Prepare yourself in every way you can by increasing your knowledge and
adding to your experience, so that you can make the most of
opportunity when it occurs.

– Mario Andretti

Prologue

So far, the majority of my research this year has focused primarily on the Options constructions and trading mechanics. The Internet seems to have a mind-blowing amount of information on these subjects. But what appears to be lacking the most is the overall attention to what every season Project Manger must understand – PIM.

PIM: Preparation, Implementation, and Management are the three keys to any successful project. Proper implementation of PIM is essential if I want to be a professional Options Trader.

A couple of weeks from now, I will start the final three months of what I consider to be my, trading-training (say that three times fast). I have until the end of this year to put together my “2020 Options Trading for Income” project plan.

Starting Jan 1, I will forget my past performance and test my education. I will set goals, document results, and measure my performance. By the end of 2020, I will either prove out an “Income from Options Business Plan” or apply at Walmart as a Greeter.

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PIM Page

As stingy as it is, this week’s post will be a launching point for a new blog focus on creating and then building upon a new PIM Page. I hope to make it somewhat comprehensive, as if I am guiding a friend through the same process, or as evidence of why I failed.

The new PIM Page will follow (somehow) the format below.

Preparations

Preparation comes in two forms:

  1. Long term
    • Selecting/managing a Broker
    • Set and maintain Trading Account Budget
    • Set then tweak a trading schedule
    • Continuing education
      • Paper-trade new Option strategies
      • Read and support my fellow Options bloggers
      • Weekly webinars on various Options’ strategies
    • Matrices for general Market-Awareness
    • Live data Watch-Lists
    • Others…
  2. Planning for the upcoming week(s).
    • Current with market news and sentiment
    • Selection and staging of possible Spreads
    • Set trading schedule
    • Set and confirm Entry Rules
    • Be cognizant the of Exit Rules

Implementation

Implementation should be nothing more than putting this week’s planned trades into motion.

  • Follow the set trading schedule
  • Be mindful of market sentiment when following Entry Rules
  • Diligently log all new positions

Management

Management will be the most time-consuming part. This will require active monitoring of all existing positions.

  • Watch current the position’s direction and be prepared to execute an exit if required.
  • Maintain an accurate trading log.
  • Keep a trading journal (this blog) up to date and accurate
  • Measure and report meaningful progress statistics
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P&L and Performance Status

YTD (2019)

Realized Net Profit from Spreads: $-1,089.2
Spreads started: 59
Realized ROC (target = 72% for the year): -27.5%

A little caveat to the dismal P&L shown above. Earlier this year, I made a lot of rookie mistakes, and I’m still paying the price. It’s going to take a couple of months to recoup, and I do feel I have improved my trading understanding to fair better.

Last Month (Aug)

Realized Profit: $113.75
Spreads Started: 10 (all Spreads closed)
Realized ROC (target = 6.0%): 4.6%

Spread Trades Won: 6
Spread Trades Lost: 3
Win Ratio: 67%

MTD (Sept)

Realized Profit: $0.00 (No trades closed yet)
Spreads Started: 5 (5 still open)
Current at risk $$$ for Spreads (Max: $3,960): 1,047.9 (26% of max risk)
Realized ROC (target = 6.0%): 0% (No trades closed yet)

Spread Trades Won: 0
Spread Trades Lost: 0
Win/Loss Ratio: 0%

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Schedule for this Week

Monday:

  • Review and tweak the Trend-Channels for the general market direction. Determine if the IV is high or low so I can better choose Debit or Credit spreads.
  • Review and tweak Trend-Channels for all stocks in the watch list.
  • Confirm that the target expiration date for all options trades is set to Oct 11 (25 days).
  • By 10 AM, stage possible trades for all watch list stocks (but don’t trade anything).
  • Watch 1 Webcast or take one online mini-course to be completed by Friday.  

Tuesday:

  • Review how yesterday’s staged trades moved. Adjust premiums to take advantage of movement (these are “long-shots”). 
  • Submit a couple of Spreads, but keep a close watch. If one takes, cancel the others (we just want one new active trade). 

Wednesday:

  • If no “long-shot” spreads were accepted yesterday, then readjust premiums closer to ATM prices and resubmit. We want only 1 spread accepted so keep watch.
  • Recheck/tweak trend-channels. 

Thursday:

  • Reset target expiration date to Oct 18 (29 days out to the following Friday). 
  • By 10 AM, stage possible trades for all watch list stocks. 
  • Submit a couple of Spreads, but keep a close watch. If one takes, cancel all others. (Do not submit a trade with for the same ETF as Tuesday.)

Friday:

  • Same as Wednesday.
  • Update trading journal (this blog) and update it to the Internet by end of the day.
  • Make sure you watched a webcast.
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Trades Ended This Week

IWM: $151c/150c – 1 Contract – Open 8/20 – Expires 9/13 – Net Debit = -$61.95
(Vertical Bull Call Debit Spread)
Open: Prob. ITM = 43.4%, ROC = 78.6%, Max Risk = $61.95, Max Gain=$44.00

This position was closed 9/13 for a credit of $98.00 – $5.95 trading fee = $92.05. With the opening cost of $56.00 + $5.95 trading fee = $61.95. This trade yielded a net profit of $92.05 – $61.95 = $30.10 (ROC = $30.10 / $61.95 = 48.5%).

DIA: $263c/262c – 1 Contract – Open 8/23 – Expires 9/20 – Net Debit = -$64.95
(Vertical Bull Call Debit Spread)
Open: Prob. ITM = 43.4%, ROC = 78.6%, Max Risk = $61.95, Max Gain=$44.00

This position was closed 10 days early, taking the risk of this trade off the table. I closed this position on 9/12 after several days of good DIA increases. I closed it for a credit of $96 – $5.95 trading fee = $90.05. This position was opened at a cost of $59.00 + $5.95 trading fee = $64.95. The net profit = $90.05 – $64.95 = $25.10 (ROC = $25.10 / $64.95 = $38.6%).

DIA: 273c/276c/238p/235p – 1 Contract – Open 8/28 – Expires 9/20 – Credit = $31.05
(Iron Condor)
Open: Prob. OTM = 81.5%, ROC = 12.3%, Max Risk = $261, Max Gain=$32.05

This position was also closed early but with a net loss. $31.05 net premium collected -$102.95 net debit paid to close the spread = -$71.90 net loss.

Think or Swim
Iron Condor ETF:DIA as of 9/13/19

Looking at the past 4-month trend of DIA, I considered this ETF to be moving sideways. But almost immediately after I made this trade, positive news came out of the US/China trade negotiations and the market as a whole seemed to give a collective sigh of relief.

Think or Swim
Implied Volatility for DIA as of 9/13/19

Within two weeks, DIA was already ITM at the $273 short strike. With my belief that the DOW is on an upward trajectory, I did not think I could roll this further. I, therefore, decided to minimize my projected loss can just close early.

IWM: $150c/149c – 1 Contract – Open 8/23 – Expires 9/20 – Net Debit = -$61.95
(Vertical Bull Call Debit Spread)
Open: Prob. ITM = 43.4%, ROC = 78.6%, Max Risk = $61.95, Max Gain=$44.00

This IWM Debit Spread closed 9/19 for .98 for a net $98.00 – $61.95 debit to open – $5.95 trading fee = $30.10 net profit. This trade = 48.9% Return on Capital (ROC).

IWM: $151p/$148p – 1 Contract – Open 9/6 – Expired 9/20 – Net Premium = $103.00
(Vertical Bull Put Credit Spread)
When Opened: Probability of OTM = 80.4%, ROC = 8.5%, Max Risk = $271

Expired worthless on 9/20.

This position initially began on 8/1/19 but was rolled twice, first on 8/23/19 then second on 9/6/19.

When I initially opened this position, IWM was trading at near $153, and my short strike price of $151 had over 80% chance of expiring OTM. But shortly after the position open, a tweet came out on the US/China talks, and the market went into a tantrum. By expiration date of 8/23/19, IWM was near $145, and my spread was at near max loss of -$286.90.

I rolled this trade on 8/23/19 for another two weeks for a net premium of $143.05 collected. Now the new expiration date is 9/6/19. At this time, my net loss = -$286.90 + $143.05 = -$143.84.

But on Friday 9/6, IWM was trading at $150 and falling. Although at this time my long leg was OTM, the short leg was still about $150 ITM. I took the chance and re-rolled this for another two weeks to expire 9/20 for a net premium collected of $103.

Now, this twice rolled trade expired worthless on 9/20. My net loss is now -$286.90 (original loss) + $143.05 (first roll net premium collected) + $103 (second roll net premium collected) = -$40.85. I dodged a big bullet, and I’m thankful.

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Trades Still Cooking

SPY: 282p/278p – 1 Contract – Open 9/5 – Expires 10/4 – Credit = $31.05
(Vertical Bull Put Credit Spread)
Open: Prob. OTM = 82.2%, ROC = 8.6%, Max Risk = $363
Now: Probability OTM = 92.8%

QQQ: 179p/175p – 1 Contract – Open 9/5 – Expires 10/4 – Credit = $31.05
(Vertical Bull Put Credit Spread)
Open: Prob. OTM = 82.8%, ROC = 8.6%, Max Risk = $363
Now: Probability OTM = 92.3%

QQQ: 192.5c/192c – 2 Contract – Open 9/11 – Expires 10/4 – Debit= $6495
(Vertical Bull Call Debit Spread)
Open: Prob. ITM = 52.3%, ROC = 54.0%, Max Risk = $64.95, Max Gain = $35.05
Now Probability ITM = 41.7%

New Trades for This Week

SPY: 302c/301c – 1 Contract – Open 9/18 – Expires 10/11 – Debit= $54.00
(Vertical Bull Call Debit Spread)
Open: Prob. ITM = 48.9%, ROC = 56.9%, Max Risk = $59.95, Max Gain = $34.10
Now Probability ITM = 56.6%

SPY Vertical Bull Call Debit Spread 302c/301c
Think or Swim

The IV for SPY (now 14.1%) has been falling reasonably steady for the past ten days. The four-month overall trend of SPY is moving up. The 9-day SMA is above the 50-day SMA, and the current trading price is above the 9-day SMA. For me, SPY now appears to have upward momentum.

DIA: 274c/273c – 1 Contract – Open 9/19 – Expires 10/18 – Debit= $50.00
(Vertical Bull Call Debit Spread)
Open: Prob. ITM = 41.2%, ROC = 68.1%, Max Risk = $55.95, Max Gain = $38.1
Now Probability ITM = 32.1%

DIA:ETF 9/19/10
Think or Swim

The IV percentile for DIA is currently 8% and dropping moderately quickly. The current price of DIA is now 271.42 and is in the upper half of the trend channel, as shown in the image above. As DIA bounces around within the channel, there appears to be more downside than up. I’m considering this a higher-risk trade – but not so much.

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Epilogue

For the year 2019, my personal goal is to become marginally educated and moderately wise in the macrocosm of Options Trading. I have spent much of this year searching the Internet for instructions on trading mechanics, guidance on market awareness and fundamentals on my personal practices.

Starting in 2020, I plan to forget my past performance, reset my stats and test my knowledge. Focusing primarily on Return of Capital (ROC) I want to convince myself that I can make a reliable monthly income from frequent Option Spread trading.

I now have 3 months left to hone my skills.

Cheers…

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