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!
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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.
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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?

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.

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.

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.
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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


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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%)
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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 )
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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% )
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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.
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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.

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?
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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.
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website: http://oexoptiontradingexperience.blogspot.com

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.

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.