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:

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?

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. )

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.
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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.