% )
Paper trading in Quickie Trading: +6%(reduced from 12% to +6%)
Credit Spread singles: ( paper trading ) +7%
Channel credit spreads called CONDORS (paper trading) +12%
Debit Spreads ( haven't started studying them yet ) (I'm also interested in eventually studying ratio spreads and butterflies sometime. Got too much on my plate right now, trying to learn and absorb this stuff above.)
Trend longer trading (6 or 8 per yr)( hasn't started yet )zero neutral
For details scroll down to Report # 12 of trade action.
http://oexoptiontradingexperience.blogspot.com ( history of learning experience )
http://westernbelizehappenings.blogspot.com ( photos and articles of living in Western Belize, foothills of the rural Belize Alps. )
Wednesday, March 31, 2010
SUCCESSFUL OPTION CREDIT SPREAD TRADING FOR DUMMIES! ( Report #17 )
SUCCESSFUL OPTION CREDIT SPREAD TRADING FOR DUMMIES! ( Report # 17 )
Can you make a living from CREDIT SPREAD TRADING ALONE?
The preliminary hypothetical trading tests and learning curve with single credit spreads and Condor channel bracketing credit spreads, led me to believe you can?
I would hate to think how many hours and midnight oil I've burned perusing everything everybody had to say on the internet about the subject and then trying it myself. Still I did, and have finally distilled all the essential questions and operations down into my lesson for myself. Condensed, I am calling this the two page version of what I need to know and remember and above all, practice in real trading, when considering CREDIT SPREAD TRADING, both single spreads and Condor Spreads ( bracketing ).
Here are the sub headings: 1) SINGLE CREDIT SPREADS AND WHEN TO USE THEM?
2) BULL TREND CREDIT SPREADS
3) CONGESTION AND RANGE BOUND CREDIT SPREADS
4) MARGIN AND HOW TO FIGURE YOUR LIMITS
5) 3% SINGLE PROFIT CREDIT SPREAD REQUIREMENTS
6) BREAKEVEN EXITS
7) VOLATILITY AND HOW TO USE IT
8) ENTERING CREDIT SPREADS THROUGH LIMIT ORDERS
9) EXPIRATION TRADING, WEEKLIES IN THE OEX AND OTHER INDEX'S AND MONTHLY EXPIRATIONS
10) CONDOR, OR CHANNEL BRACKETING CREDIT BULL AND BEAR SPREADS -there is a trick here into maximizing credit returns
11) WHEN TO DO ROLLOVERS AND HOW?
12) OEX INDEX MOVEMENT MARKET CALCULATIONS AND HOW TO USE THIS FOR BIGGEST PREMIUMS
13) THE ODDS and the moment needed to use them for you
14) OEX INDEX MOVES AND WHEN TO USE THEM
15) THE ONLY TIMES TO USE CREDIT SPREADS EFFECTIVELY
16) TIME PERIODS FOR DIFFERENT CREDIT SPREADS
17) USING PREMIUM BALLOONING
18) PATIENCE IS YOUR FRIEND AND WHAT MOMENT YOU ARE WAITING FOR?
19) THE CORE FUNDAMENTAL FOR SUCCESS!
______________________________________
I wrote this for myself and saved it to computer and a printout. Now all I have to do is follow my own advice religiously, on CREDIT SPREAD TRADING ( grin! ). But THAT is a different and another story. That story is unfolding as we shall see?
One guy selling black box, order selling on the internet, is claiming 149% returns for 2009. He may even be right? From that you can figure how much you need to earn and live by, and how much you have to try it?
This does not go into CREDIT SPREADS of which there are many explanations and tutorials on the web. This is more about SUCCESSFUL credit spread trading and the tricks needed to stay solvent and profitable, by a professional. C'est la vie! We shall see in due course, a year or so from now.
________________________________________
Can you make a living from CREDIT SPREAD TRADING ALONE?
The preliminary hypothetical trading tests and learning curve with single credit spreads and Condor channel bracketing credit spreads, led me to believe you can?
I would hate to think how many hours and midnight oil I've burned perusing everything everybody had to say on the internet about the subject and then trying it myself. Still I did, and have finally distilled all the essential questions and operations down into my lesson for myself. Condensed, I am calling this the two page version of what I need to know and remember and above all, practice in real trading, when considering CREDIT SPREAD TRADING, both single spreads and Condor Spreads ( bracketing ).
Here are the sub headings: 1) SINGLE CREDIT SPREADS AND WHEN TO USE THEM?
2) BULL TREND CREDIT SPREADS
3) CONGESTION AND RANGE BOUND CREDIT SPREADS
4) MARGIN AND HOW TO FIGURE YOUR LIMITS
5) 3% SINGLE PROFIT CREDIT SPREAD REQUIREMENTS
6) BREAKEVEN EXITS
7) VOLATILITY AND HOW TO USE IT
8) ENTERING CREDIT SPREADS THROUGH LIMIT ORDERS
9) EXPIRATION TRADING, WEEKLIES IN THE OEX AND OTHER INDEX'S AND MONTHLY EXPIRATIONS
10) CONDOR, OR CHANNEL BRACKETING CREDIT BULL AND BEAR SPREADS -there is a trick here into maximizing credit returns
11) WHEN TO DO ROLLOVERS AND HOW?
12) OEX INDEX MOVEMENT MARKET CALCULATIONS AND HOW TO USE THIS FOR BIGGEST PREMIUMS
13) THE ODDS and the moment needed to use them for you
14) OEX INDEX MOVES AND WHEN TO USE THEM
15) THE ONLY TIMES TO USE CREDIT SPREADS EFFECTIVELY
16) TIME PERIODS FOR DIFFERENT CREDIT SPREADS
17) USING PREMIUM BALLOONING
18) PATIENCE IS YOUR FRIEND AND WHAT MOMENT YOU ARE WAITING FOR?
19) THE CORE FUNDAMENTAL FOR SUCCESS!
______________________________________
I wrote this for myself and saved it to computer and a printout. Now all I have to do is follow my own advice religiously, on CREDIT SPREAD TRADING ( grin! ). But THAT is a different and another story. That story is unfolding as we shall see?
One guy selling black box, order selling on the internet, is claiming 149% returns for 2009. He may even be right? From that you can figure how much you need to earn and live by, and how much you have to try it?
This does not go into CREDIT SPREADS of which there are many explanations and tutorials on the web. This is more about SUCCESSFUL credit spread trading and the tricks needed to stay solvent and profitable, by a professional. C'est la vie! We shall see in due course, a year or so from now.
________________________________________
Monday, March 29, 2010
OEX PIVOT POINT SYSTEM discarded in favor of ADAMS THEORY
Report # 16
I used to trade and quit about 18 years ago. Now in my old age I'm back in the game again to relearn the basics and see if I can use some of my savings cash stacked up earning me NADA in the banks, or money markets. Mainly though I'm back in the trading game for something to do with each day, besides looking after re-potting plants in my hobby two nurseries.
One of the reviews recently finished, was over PIVOT POINTS. I remembered discarding them couple of decades ago, for a system doing a similar thing, called ADAM's THEORY. Recently I re-tried the PIVOT POINT system again and found it had the same problems. Mostly I guess, because it lacked the graphical, or visual property that you get with the simpler ADAM'S THEORY. So for the last couple of months I've been using ADAM's THEORY, probably an outdated method of calculating breakouts, moving pressure and direction and support and resistance. Still, I find it works at least for me, better than PIVOT POINTS. Same goals, but usually slightly different approach and it is all graphic and easier to grasp the essentials of what is happening, at least for me. Since it is a picture, scratched with a pencil on a piece of scrap paper for the weekly bar.
Just thought I would throw that comment out there for the fun of it. Especially since I see whole reams of web sites these days expounding PIVOT POINTS like some HOLY GRAIL. Each to his own I guess?
I used to trade and quit about 18 years ago. Now in my old age I'm back in the game again to relearn the basics and see if I can use some of my savings cash stacked up earning me NADA in the banks, or money markets. Mainly though I'm back in the trading game for something to do with each day, besides looking after re-potting plants in my hobby two nurseries.
One of the reviews recently finished, was over PIVOT POINTS. I remembered discarding them couple of decades ago, for a system doing a similar thing, called ADAM's THEORY. Recently I re-tried the PIVOT POINT system again and found it had the same problems. Mostly I guess, because it lacked the graphical, or visual property that you get with the simpler ADAM'S THEORY. So for the last couple of months I've been using ADAM's THEORY, probably an outdated method of calculating breakouts, moving pressure and direction and support and resistance. Still, I find it works at least for me, better than PIVOT POINTS. Same goals, but usually slightly different approach and it is all graphic and easier to grasp the essentials of what is happening, at least for me. Since it is a picture, scratched with a pencil on a piece of scrap paper for the weekly bar.
Just thought I would throw that comment out there for the fun of it. Especially since I see whole reams of web sites these days expounding PIVOT POINTS like some HOLY GRAIL. Each to his own I guess?
LEARNING CURVE QUARTERLY 2010 report # 14
QUARTERLY REPORT # 14 for 2010 returns on learning curve!
End of March, 2010
Quicki trading account is up + 12%
Spread Trading account is up + 12%
Virtual Account is losing at ( - 37% )
Blog on Trading. Current balances are at: Report #12
http://oexoptiontradingexperience.blogspot.com/
The Quicki trading account is short term 1 to 6 days trading, based on volatility. I tried a lot of methods and finally this one seems to be working best. This is currently in the testing learning stage by practice. When it gets to + 50%, or over $5000 starting capital, doing hypothetical paper trading; then it would be moved into the Virtual Trading Account. Which is also hypothetical, but is using a broker and real trading Virtual account. No real money yet.
The Spread Trading account also has to reach a + 50% gain before being moved from hypothetical paper trading to VIRTUAL BROKERAGE hypothetical trading.
The VIRTUAL ACCOUNT is the one that counts. This has to move + 50% of hypothetical trading, using a broker, or from a starting balance of $5000, to a net of $7500. Whenever it does that, the learning curve based on performance, will shift to a real money CASH account. Until then, it is all practice funny money.
After that; our money management formula dictates an additional $5000 real cash money be added for performance, based on increases of + 50% to fresh starting balance. The VIRTUAL ACCOUNT is supposed to use only the one proven successful method I have yet got, so far. That is trend following using third month out options. Unfortunately, I've been impatient and playing around with all kinds of quickie short term trading systems, that have not worked out enough and I fell prey to impatience and tried some of them too soon in my VIRTUAL ACCOUNT and lost bets, which brought the VIRTUAL ACCOUNT balance down. Which is no biggie, but it will be a while ( a month probably? ) before I get another TREND to make back my experimental losses. A PERFORMANCE BASED LEARNING CURVE! In the meantime, I swear on the HOLY GRAIL I will segregate my QUICKI trades and SPREAD TRADES until they each earn their + 50% in practice paper trading trials, or FAIL and get discarded.
End of March, 2010
Quicki trading account is up + 12%
Spread Trading account is up + 12%
Virtual Account is losing at ( - 37% )
Blog on Trading. Current balances are at: Report #12
http://oexoptiontradingexperience.blogspot.com/
The Quicki trading account is short term 1 to 6 days trading, based on volatility. I tried a lot of methods and finally this one seems to be working best. This is currently in the testing learning stage by practice. When it gets to + 50%, or over $5000 starting capital, doing hypothetical paper trading; then it would be moved into the Virtual Trading Account. Which is also hypothetical, but is using a broker and real trading Virtual account. No real money yet.
The Spread Trading account also has to reach a + 50% gain before being moved from hypothetical paper trading to VIRTUAL BROKERAGE hypothetical trading.
The VIRTUAL ACCOUNT is the one that counts. This has to move + 50% of hypothetical trading, using a broker, or from a starting balance of $5000, to a net of $7500. Whenever it does that, the learning curve based on performance, will shift to a real money CASH account. Until then, it is all practice funny money.
After that; our money management formula dictates an additional $5000 real cash money be added for performance, based on increases of + 50% to fresh starting balance. The VIRTUAL ACCOUNT is supposed to use only the one proven successful method I have yet got, so far. That is trend following using third month out options. Unfortunately, I've been impatient and playing around with all kinds of quickie short term trading systems, that have not worked out enough and I fell prey to impatience and tried some of them too soon in my VIRTUAL ACCOUNT and lost bets, which brought the VIRTUAL ACCOUNT balance down. Which is no biggie, but it will be a while ( a month probably? ) before I get another TREND to make back my experimental losses. A PERFORMANCE BASED LEARNING CURVE! In the meantime, I swear on the HOLY GRAIL I will segregate my QUICKI trades and SPREAD TRADES until they each earn their + 50% in practice paper trading trials, or FAIL and get discarded.
Wednesday, March 24, 2010
DELAYED DATA OF 20 MINUTES CAUSES LOSS OF $100 PER OPTION CONTRACT ( report #13 )
OPTION HOUSE virtual trading platform ( Report #13 )
I am noticing that the delayed 20 minute data is costing me $100 extra loss, per option contract, not accounted for in the time quotes when placing the order on the OPTION HOUSE platform.
The market orders lose an extra $100 per single option contract in trials.
You get a quote that is incorrect to buy or sell, but when you go back to see the ORDER EXECUTION, the fill or slippage, is usually a $100 worse. I put this down to the TIME DELAY.
Some method of dealing with the delayed data such as LIMIT orders would have to be implemented into your trading style.
I am noticing that the delayed 20 minute data is costing me $100 extra loss, per option contract, not accounted for in the time quotes when placing the order on the OPTION HOUSE platform.
The market orders lose an extra $100 per single option contract in trials.
You get a quote that is incorrect to buy or sell, but when you go back to see the ORDER EXECUTION, the fill or slippage, is usually a $100 worse. I put this down to the TIME DELAY.
Some method of dealing with the delayed data such as LIMIT orders would have to be implemented into your trading style.
Monday, March 22, 2010
OEX OPTION TRADING LEARNING (Report #12) trades
BRINGING MY TRAINING EXPERIMENTAL TRADING BALANCES FORWARD, SO THEY ARE EASIER TO WRITE INTO THE BLOG --- These balances are brought forward from REPORT #6, found below in the BLOG.
VIRTUAL ACCOUNT with Broker Option House
Starting Balance: $5000
March 22nd, 2010 brought forward: $3629 -27%
March 5th; MAY PUT 530 (-520) $3109 -37% The loss percentage based on the starting $5000 account size.
____________________________________
QUICKIE TRADES - ONE TO THREE DAYS
PAPER TRADING short term trades
Starting Balance: $5000
March 22nd., 2010 $5845
March 19th 530 PUT (-$400 ) $5445 + 8% Made the stupid mistake of going counter trend, with a new system trial that worked pretty good. It worked this time too, but because it was a quicki trade, 4 hours later it reversed and caught me cold. Then I dithered about taking the loss for a couple of days, wondering what was going on? Big mistake! When you are wrong, take the loss immediately ( lesson of the day)
March 24th, 2010 April 540 CALL +190, account balance is now $5635 ( + 12%)
2 contracts April 540 CALLS, (-$300) - account balance (+6%) or $5335
__________________________________
CREDIT SPREAD TRADING ( Vertical Spreads )
Starting Balance: $5000 VERTICAL CREDIT SPREADS
WEEKLY OEX OPTION EXPIRATION TRADING - March 22 to 26 TEST PAPER TRADING TRIALS
Vertical Credit Spread
10 contracts - Sell March 530 PUTS out-the-money at: 1000 x .50 = +$500 Tuesday
10 contracts - Buy March 525 PUTS out-the-money at: 1000 x .35 = - $350 Friday
------------------------------- Profit = $150 ---- Expired on Friday
Balance: $5150 (+ 3%)
_________________________________________
10 SELL April PUT 530 @ .45cents = + $450 credit ( Expiration Thursday Apr. 1st )
10 BUY April Put 525 @ .25cents = - $250 debit (started Monday, Mar.29th )
Net CREDIT of +$200. Expired worthless so keep + $200 ( Easter weekend )
Spread trading balance: $5350 ( account gain + 7% ) ( weekly expiration trade )
___________________________________
CHANNEL CREDIT SPREADS called a Condor BRACKETING the expected 4 day price index action. Using the OEX WEEKLY EXPIRATION option chain prices.
10 contracts - Sell Mar CALL 545 out-the-money at: 1000 x .15 = + $150
10 contracts - Buy Mar CALL 550 out-the-money at: 1000 x .10 = - $100
-----------------CREDIT = + $50 ---- entered Tuesday, expired Friday
10 contracts - Sell Mar PUTS 530 out-the-money at: 1000 x .75 = + $750
10 contracts - Buy Mar PUTS 525 out-the-money at: 1000 x .35 = - $350
-------------CREDIT = +$400 ---- entered Tuesday expired next day Friday
NET GAIN ON EXPIRATION = +$400
Account Balance: +$5600 ( + 12% )
_____________________________________________________________________
Special note: This is a paper trading learning test and actual fills may have been different. The option chain I used was at BIG CHARTS. Nor am I sure of what the cost of commissions are on this? Also an enquiry to OPTION HOUSE found they did not do OEX option weekly expirations. I understand Options Xpress do them? I'm not at all clear on using limit orders in credit spreads for CONDORS, or CHANNEL SPREADING, or the commission setup to this point of my learning curve.
____________________________________________
VIRTUAL ACCOUNT with Broker Option House
Starting Balance: $5000
March 22nd, 2010 brought forward: $3629 -27%
March 5th; MAY PUT 530 (-520) $3109 -37% The loss percentage based on the starting $5000 account size.
____________________________________
QUICKIE TRADES - ONE TO THREE DAYS
PAPER TRADING short term trades
Starting Balance: $5000
March 22nd., 2010 $5845
March 19th 530 PUT (-$400 ) $5445 + 8% Made the stupid mistake of going counter trend, with a new system trial that worked pretty good. It worked this time too, but because it was a quicki trade, 4 hours later it reversed and caught me cold. Then I dithered about taking the loss for a couple of days, wondering what was going on? Big mistake! When you are wrong, take the loss immediately ( lesson of the day)
March 24th, 2010 April 540 CALL +190, account balance is now $5635 ( + 12%)
2 contracts April 540 CALLS, (-$300) - account balance (+6%) or $5335
__________________________________
CREDIT SPREAD TRADING ( Vertical Spreads )
Starting Balance: $5000 VERTICAL CREDIT SPREADS
WEEKLY OEX OPTION EXPIRATION TRADING - March 22 to 26 TEST PAPER TRADING TRIALS
Vertical Credit Spread
10 contracts - Sell March 530 PUTS out-the-money at: 1000 x .50 = +$500 Tuesday
10 contracts - Buy March 525 PUTS out-the-money at: 1000 x .35 = - $350 Friday
------------------------------- Profit = $150 ---- Expired on Friday
Balance: $5150 (+ 3%)
_________________________________________
10 SELL April PUT 530 @ .45cents = + $450 credit ( Expiration Thursday Apr. 1st )
10 BUY April Put 525 @ .25cents = - $250 debit (started Monday, Mar.29th )
Net CREDIT of +$200. Expired worthless so keep + $200 ( Easter weekend )
Spread trading balance: $5350 ( account gain + 7% ) ( weekly expiration trade )
___________________________________
CHANNEL CREDIT SPREADS called a Condor BRACKETING the expected 4 day price index action. Using the OEX WEEKLY EXPIRATION option chain prices.
10 contracts - Sell Mar CALL 545 out-the-money at: 1000 x .15 = + $150
10 contracts - Buy Mar CALL 550 out-the-money at: 1000 x .10 = - $100
-----------------CREDIT = + $50 ---- entered Tuesday, expired Friday
10 contracts - Sell Mar PUTS 530 out-the-money at: 1000 x .75 = + $750
10 contracts - Buy Mar PUTS 525 out-the-money at: 1000 x .35 = - $350
-------------CREDIT = +$400 ---- entered Tuesday expired next day Friday
NET GAIN ON EXPIRATION = +$400
Account Balance: +$5600 ( + 12% )
_____________________________________________________________________
Special note: This is a paper trading learning test and actual fills may have been different. The option chain I used was at BIG CHARTS. Nor am I sure of what the cost of commissions are on this? Also an enquiry to OPTION HOUSE found they did not do OEX option weekly expirations. I understand Options Xpress do them? I'm not at all clear on using limit orders in credit spreads for CONDORS, or CHANNEL SPREADING, or the commission setup to this point of my learning curve.
____________________________________________
Saturday, March 13, 2010
PREFER BUYING OPTIONS OVER SPREADS AND WHY? Report #11
Prefer buying options over spreads and why!
REPORT # 11
After two weeks and hours of study, decided to skip DEBIT and CREDIT SPREADS and stick with buying of straight option PUTS and CALLS.
The basic reason why, is that; SPREADS are directional movements on the INDEX as are straight buying of PUTS and CALLS.
The advantage of a DEBIT spread is basically the elimination of threat by TIME DECAY. Which in of itself is no mean advantage. The SPREAD though is only good for a trend anyway. The credit spread is superior due to getting money up front in your account, but more dangerous as you will lose at least 50% and wipe out the low profits from 5 trades, or a couple of months earnings, if the index reverses and touches your start point forcing you to exit. If you wait, the losses mount a lot more.
I feel that you can do as well in this regard by choosing your trades selectively and trading particularly in trend trades, by staggering your straight buys in a TREND as you enter the trend. Each new trend buy on new signals, that the trend is still in force will earn less, but still positive. If you have a strong sense of the end of a TREND, then you get out all of them before the trend finishes. This allows you to put in a lot more of your capital, rather than limit yourself like in futures type limited size trades. OEX long trends of 12 to 18 days tend to peter out with a lower VIX and loss of volatility, and also the daily range ( TR and ATR ) gets smaller. There are reference websites that give both, but you can basically see it on a bar chart.
When you lack the volatility and the daily TRUE RANGE, or ATR estimate, then you should be on the sidelines in cash anyway, as the trend moves to it's inevitable reversal. My interest in spreads was in capturing the slow small incremental trend moves in the OEX, when it is tiring and exhausted and both volatility and daily range is small and unchanged. You lose profits to TIME DECAY by sitting in the end of the OEX trend. I thought spreads might capture that. The risk though is higher using spreads than staying on the sidelines watching patiently for a reversal, in cash.
I feel that a SPREAD advantage at this section of the trend, does not outweigh the more common sense approach of leaving the finishing trend and taking your cash and sitting on the side lines. Most effective traders will tell you over and over again, that UNDER TRADING and PATIENCE, are hall marks of a healthy annual bottom profit line. It is not what you gain, but what you avoid losing that is important.
e.g. Let us presume you make 10 trades a year and made 17% on each trade. At the end of the year you would have a 170% gross profit in your account balance, by avoiding losses and staying in cash when you should. Some people do more! It is not unusual to earn 8% to 35% on option trades, of two weeks. Professional rich traders talk a lot about LOSS control and the writers on the internet emphasize taking losses quickly, particularly if you over trade. Which is true enough, but not the whole story. To me that above is true, but real LOSS CONTROL is to stay out of trades that are not rock solid guaranteed setups, to work. 6 Option trades a year that are profitable, are better than 300 trades a year that a large percentage lose. ( I'm a starting amateur so take this opinion with a grain of salt! ) The best earners I've known in trading did only one or two trades a year. Go figure that!
Frenetic trading activity is not trading for profit, it is pure gambling. Just my amateur opinion. Doing this type of control is harder than it reads though. Try it and you will see. When a rich trader tells you PATIENCE is the best skill, they mean sitting in CASH watching for a guaranteed type trade setup you are confidant of. VERY HARD TO DO THIS, as I'm finding out.
QUICKIE TRADES are more speculative or gambling type and you take your losses when you are wrong. Quick loss taking when you are wrong is paramount. You are having fun though and meeting the mental challenge. Just don't expect to get rich.
REPORT # 11
After two weeks and hours of study, decided to skip DEBIT and CREDIT SPREADS and stick with buying of straight option PUTS and CALLS.
The basic reason why, is that; SPREADS are directional movements on the INDEX as are straight buying of PUTS and CALLS.
The advantage of a DEBIT spread is basically the elimination of threat by TIME DECAY. Which in of itself is no mean advantage. The SPREAD though is only good for a trend anyway. The credit spread is superior due to getting money up front in your account, but more dangerous as you will lose at least 50% and wipe out the low profits from 5 trades, or a couple of months earnings, if the index reverses and touches your start point forcing you to exit. If you wait, the losses mount a lot more.
I feel that you can do as well in this regard by choosing your trades selectively and trading particularly in trend trades, by staggering your straight buys in a TREND as you enter the trend. Each new trend buy on new signals, that the trend is still in force will earn less, but still positive. If you have a strong sense of the end of a TREND, then you get out all of them before the trend finishes. This allows you to put in a lot more of your capital, rather than limit yourself like in futures type limited size trades. OEX long trends of 12 to 18 days tend to peter out with a lower VIX and loss of volatility, and also the daily range ( TR and ATR ) gets smaller. There are reference websites that give both, but you can basically see it on a bar chart.
When you lack the volatility and the daily TRUE RANGE, or ATR estimate, then you should be on the sidelines in cash anyway, as the trend moves to it's inevitable reversal. My interest in spreads was in capturing the slow small incremental trend moves in the OEX, when it is tiring and exhausted and both volatility and daily range is small and unchanged. You lose profits to TIME DECAY by sitting in the end of the OEX trend. I thought spreads might capture that. The risk though is higher using spreads than staying on the sidelines watching patiently for a reversal, in cash.
I feel that a SPREAD advantage at this section of the trend, does not outweigh the more common sense approach of leaving the finishing trend and taking your cash and sitting on the side lines. Most effective traders will tell you over and over again, that UNDER TRADING and PATIENCE, are hall marks of a healthy annual bottom profit line. It is not what you gain, but what you avoid losing that is important.
e.g. Let us presume you make 10 trades a year and made 17% on each trade. At the end of the year you would have a 170% gross profit in your account balance, by avoiding losses and staying in cash when you should. Some people do more! It is not unusual to earn 8% to 35% on option trades, of two weeks. Professional rich traders talk a lot about LOSS control and the writers on the internet emphasize taking losses quickly, particularly if you over trade. Which is true enough, but not the whole story. To me that above is true, but real LOSS CONTROL is to stay out of trades that are not rock solid guaranteed setups, to work. 6 Option trades a year that are profitable, are better than 300 trades a year that a large percentage lose. ( I'm a starting amateur so take this opinion with a grain of salt! ) The best earners I've known in trading did only one or two trades a year. Go figure that!
Frenetic trading activity is not trading for profit, it is pure gambling. Just my amateur opinion. Doing this type of control is harder than it reads though. Try it and you will see. When a rich trader tells you PATIENCE is the best skill, they mean sitting in CASH watching for a guaranteed type trade setup you are confidant of. VERY HARD TO DO THIS, as I'm finding out.
QUICKIE TRADES are more speculative or gambling type and you take your losses when you are wrong. Quick loss taking when you are wrong is paramount. You are having fun though and meeting the mental challenge. Just don't expect to get rich.
Friday, March 12, 2010
UNDERSTANDING OEX OPTION SPREAD TRADING STRUGGLE ( report # 10 )
My struggle to understand OEX Option Spread Trading Report # 10
There is lots of information on the internet about OPTION SPREADS for trading.
I've pretty much exhausted my enquiries about POSITION TRADING and faster QUICKI SHORT trades and have devised my trading methodologies for both. Now is the time for the results to show up in my currently losing VIRTUAL BROKERAGE ACCOUNT with funny money. ( see below )
So the past week or so I've been studying SPREAD TRADING. The reason for Spread Trading, is that the OEX INDEX often and mostly moves in a bull trend very slowly. The volatility dies down and you are only getting 1 or 2 OEX index points at the end of each day and not every day either. With TIME DECAY that is a bummer. I kind of made money on one long call position, just closed this week, that I instigated a long time ago and fortunately I put it out at 3 months, so TIME DECAY was minimal. My 2 month option OUT distance, didn't do near as good. It made money, but not much.
TIME DECAY being the problem in the slow OEX BULL MARKET TREND, for low volatility I got interested in SPREADS. They say TIME DECAY works for you and so long as you put on a BULL SPREAD, you will make money as the PREMIUM expands. I'm paper trading one of these from this past week and so far, the premium is not doing anything. Even though the Index has moved about 4 points in my favor at times.
TRIAL AND ERROR learning is what this is.
Where I really got confused is that the internet advisors are mixing up the spread names. I finally figured out that a BULL SPREAD for some people is actually a VERTICAL CALL SPREAD and for others a VERTICAL CALL SPREAD is a CREDIT SPREAD.
You switch the BUY and SELL of the two strikes in either a BULL SPREAD that I wanted as a position TIME DECAY, or the BULL/VERTICAL SPREAD as a CREDIT spread.
The difference seems to be that one SPREAD IS A DEBIT SPREAD, the other is a CREDIT SPREAD
The difference is not only in the way you put it on. Concerning the Buying and Selling of one strike apart options. One is a DEBIT SPREAD and you are supposed to make your money from TIME DECAY on the selling side. That's what it says anyway? So far this week, mine has not expanded the PREMIUM DEBT the way they say. We shall see by the end of next week, which is Expiration FRIDAY. I don't quite understand that part, but I learn by doing; so if my PREMIUM on paper actually spreads we will see when I theoretically close it out, if it makes money. The premium DEBT was $3.30 and it is hovering still around that number so far.
THE CREDIT SPREAD gives you a PROFIT, or CREDIT when you sell the more expensive option and if you go to expiration, you get to keep the CREDIT. I've got an experiment on paper for one of those running also. The trick is that the INDEX has to be above your starting point of putting on the SPREAD. Not sure that is going to happen, but if the INDEX threatens to return back to your INDEX starting point, the internet option gurus say; you must close it out and take your losses. As if the dropping index market action, goes past your index starting point, you LOSS gets very big indeed. A DANGEROUS SPREAD the Credit Spread.
What I want I guess; is the other BULL SPREAD, the DEBIT BULL SPREAD, so it can be closed out at any time. However waiting for TIME DECAY to widen the PREMIUM, is like watching the pot for the water to boil. Aggravating so far.
This learning business is so slow! I hope I have cleared up the confusion in my own mind and the results this week prove out that I'm on the right track?
________________________________________
I'm finally coming to the conclusion it is better to just buy plain puts or calls?
The Condor Spread was interesting. But all SPREADS are apparently directional. If you have to go directional, you might as well go long, puts or calls. It is a lot easier to exit your positions. With the CONDOR spread, a channel set of CREDIT SPREADS, one loss still wipes out a month and a half of profits, presuming you got your exit fast and correct. If you could limit the CONDOR SPREAD CHANNEL to defined conditions and only traded them at that time. You might do okay, like any strategy. I learned about the WEEKLY EXPIRATION options from the PEAK INVESTMENT site. I thought that was interesting to know?
Position trading and quickie trading is a different ball game. If done right you can make it work. The trick I'm convinced; is to watch the volatility and have good market TIMING. I don't find it too hard to do the market timing. You can manage your losses. The biggest problem is the TIME DECAY. TRUE RANGE is a daily need. Low ranging days of low volatility you just stay out of the market. The best strategy for LONG option purchases I believe so far, is learning when to stay out of the market and hold on to your cash and watch. Without overtrading.
I think I'm going to forget Spread Trading. For low volatility, low TRUE RANGE days and TIME DECAY, just have to learn to sit on the market sidelines when conditions are not favorable. You don't have to over trade, or trade constantly. Though the addiction and urge is there. By staying out of the market in bad conditions, you improve your win to loss ratio and bottom profit line. That is my conclusion! Think I'll skip SPREAD TRADING.
_________________________________________
website: http://oexoptiontradingexperience.blogspot.com
There is lots of information on the internet about OPTION SPREADS for trading.
I've pretty much exhausted my enquiries about POSITION TRADING and faster QUICKI SHORT trades and have devised my trading methodologies for both. Now is the time for the results to show up in my currently losing VIRTUAL BROKERAGE ACCOUNT with funny money. ( see below )
So the past week or so I've been studying SPREAD TRADING. The reason for Spread Trading, is that the OEX INDEX often and mostly moves in a bull trend very slowly. The volatility dies down and you are only getting 1 or 2 OEX index points at the end of each day and not every day either. With TIME DECAY that is a bummer. I kind of made money on one long call position, just closed this week, that I instigated a long time ago and fortunately I put it out at 3 months, so TIME DECAY was minimal. My 2 month option OUT distance, didn't do near as good. It made money, but not much.
TIME DECAY being the problem in the slow OEX BULL MARKET TREND, for low volatility I got interested in SPREADS. They say TIME DECAY works for you and so long as you put on a BULL SPREAD, you will make money as the PREMIUM expands. I'm paper trading one of these from this past week and so far, the premium is not doing anything. Even though the Index has moved about 4 points in my favor at times.
TRIAL AND ERROR learning is what this is.
Where I really got confused is that the internet advisors are mixing up the spread names. I finally figured out that a BULL SPREAD for some people is actually a VERTICAL CALL SPREAD and for others a VERTICAL CALL SPREAD is a CREDIT SPREAD.
You switch the BUY and SELL of the two strikes in either a BULL SPREAD that I wanted as a position TIME DECAY, or the BULL/VERTICAL SPREAD as a CREDIT spread.
The difference seems to be that one SPREAD IS A DEBIT SPREAD, the other is a CREDIT SPREAD
The difference is not only in the way you put it on. Concerning the Buying and Selling of one strike apart options. One is a DEBIT SPREAD and you are supposed to make your money from TIME DECAY on the selling side. That's what it says anyway? So far this week, mine has not expanded the PREMIUM DEBT the way they say. We shall see by the end of next week, which is Expiration FRIDAY. I don't quite understand that part, but I learn by doing; so if my PREMIUM on paper actually spreads we will see when I theoretically close it out, if it makes money. The premium DEBT was $3.30 and it is hovering still around that number so far.
THE CREDIT SPREAD gives you a PROFIT, or CREDIT when you sell the more expensive option and if you go to expiration, you get to keep the CREDIT. I've got an experiment on paper for one of those running also. The trick is that the INDEX has to be above your starting point of putting on the SPREAD. Not sure that is going to happen, but if the INDEX threatens to return back to your INDEX starting point, the internet option gurus say; you must close it out and take your losses. As if the dropping index market action, goes past your index starting point, you LOSS gets very big indeed. A DANGEROUS SPREAD the Credit Spread.
What I want I guess; is the other BULL SPREAD, the DEBIT BULL SPREAD, so it can be closed out at any time. However waiting for TIME DECAY to widen the PREMIUM, is like watching the pot for the water to boil. Aggravating so far.
This learning business is so slow! I hope I have cleared up the confusion in my own mind and the results this week prove out that I'm on the right track?
________________________________________
I'm finally coming to the conclusion it is better to just buy plain puts or calls?
The Condor Spread was interesting. But all SPREADS are apparently directional. If you have to go directional, you might as well go long, puts or calls. It is a lot easier to exit your positions. With the CONDOR spread, a channel set of CREDIT SPREADS, one loss still wipes out a month and a half of profits, presuming you got your exit fast and correct. If you could limit the CONDOR SPREAD CHANNEL to defined conditions and only traded them at that time. You might do okay, like any strategy. I learned about the WEEKLY EXPIRATION options from the PEAK INVESTMENT site. I thought that was interesting to know?
Position trading and quickie trading is a different ball game. If done right you can make it work. The trick I'm convinced; is to watch the volatility and have good market TIMING. I don't find it too hard to do the market timing. You can manage your losses. The biggest problem is the TIME DECAY. TRUE RANGE is a daily need. Low ranging days of low volatility you just stay out of the market. The best strategy for LONG option purchases I believe so far, is learning when to stay out of the market and hold on to your cash and watch. Without overtrading.
I think I'm going to forget Spread Trading. For low volatility, low TRUE RANGE days and TIME DECAY, just have to learn to sit on the market sidelines when conditions are not favorable. You don't have to over trade, or trade constantly. Though the addiction and urge is there. By staying out of the market in bad conditions, you improve your win to loss ratio and bottom profit line. That is my conclusion! Think I'll skip SPREAD TRADING.
_________________________________________
website: http://oexoptiontradingexperience.blogspot.com
Wednesday, March 10, 2010
REVIEW OF LINDA RASCHKE AND MARKET WIZARDS
REPORT #9
Review of Linda Raschke trader and the book NEW MARKET WIZARDS (March 10th, 2010)
A friend brought me a used book called NEW MARKET WIZARDS. I had read the first one and thought this was a copy. It had been a dozen years since I read the last one. So I thought to read it again. Turned out it was a NEW, or different follow up copy and totally new to me.
These kind of books are good. They pump you up. The trading conditions have changed a lot in the last dozen to twenty years. ( I'm pushing 73 yrs. ) Still strategies that work, stay much the same. At least the classical ones. I'm finding some of my old trading books I use as reference are still good. Especially one section I keep re-using on market profile, which explains at the end of day, the meaning for the future next day, of what the H,L,C and Open forecast. I'm having to practice and relearn a lot. There is a lot more on the internet.
That getting aside, reading NEW MARKET WIZARDS is a good read and the only trader in there I liked was LINDA RASCHKE. I must explain my own philosophy after making money in real estate, in Florida is to AVOID LOSSES. Consequently I don't like any trading system that calculates in LOSSES as part of the strategy. I made some money in stocks, but it was too slow a game. I got out of it and switched to real estate a long time ago. You will get losses in trading, but I would not willingly enter a trade with taking losses in mind. My own system I am devising to work with the new computer setups that are available today, to suit my style, is TREND FOLLOWING. Unfortunately, I trade the OEX options and you only get between 6 to 8 TRENDS a year. Mind you, if you stick to what is a sure thing, you are going to do between 80% and 250% a year. The trouble with trading is that it is addictive and the long waits, require too much patience in between a trading system that only has 6 to 8 trades a year. I have a young friend that makes a trade ONCE a year and has a profit return gross of 80%. A seasonal 4 month about trade in options. Lots of leverage and limited risk.
So I got to playing around with the idea of doing some short term trading to satisfy the urge to trade, the adrenaline rush. I'm trading for FUN in my old age. It's got to be fun, or I won't necessarily do it. Money is the measure of success in meeting the challenge, but in my circumstances, is not the reason for trading. Short term trading is definitely going to get losses. I definitely do not want to be a day trader. Too little life for anything else. In the NEW MARKET WIZARDS, I see Linda Raschke does short term trading. I also see she only averages 40% annual returns. Which explains the reason for her low return percentage. ( + 40% ) That said, I'm willing to open two accounts and trade the money making SLOW one, and the less lucrative short term trading account for FUN between times of waiting for trends. As any professional trader will tell you, you have to trade in character to suit your psychology. That said, I find in getting back into the trading game, much apparently I have forgotten and have to re-learn ( thank heavens I wrote myself a bunch of books some 20 years ago as references of what I learned as I went along. ) It seems I crave ACTION like Linda Raschke and I formed the opinion of her trading style that she is trading too much. Obviously she is addicted for the adrenaline rush? ( grin! ) So am I, so why point fingers hey?
It is searching for short term trading strategies that I decided to do some research. Boy! Isn't this internet wonderful? I've managed to locate two so far that I am testing. To test a system I believe you must test into the future REAL TIME. Otherwise the results are no good.
Let an old guy trader tell you my cantankerous opinion about testing. I've played with trade station, data downloads, hand held mobile stuff, in my previous trading life. Long time ago! I don't believe anything based on historical data. It can give you ideas and the idea that BACK TESTING is going to find the HOLY GRAIL is horse manure in my opinion. Most people don't realize their potential because they over trade.
Let me explain something. I have known ( my generation are dying out ) some home traders that managed between 80% and 250 % a year on small accounts. Usually they were just looking to live, have fun and supplement whatever income they had achieved through life. Each year they would start with $50,000 or $75,000. An extra $75,000 to a $150,000 a year was enough for them. So when I read in MARKET WIZARDS of 40% returns like LINDA, I just know something is wrong someplace. The TOAD comes to mind as an OEX option VOLATILITY trader. Don't see him around anymore, he must have died? His old accounts and websites are still on the internet though for reference though. Now he showed you his trades and percentages of wins and losses as they happened. When he sold training, you knew what you were getting.
That said, I can say I'm going to do something similar in one account ( short term trading ) for the FUN and full well knowing LOSSES are part of that fun and challenge. I wouldn't do it for making money though. I'll be satisfied to break even. The thing is; I have to fill in the long spaces between the TRENDS where you make money with no losses. In the OEX, day trading is not workable consistantly. Due to the in between periods of low volatility. The OEX doesn't move enough a large part of the time, to cover your spread. One advantage of getting into the GAME again now, is the drop in commissions. I was paying $300 round turn a long time ago with a DISCOUNT BROKER. So things have improved and a lot of trading strategies that were not practical back then, are workable now, at $20 round turn.
Another beef I have, is that a lot of people are being quoted ( including Linda )and a lot of system sellers, on their percentage of winning trades to losing trades ratio. That again is a load of horse manure. The only figure percentage worth anything on a system being sold, is a quote of your account profit/loss balance for the year, quarter, or month. Print what you have made, or lost in cold hard cash numbers. What was your capital amount you used and what percentage did you profit, or loss. Anything else is a scam, pure semantics and hype in my opinion.
The hypothetical stuff can be thrown in the garbage. The number of trades that are winning versus losing is garbage. It has to be REAL MONEY, a REAL ACCOUNT and the only criterion is PROFIT OR LOSS number. This can be a percentage. The reason for this includes things: like slippage, spreads, commissions, drawdowns, etc. Lots of times you are slow to pull the trigger, or the market slides away from you, especially going downwards.
I don't like reading garbage. I was reading Linda supposedly recommending Curtis Arnolds PPS method. Can't remember when I tried that? Maybe 20 or 30 years ago. It didn't work. It was one of those hypothetical systems back then.
The best things I know are CLASSIC CHART PATTERNS, some CLASSIC bar readings and those kind of things. Maybe that is because I'm old and stuck in a rut? But I have written and tried a lot of computer indicators myself back in the early days of TRADE STATION. Think I had one of the first programs they sold at the time. Long ago now.
There are two classic chart patterns I like, that work every time you read them on an ordinary bar chart. All you really need is one pattern and you can make money every year. The problem is human frailty. We need to be experimenting and trading as humans, and trying to stick to trading to one rare pattern, that occurs only rarely unfortunately is very HARD to do. My friend Charlie up in Washington, D.C. does better than Linda at 80% return a year, on a four month seasonal SINGLE ANNUAL trade We are our own worst enemy in that respect. OVER TRADING IS THE BANE OF WHY PEOPLE LIKE LINDA DON'T TRIPLE THEIR INCOME in my opinion. It is not as much fun trading less often, but more profitable, so we trade more and reduce the earnings because we are addicted and often undercapitalized.
You can tell when somebody is not doing that good in trading. They start selling methods. When you are young or middle aged, you try to get capital. I had a private mutual fund in stocks from among friends one time. It worked well, but they withdrew their money during bear markets in stocks and that finished that. The 1987 and 92 crashes killed that. Redemptions ( panic cash withdrawals ) killed it. Generally speaking if you can make money trading, you should just use your own money. Why would you need any more?
It is under capitalized people who go into short term trading. If you have only $50,000 and you short time trade, then at Linda's returns of 40% gross before income tax, you are going to have less than $20,000 to live off, if you wanted to do this full time? The USA is a lot more expensive than that to live in. Better move to Belize and trade in the foothills of the Belize Alps, or on a boat in the Bahamas ( grin! )
The article in NEW Market Wizards on the Sorus investment strategy, backs up my own conclusions; that BET SIZE is the all important factor in trading and getting rich quick. You should never trade with money you can't afford to lose. In OEX OPTIONS I find I can scale in on a trend and that means while I may start with a 28% bet of capital on the first entry, of a $5000 account, if the entry is confirmed by the trend later, you can double the bet. That pretty much limits what you can bet. As you increase capital though you can keep doing it at the same percentage scale. By exiting when you are wrong, you normally only lose a portion, a half or less of your bet. Which means you lose about 18% of your account size in rough figures on a bad bet. The nice thing about options is that your risk is limited. Being a limited risk allows you more leeway in initial percentage of capital bet size to use.
The next thing that is important is only betting when you have a sure thing. Or the next best thing to it. Presuming you trade less and less during a year, as you get experienced and build up the intuition and brain recognition of market action and patterns, then it behooves the profit orientated trader to restrict trades to best winning type trades, the ones you are knowledgeable about and experienced enough to know will make some money. You never know quite how much, but you do know you are going to go over break even. This is not true of short time trading. Here you take a portion of bets and are going on quantity and smallness of risk, based on volume of numbers of trades. Under capitalized traders must do this. It is not really a good thing to get rich faster this way, I don't think? You need BET SIZE to be as large as practical, depending on the constraints of the type of market you are trading. I agree with Sorus on this.
Review of Linda Raschke trader and the book NEW MARKET WIZARDS (March 10th, 2010)
A friend brought me a used book called NEW MARKET WIZARDS. I had read the first one and thought this was a copy. It had been a dozen years since I read the last one. So I thought to read it again. Turned out it was a NEW, or different follow up copy and totally new to me.
These kind of books are good. They pump you up. The trading conditions have changed a lot in the last dozen to twenty years. ( I'm pushing 73 yrs. ) Still strategies that work, stay much the same. At least the classical ones. I'm finding some of my old trading books I use as reference are still good. Especially one section I keep re-using on market profile, which explains at the end of day, the meaning for the future next day, of what the H,L,C and Open forecast. I'm having to practice and relearn a lot. There is a lot more on the internet.
That getting aside, reading NEW MARKET WIZARDS is a good read and the only trader in there I liked was LINDA RASCHKE. I must explain my own philosophy after making money in real estate, in Florida is to AVOID LOSSES. Consequently I don't like any trading system that calculates in LOSSES as part of the strategy. I made some money in stocks, but it was too slow a game. I got out of it and switched to real estate a long time ago. You will get losses in trading, but I would not willingly enter a trade with taking losses in mind. My own system I am devising to work with the new computer setups that are available today, to suit my style, is TREND FOLLOWING. Unfortunately, I trade the OEX options and you only get between 6 to 8 TRENDS a year. Mind you, if you stick to what is a sure thing, you are going to do between 80% and 250% a year. The trouble with trading is that it is addictive and the long waits, require too much patience in between a trading system that only has 6 to 8 trades a year. I have a young friend that makes a trade ONCE a year and has a profit return gross of 80%. A seasonal 4 month about trade in options. Lots of leverage and limited risk.
So I got to playing around with the idea of doing some short term trading to satisfy the urge to trade, the adrenaline rush. I'm trading for FUN in my old age. It's got to be fun, or I won't necessarily do it. Money is the measure of success in meeting the challenge, but in my circumstances, is not the reason for trading. Short term trading is definitely going to get losses. I definitely do not want to be a day trader. Too little life for anything else. In the NEW MARKET WIZARDS, I see Linda Raschke does short term trading. I also see she only averages 40% annual returns. Which explains the reason for her low return percentage. ( + 40% ) That said, I'm willing to open two accounts and trade the money making SLOW one, and the less lucrative short term trading account for FUN between times of waiting for trends. As any professional trader will tell you, you have to trade in character to suit your psychology. That said, I find in getting back into the trading game, much apparently I have forgotten and have to re-learn ( thank heavens I wrote myself a bunch of books some 20 years ago as references of what I learned as I went along. ) It seems I crave ACTION like Linda Raschke and I formed the opinion of her trading style that she is trading too much. Obviously she is addicted for the adrenaline rush? ( grin! ) So am I, so why point fingers hey?
It is searching for short term trading strategies that I decided to do some research. Boy! Isn't this internet wonderful? I've managed to locate two so far that I am testing. To test a system I believe you must test into the future REAL TIME. Otherwise the results are no good.
Let an old guy trader tell you my cantankerous opinion about testing. I've played with trade station, data downloads, hand held mobile stuff, in my previous trading life. Long time ago! I don't believe anything based on historical data. It can give you ideas and the idea that BACK TESTING is going to find the HOLY GRAIL is horse manure in my opinion. Most people don't realize their potential because they over trade.
Let me explain something. I have known ( my generation are dying out ) some home traders that managed between 80% and 250 % a year on small accounts. Usually they were just looking to live, have fun and supplement whatever income they had achieved through life. Each year they would start with $50,000 or $75,000. An extra $75,000 to a $150,000 a year was enough for them. So when I read in MARKET WIZARDS of 40% returns like LINDA, I just know something is wrong someplace. The TOAD comes to mind as an OEX option VOLATILITY trader. Don't see him around anymore, he must have died? His old accounts and websites are still on the internet though for reference though. Now he showed you his trades and percentages of wins and losses as they happened. When he sold training, you knew what you were getting.
That said, I can say I'm going to do something similar in one account ( short term trading ) for the FUN and full well knowing LOSSES are part of that fun and challenge. I wouldn't do it for making money though. I'll be satisfied to break even. The thing is; I have to fill in the long spaces between the TRENDS where you make money with no losses. In the OEX, day trading is not workable consistantly. Due to the in between periods of low volatility. The OEX doesn't move enough a large part of the time, to cover your spread. One advantage of getting into the GAME again now, is the drop in commissions. I was paying $300 round turn a long time ago with a DISCOUNT BROKER. So things have improved and a lot of trading strategies that were not practical back then, are workable now, at $20 round turn.
Another beef I have, is that a lot of people are being quoted ( including Linda )and a lot of system sellers, on their percentage of winning trades to losing trades ratio. That again is a load of horse manure. The only figure percentage worth anything on a system being sold, is a quote of your account profit/loss balance for the year, quarter, or month. Print what you have made, or lost in cold hard cash numbers. What was your capital amount you used and what percentage did you profit, or loss. Anything else is a scam, pure semantics and hype in my opinion.
The hypothetical stuff can be thrown in the garbage. The number of trades that are winning versus losing is garbage. It has to be REAL MONEY, a REAL ACCOUNT and the only criterion is PROFIT OR LOSS number. This can be a percentage. The reason for this includes things: like slippage, spreads, commissions, drawdowns, etc. Lots of times you are slow to pull the trigger, or the market slides away from you, especially going downwards.
I don't like reading garbage. I was reading Linda supposedly recommending Curtis Arnolds PPS method. Can't remember when I tried that? Maybe 20 or 30 years ago. It didn't work. It was one of those hypothetical systems back then.
The best things I know are CLASSIC CHART PATTERNS, some CLASSIC bar readings and those kind of things. Maybe that is because I'm old and stuck in a rut? But I have written and tried a lot of computer indicators myself back in the early days of TRADE STATION. Think I had one of the first programs they sold at the time. Long ago now.
There are two classic chart patterns I like, that work every time you read them on an ordinary bar chart. All you really need is one pattern and you can make money every year. The problem is human frailty. We need to be experimenting and trading as humans, and trying to stick to trading to one rare pattern, that occurs only rarely unfortunately is very HARD to do. My friend Charlie up in Washington, D.C. does better than Linda at 80% return a year, on a four month seasonal SINGLE ANNUAL trade We are our own worst enemy in that respect. OVER TRADING IS THE BANE OF WHY PEOPLE LIKE LINDA DON'T TRIPLE THEIR INCOME in my opinion. It is not as much fun trading less often, but more profitable, so we trade more and reduce the earnings because we are addicted and often undercapitalized.
You can tell when somebody is not doing that good in trading. They start selling methods. When you are young or middle aged, you try to get capital. I had a private mutual fund in stocks from among friends one time. It worked well, but they withdrew their money during bear markets in stocks and that finished that. The 1987 and 92 crashes killed that. Redemptions ( panic cash withdrawals ) killed it. Generally speaking if you can make money trading, you should just use your own money. Why would you need any more?
It is under capitalized people who go into short term trading. If you have only $50,000 and you short time trade, then at Linda's returns of 40% gross before income tax, you are going to have less than $20,000 to live off, if you wanted to do this full time? The USA is a lot more expensive than that to live in. Better move to Belize and trade in the foothills of the Belize Alps, or on a boat in the Bahamas ( grin! )
The article in NEW Market Wizards on the Sorus investment strategy, backs up my own conclusions; that BET SIZE is the all important factor in trading and getting rich quick. You should never trade with money you can't afford to lose. In OEX OPTIONS I find I can scale in on a trend and that means while I may start with a 28% bet of capital on the first entry, of a $5000 account, if the entry is confirmed by the trend later, you can double the bet. That pretty much limits what you can bet. As you increase capital though you can keep doing it at the same percentage scale. By exiting when you are wrong, you normally only lose a portion, a half or less of your bet. Which means you lose about 18% of your account size in rough figures on a bad bet. The nice thing about options is that your risk is limited. Being a limited risk allows you more leeway in initial percentage of capital bet size to use.
The next thing that is important is only betting when you have a sure thing. Or the next best thing to it. Presuming you trade less and less during a year, as you get experienced and build up the intuition and brain recognition of market action and patterns, then it behooves the profit orientated trader to restrict trades to best winning type trades, the ones you are knowledgeable about and experienced enough to know will make some money. You never know quite how much, but you do know you are going to go over break even. This is not true of short time trading. Here you take a portion of bets and are going on quantity and smallness of risk, based on volume of numbers of trades. Under capitalized traders must do this. It is not really a good thing to get rich faster this way, I don't think? You need BET SIZE to be as large as practical, depending on the constraints of the type of market you are trading. I agree with Sorus on this.
Saturday, March 6, 2010
CREDIT SPREAD, LEARNING EXPERIMENT REPORT # 8
OPTION UNIVERSITY
Well I'm into a CREDIT SPREAD today Saturday. This is a learning experience. It's a Saturday and the market is closed, so I used the closing prices on the OPTION CHAIN from Friday and figured out how to put on the CREDIT SPREAD for when the market is going UP. Sell a closer to the index PUT and Buy the one strike out PUT. Doing this on PAPER TRADING, on a sheet of paper to see what happens to it? 5 options each side in theory gave me a CREDIT of + $850. Using March Options to get quick results. I'm expecting the market to go up another 8 points at least.
I'm already maxed out of my available $3100 or so, in a CALL done earlier last week, and now past break even. Put on another CALL again with the Brokers VIRTUAL ACCOUNT before CLOSE on Friday. We shall see what we shall see?
LEARNING is a SLOW PROCESS and absorbing all the ramifications of OPTION UNIVERSITY TRADING is hard. You've heard of the University of Hard Knocks, which I've several degrees in. I kinda look at this OPTION UNIVERSITY the same way. An OPTION UNIVERSITY OF HARD KNOCKS. You learn by doing and making mistakes.
Well I'm into a CREDIT SPREAD today Saturday. This is a learning experience. It's a Saturday and the market is closed, so I used the closing prices on the OPTION CHAIN from Friday and figured out how to put on the CREDIT SPREAD for when the market is going UP. Sell a closer to the index PUT and Buy the one strike out PUT. Doing this on PAPER TRADING, on a sheet of paper to see what happens to it? 5 options each side in theory gave me a CREDIT of + $850. Using March Options to get quick results. I'm expecting the market to go up another 8 points at least.
I'm already maxed out of my available $3100 or so, in a CALL done earlier last week, and now past break even. Put on another CALL again with the Brokers VIRTUAL ACCOUNT before CLOSE on Friday. We shall see what we shall see?
LEARNING is a SLOW PROCESS and absorbing all the ramifications of OPTION UNIVERSITY TRADING is hard. You've heard of the University of Hard Knocks, which I've several degrees in. I kinda look at this OPTION UNIVERSITY the same way. An OPTION UNIVERSITY OF HARD KNOCKS. You learn by doing and making mistakes.
Friday, February 26, 2010
Useful charts for the OEX TRADER # 7
FREE ON THE WEB CHARTS I FOUND SCROUNGING AROUND # 7 report
This is a TICK CHART that first loads as a 3 week chart over years. If you wait, it will then load a 5 day real time chart. A bit delayed due to it being 8 minute averages.
____________________________________
http://www.livecharts.co.uk/trinframe.htm
http://www.quote.com/beta/chart.action?s=$TICK
There are two charts here, live during the market day with delayed VIX and TRIN
_____________________________________
http://www.marketvolume.com/quotes/trin.asp?s=OEX
http://
Not so much a chart, as END OF DAY TRIN numbers. I use the number for end of day analysis, making my decision for the next day. Lot of links on here, to other interesting trading information.
_____________________________________
http://finance.yahoo.com/q/bc?s=^VIX&t=5d&l=on&z=m&q=l&c=
http://
This is a bigger, 5 day VIX CHART
_____________________________________
http://www.marketvolume.com/quotes/technical_analysis_volatility.asp?s=OEX
http://
This information is used to give you the TR, or TRUE RANGE so you can know whether it is worthwhile trading or not in the number of OEX index points the next day will move for the daily range.
There is also the 9 Day Average, the 14 Day Average and the 21 Day Average you can use to calculate moving averages, to see if the TRIN is going to give you a clue to whether the next day will move UP, or DOWN. Between the TRIN and the TR, or ATR, you can figure whether it is worth your while to make a trade for the next day, or end of this day.
__________________________________________
http://bigcharts.marketwatch.com/advchart/frames/frames.asp?symb=OEX&time=&freq=
Big Charts is the best charts I have found and you can do the OEX and stocks with different time frames, including a good basket of computer indicators to use with them.
-------------------------------
This is a TICK CHART that first loads as a 3 week chart over years. If you wait, it will then load a 5 day real time chart. A bit delayed due to it being 8 minute averages.
____________________________________
http://www.livecharts.co.uk/trinframe.htm
http://www.quote.com/beta/chart.action?s=$TICK
There are two charts here, live during the market day with delayed VIX and TRIN
_____________________________________
http://www.marketvolume.com/quotes/trin.asp?s=OEX
http://
Not so much a chart, as END OF DAY TRIN numbers. I use the number for end of day analysis, making my decision for the next day. Lot of links on here, to other interesting trading information.
_____________________________________
http://finance.yahoo.com/q/bc?s=^VIX&t=5d&l=on&z=m&q=l&c=
http://
This is a bigger, 5 day VIX CHART
_____________________________________
http://www.marketvolume.com/quotes/technical_analysis_volatility.asp?s=OEX
http://
This information is used to give you the TR, or TRUE RANGE so you can know whether it is worthwhile trading or not in the number of OEX index points the next day will move for the daily range.
There is also the 9 Day Average, the 14 Day Average and the 21 Day Average you can use to calculate moving averages, to see if the TRIN is going to give you a clue to whether the next day will move UP, or DOWN. Between the TRIN and the TR, or ATR, you can figure whether it is worth your while to make a trade for the next day, or end of this day.
__________________________________________
http://bigcharts.marketwatch.com/advchart/frames/frames.asp?symb=OEX&time=&freq=
Big Charts is the best charts I have found and you can do the OEX and stocks with different time frames, including a good basket of computer indicators to use with them.
-------------------------------
OEX OPTION TRADING ACCOUNT UPDATE #6, NOT SO GOOD in January!
POST NUMBER #6
It was easier making money last FALL, when the market was in a BULL TREND and cycling fairly regularly. Now the trend has changed, I'm not doing good at all and negative with losses in my VIRTUAL ACCOUNT by January and still experimenting.
By March I had pretty much got my system of trading down. Still experimenting a bit, but by the third week of March starting to see improvements and gains in my Virtual Trading account with the broker. To move into cash, I need to break even at $5000 balance and then increase that $5000 to $7500, or a 50% gain and then I'll move into CASH REAL MONEY. A performance based training/learning experimental process. Essentially you have to identify ( I think ) your trading comfort style zone, then learn it like learning to play a musical instrument like a guitar, until it becomes intuitive. Think we have it now? But the practise, practise, practise has to go on, until the VIRTUAL BROKERAGE TRADING ACCOUNT recovers and then earns 50% before going into real money. Thats the theory anyway! ( GRIN! )
VIRTUAL BROKER TRADING ACCOUNT REPORT
From: 11th November to January 25th. EXPERIMENTAL LEARNING TRADING SYSTEM TRIALS!
END OF JANUARY REPORT
START WITH: Balance $5000
11th November 2009 OEX 505 CALL +310 Balance $5310 Total Capital + 4%
30th November, 2009, OEX 510 PUT - 660 " $4630 ( - 7%)
4th December, 2009 OEX 515 PUT - 225 " $4365 ( - 12%)
5th January, 2010 OEX 530 CALL - 20 " $4365 ( - 14 %)
8th January, 2010 OEX 520 CALL -100 " $4265 ( - 12% )
25th January, 2010 OEX 505 PUT +100 " $4365 ( - 12%)
1 st February, 2010 OEX 500 CALL -580 $3765 ( -24%)
2 nd. February 2010 OEX 500 CALL +100 " $3865 ( - 20% )
3rd February 2010 OEX 510 CALL -360 " $3465 ( - 30%)
23rd February 2010 OEX 505 PUT +115 " $3600 ( -26% )
( Losses so far! Switch in trend messed me up. )
25th February 2010 OEX 505 PUT -580 $3100 ( - 38% )
4th March OEX 510 MAY 510 CALL + $520 $3620 (-27%) Account loss/profit %
5th March OEX APRIL 520 CALL + $130 $3750 ( -25% )
OPTION HOUSE VIRTUAL ACCOUNT ( play money ) has a balance of $3629 Not sure where the difference comes from? I'm presuming my accounting is too casual and rough? Doesn't matter right now, the numbers are only needed rough, as I'm experimenting with trading methods and the numbers only reflect the success or failure of a trade and balance.
=====================================
NEWER SHORT TERM PAPER TRADING PRACTICE
JANUARY QUICKIE TRADES
$5000 -0- ( START BALANCE )
PUT + 300 (- 20) = $5280 + 6%
??? + 460 (- 20) = $5720 + 15%
PUT + 130 (- 20) = $5850 + 17%
February 2010
CALL ( -70) - 20 = $5770 + 15%
CALL + 120 - 20 = $5870 + 17%
CALL - 380 - 20 = $5470 + 9%
CALL + 120 - 20 = $5560 + 11%
CALL + 55 - 20 = $5595 + 11%
CALL - 50 - 20 = $5525 + 10%
CALL - 350 - 20 = $5155 + 3%
PUT + 260 - 20 = $5395 + 7%
PUT + 20 - 20 = $5395 + 7%
March 2010
CALL +390 -20 = $5765 +15% - (These two were a STRADDLE EXPERIMENT)
PUT -190 -20 = $5555 +11% -( 2nd losing half of straddle - bit slow at STOP)
CALL ( April ) $70 - $20= + $50 Percentage for total account gain = $5605, +12%
CALL 520 strike +$80 - $20 commission = + $60 Account balance: $5665 +13%
CALL 535 strike + $230 -20 commission = + $220 Account balance: $5895 +17%
=======================================
ONLY TRADES OUTSTANDING ARE IN EXPERIMENT WITH CREDIT SPREADS
Waiting for EXPIRATION on that in a week from now.
The CREDIT SPREAD was put on when the OEX was at 520.45 Another Channel Credit Spread setup has been put on also.
If the index is still above that next Expiration Friday, March 19, 2010. I keep my money.
I sold March 520 PUT for $5.90 ( 5 options ) CREDIT = +$850
I bought March 515 PUT for $4.20 ( 5 options)
The sold options ( 5 contracts ) brought in $2950 )
The bought options ( 5 contracts) cost $2100 for a net cash in hand, of +$850
This credit spread is sometimes called a Vertical Spread and is based on the market going up. This particular spread was placed at the beginning of a BULL trend and finished out earning +$850. We got to keep it at expiration.
( all these credit spread experiments are PAPER TRADING )A learning tool!
__________________________________
CHANNEL CREDIT SPREADS
Sell CALL 535 - .85cents +$425 ( waiting for expiration Friday to see what
Buy CALL 540 - .50 cents happens to this experiment on paper.)
Sell PUT 505 - .35 cents +$175
Buy PUT 500 - .30 cents
This spread ultimately LOST -$475
The reason is: that the upper Bear Vertical Spread was threatened and closed out, then rolled over into the next STRIKE UP. During the market action, the OEX reached within a fraction of a point of the Sold 535 CALLS and so was covered and rolled over. At first the coverage was good and we might have finished this Channel Spread, sometimes called IRON CONDOR lately, at about +$15. Unfortunately, when rolling over, the upper spread of the channel, the delays in implementation, saw the prices change and the net result was a loss on this Channel Spread of -$475 and you must add the commission costs.
Sad to say, if we had left the spread alone, the market did not quite reach the 535 CALL STRIKE and did actually end the expiration period and would have earned +$600 if held. You never know these things before hand, and I'm satisfied by closing the upper channel spread, and rolling it over I did the right thing.
We also tried later in the month nearer to expiration a few days, another CHANNEL credit spread. Sell the C 550 @ .15 cents ( 5 contracts ) = +$75
Buy the C 555 @ - .10 cents( 5 contracts ) - $50 for a credit of +$25
The bottom part of the channel of two credit spreads was:
Sell the PUT 505 @ .35 cents for + $175
Buy the PUT 500 @ .30 cents for - $ $150
This gave a return in cash of + $ 25
This gave a return of the two spreads at + $200 for profit at expiration. Before commission costs.
WE TRIED AN ACTUAL LAST DAY SINGLE CREDIT SPREAD ON EXPIRATION FRIDAY, THIS IS WHAT WE GOT! Sell the OTM 530 CALL at .60 cents = +$300
Buy the OTM 525 CALL at .05 cents = - $25
For a gross profit of $300 - $25 = +$275 ( 5 contracts )
__________________________________________
Interestingly enough, there were around $14,000 CALLS out until expiration, you could see on the option chain, in the 535 and the 540 options. If each earned $300, that would have been as spreads equal to: 2800 credit spreads at 5 options each leg. For a total earned and they did go to expiration, barely making it, in the last two days, as the 535 was threatened but not rolled over, $840,000. Don't know how many spreaders were involved, but it was a good chunk of change in total.
Never tried such a thing as a CREDIT SPREAD before, so anxious to see how it works? My understanding and learning process is that if the INDEX is still above the starting point of 520.45 at expiration, I get to keep the $850 when I close out, or they expire or something like that. I learn by doing, so I'm doing on paper and lets see what happens?
My conclusion is: I will not do CHANNEL CREDIT SPREADS, ONE ON EACH SIDE. ( SOMETIMES CALLED THE IRON CONDOR ) However the credit spread is a trend following system. You need to put it on at the beginning of a same month, expiration Friday trending market. That I probably will do again. A single Vertical CREDIT SPREAD in the longer BULL trends, about 6 or 8 times a year. I'm not sure of the margin requirements on these yet. So I don't know how much you need in your account, as if they lose, they lose big time. The risk reward ratio is bad at roughly 6 to 1.
=====================================================================
***** This report is getting a bit congested. We are carrying the balances forward into REPORT #12 and will start to record actual trades since most of the methodology experiments are now concluded. I will be doing trading in real time to see what happens? Go to REPORT #12 in this BLOG for a continuation.
________________________________________
It was easier making money last FALL, when the market was in a BULL TREND and cycling fairly regularly. Now the trend has changed, I'm not doing good at all and negative with losses in my VIRTUAL ACCOUNT by January and still experimenting.
By March I had pretty much got my system of trading down. Still experimenting a bit, but by the third week of March starting to see improvements and gains in my Virtual Trading account with the broker. To move into cash, I need to break even at $5000 balance and then increase that $5000 to $7500, or a 50% gain and then I'll move into CASH REAL MONEY. A performance based training/learning experimental process. Essentially you have to identify ( I think ) your trading comfort style zone, then learn it like learning to play a musical instrument like a guitar, until it becomes intuitive. Think we have it now? But the practise, practise, practise has to go on, until the VIRTUAL BROKERAGE TRADING ACCOUNT recovers and then earns 50% before going into real money. Thats the theory anyway! ( GRIN! )
VIRTUAL BROKER TRADING ACCOUNT REPORT
From: 11th November to January 25th. EXPERIMENTAL LEARNING TRADING SYSTEM TRIALS!
END OF JANUARY REPORT
START WITH: Balance $5000
11th November 2009 OEX 505 CALL +310 Balance $5310 Total Capital + 4%
30th November, 2009, OEX 510 PUT - 660 " $4630 ( - 7%)
4th December, 2009 OEX 515 PUT - 225 " $4365 ( - 12%)
5th January, 2010 OEX 530 CALL - 20 " $4365 ( - 14 %)
8th January, 2010 OEX 520 CALL -100 " $4265 ( - 12% )
25th January, 2010 OEX 505 PUT +100 " $4365 ( - 12%)
1 st February, 2010 OEX 500 CALL -580 $3765 ( -24%)
2 nd. February 2010 OEX 500 CALL +100 " $3865 ( - 20% )
3rd February 2010 OEX 510 CALL -360 " $3465 ( - 30%)
23rd February 2010 OEX 505 PUT +115 " $3600 ( -26% )
( Losses so far! Switch in trend messed me up. )
25th February 2010 OEX 505 PUT -580 $3100 ( - 38% )
4th March OEX 510 MAY 510 CALL + $520 $3620 (-27%) Account loss/profit %
5th March OEX APRIL 520 CALL + $130 $3750 ( -25% )
OPTION HOUSE VIRTUAL ACCOUNT ( play money ) has a balance of $3629 Not sure where the difference comes from? I'm presuming my accounting is too casual and rough? Doesn't matter right now, the numbers are only needed rough, as I'm experimenting with trading methods and the numbers only reflect the success or failure of a trade and balance.
=====================================
NEWER SHORT TERM PAPER TRADING PRACTICE
JANUARY QUICKIE TRADES
$5000 -0- ( START BALANCE )
PUT + 300 (- 20) = $5280 + 6%
??? + 460 (- 20) = $5720 + 15%
PUT + 130 (- 20) = $5850 + 17%
February 2010
CALL ( -70) - 20 = $5770 + 15%
CALL + 120 - 20 = $5870 + 17%
CALL - 380 - 20 = $5470 + 9%
CALL + 120 - 20 = $5560 + 11%
CALL + 55 - 20 = $5595 + 11%
CALL - 50 - 20 = $5525 + 10%
CALL - 350 - 20 = $5155 + 3%
PUT + 260 - 20 = $5395 + 7%
PUT + 20 - 20 = $5395 + 7%
March 2010
CALL +390 -20 = $5765 +15% - (These two were a STRADDLE EXPERIMENT)
PUT -190 -20 = $5555 +11% -( 2nd losing half of straddle - bit slow at STOP)
CALL ( April ) $70 - $20= + $50 Percentage for total account gain = $5605, +12%
CALL 520 strike +$80 - $20 commission = + $60 Account balance: $5665 +13%
CALL 535 strike + $230 -20 commission = + $220 Account balance: $5895 +17%
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ONLY TRADES OUTSTANDING ARE IN EXPERIMENT WITH CREDIT SPREADS
Waiting for EXPIRATION on that in a week from now.
The CREDIT SPREAD was put on when the OEX was at 520.45 Another Channel Credit Spread setup has been put on also.
If the index is still above that next Expiration Friday, March 19, 2010. I keep my money.
I sold March 520 PUT for $5.90 ( 5 options ) CREDIT = +$850
I bought March 515 PUT for $4.20 ( 5 options)
The sold options ( 5 contracts ) brought in $2950 )
The bought options ( 5 contracts) cost $2100 for a net cash in hand, of +$850
This credit spread is sometimes called a Vertical Spread and is based on the market going up. This particular spread was placed at the beginning of a BULL trend and finished out earning +$850. We got to keep it at expiration.
( all these credit spread experiments are PAPER TRADING )A learning tool!
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CHANNEL CREDIT SPREADS
Sell CALL 535 - .85cents +$425 ( waiting for expiration Friday to see what
Buy CALL 540 - .50 cents happens to this experiment on paper.)
Sell PUT 505 - .35 cents +$175
Buy PUT 500 - .30 cents
This spread ultimately LOST -$475
The reason is: that the upper Bear Vertical Spread was threatened and closed out, then rolled over into the next STRIKE UP. During the market action, the OEX reached within a fraction of a point of the Sold 535 CALLS and so was covered and rolled over. At first the coverage was good and we might have finished this Channel Spread, sometimes called IRON CONDOR lately, at about +$15. Unfortunately, when rolling over, the upper spread of the channel, the delays in implementation, saw the prices change and the net result was a loss on this Channel Spread of -$475 and you must add the commission costs.
Sad to say, if we had left the spread alone, the market did not quite reach the 535 CALL STRIKE and did actually end the expiration period and would have earned +$600 if held. You never know these things before hand, and I'm satisfied by closing the upper channel spread, and rolling it over I did the right thing.
We also tried later in the month nearer to expiration a few days, another CHANNEL credit spread. Sell the C 550 @ .15 cents ( 5 contracts ) = +$75
Buy the C 555 @ - .10 cents( 5 contracts ) - $50 for a credit of +$25
The bottom part of the channel of two credit spreads was:
Sell the PUT 505 @ .35 cents for + $175
Buy the PUT 500 @ .30 cents for - $ $150
This gave a return in cash of + $ 25
This gave a return of the two spreads at + $200 for profit at expiration. Before commission costs.
WE TRIED AN ACTUAL LAST DAY SINGLE CREDIT SPREAD ON EXPIRATION FRIDAY, THIS IS WHAT WE GOT! Sell the OTM 530 CALL at .60 cents = +$300
Buy the OTM 525 CALL at .05 cents = - $25
For a gross profit of $300 - $25 = +$275 ( 5 contracts )
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Interestingly enough, there were around $14,000 CALLS out until expiration, you could see on the option chain, in the 535 and the 540 options. If each earned $300, that would have been as spreads equal to: 2800 credit spreads at 5 options each leg. For a total earned and they did go to expiration, barely making it, in the last two days, as the 535 was threatened but not rolled over, $840,000. Don't know how many spreaders were involved, but it was a good chunk of change in total.
Never tried such a thing as a CREDIT SPREAD before, so anxious to see how it works? My understanding and learning process is that if the INDEX is still above the starting point of 520.45 at expiration, I get to keep the $850 when I close out, or they expire or something like that. I learn by doing, so I'm doing on paper and lets see what happens?
My conclusion is: I will not do CHANNEL CREDIT SPREADS, ONE ON EACH SIDE. ( SOMETIMES CALLED THE IRON CONDOR ) However the credit spread is a trend following system. You need to put it on at the beginning of a same month, expiration Friday trending market. That I probably will do again. A single Vertical CREDIT SPREAD in the longer BULL trends, about 6 or 8 times a year. I'm not sure of the margin requirements on these yet. So I don't know how much you need in your account, as if they lose, they lose big time. The risk reward ratio is bad at roughly 6 to 1.
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***** This report is getting a bit congested. We are carrying the balances forward into REPORT #12 and will start to record actual trades since most of the methodology experiments are now concluded. I will be doing trading in real time to see what happens? Go to REPORT #12 in this BLOG for a continuation.
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