Prologue

This week’s activity was on lots of other fun things besides Options Trading. At times I need to step back and enjoy my life, and the beautiful lady who shares it with me.

So there is no new commentary to regale. But I do want to record the two trades I did sneak in.

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P&L and Performance Status

YTD (2019)

Realized Net Profit from Spreads: -$937.40
Spreads started: 73
Realized ROC (target = 72% for the year): -23.7%

A little caveat to the dismal P&L shown above. Throughout 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. But I do feel I have improved my trading understanding to fair better.

Last Month (Sept)

Realized Profit: $31.30
Spreads Started: 7 (7 Spreads closed)
Realized ROC (target = 6.0%): 1.62%

Spread Trades Won: 4
Spread Trades Lost: 3

Month to Date (Oct)

Realized Profit: $120.50
Spreads Started: 12 (4 Spreads closed)
Current at risk $$$ for Spreads (original Max: $3,960): 3,848 (97% of max risk)
Realized ROC (original target = 6.0%): 6.8%

Spread Trades Won: 4
Spread Trades Lost: 0
Win/Loss Ratio: 100%

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Schedule for this Week

Goals for Week:

  • Max technical dollars at risk = $1,000
  • Coordinate traded expiration dates to have a blend of Call/Put Credit Spreads
    • Minimize actual dollars at risk for any given expiration date.
  • No more than one trade per day – except Friday (catch up day).

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 as follows:
    • Bull Call Credit Spreads: Nov 22 (4-weeks).
    • Bull Put Credit Spreads: Dec 6 (6-weeks).
  • 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 – Thursday:

  • Review how yesterday’s staged trades moved. Adjust premiums to take advantage of movement as “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). 
    • Look at past trades with the same expiration date.
    • Balance the spread strategy (Call/Put) to minimize actual risk for that expiration date.
  • Update trading log file and journal (this blog) with any accepted trades.

Friday:

  • Review the total technical dollars at risk for this week. If significantly below $1,000 then submit additional spreads.
  • Update and post weekly journal (this blog) with any lessons learned or strategy changes.
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Trades Ended This Week

SPY: 308c/313c – 1 Contract – Open 10/11 – Expires 11/01 – Credit = $27.00
(Vertical Bull Call Credit Spread)
Open: Prob. OTM = 93.0%, ROC = 5.7%, Max Risk = $471.00, Max Gain = $28
Probability OTM at expiration = 98.0%

QQQ: 201c/206c – 1 Contract – Open 10/11 – Expires 11/01 – Credit = $22.00
(Vertical Bull Call Credit Spread)
Open: Prob. OTM = 93.7%, ROC = 4.6%, Max Risk = $476.00, Max Gain = $23
Probability OTM at expiration = 99.0%

Both of these positions expired worthless on Friday Nov 1. These two closing will free $947 – enough for next week’s trades.

SPY: 287p/283p – 1 Contract – Open 10/15 – Expires 11/8 – Credit = $33.00
(Vertical Bull Put Credit Spread)
Open: Prob. OTM = 83.8%, ROC = 9.0%, Max Risk = $365.00, Max Gain = $34.00
Probability OTM at closing= 99.0%

This position set a sell flag 10/31. I closed this 7 days early at a cost of $.02

Trades Still Cooking

DIA: 277c/283 – 1 Contract – Open 10/9 – Expires 11/15 – Credit = $42.00
(Vertical Bull Call Credit Spread)
Open: Prob. OTM = 80.7%, ROC = 9.2%, Max Risk = $456.00, Max Gain = $42.00
Now Probability OTM = 87.4%

DIA: 259p/255p – 1 Contract – Open 10/15 – Expires 11/8 – Credit = $32.00
(Vertical Bull Put Credit Spread)
Open: Prob. OTM = 83.7%, ROC = 8.7%, Max Risk = $366.00, Max Gain = $33.00
Now Probability OTM = 81.2%

IWM: 160c/162c – 1 Contract – Open 10/17 – Expires 11/15 – Credit = $19.00
(Vertical Bull Call Credit Spread)
Open: Prob. OTM = 87.4%, ROC = 10.6%, Max Risk = $179.00, Max Gain = $20.00
Now Probability OTM = 89.1%

SPY: 285p/281p – 1 Contract – Open 10/22 – Expires 11/29 – Credit = $38.00
(Vertical Bull Put Credit Spread)
Open: Prob. OTM = 81.6%, ROR = 10.6%, Max Risk = $360.00
Now Probability OTM = 82.3%

QQQ: 202c/204c – 1 Contract – Open 10/24 – Expires 11/22 – Credit = $19.00
(Vertical Bull Call Credit Spread)
Open: Prob. OTM = 88.4%, ROR = 10.6%, Max Risk = $179.00
Now Probability OTM = 88.3%

DIA: 259p/256p – 1 Contract – Open 10/25 – Expires 11/22 – Credit = $28.00
(Vertical Bull Put Credit Spread)
Open: Prob. OTM = 82.9%, ROR = 10.4%, Max Risk = $270.00
Now Probability OTM = 86.4%

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New Trades for This Week

Spreads started this week: 2 (2 Bull Put Credit, 0 Bull Call Credit)
Potential week’s profit: $51.00
Technical dollars put at risk (max= $1,000): $545.00 (ROR: 9.4%)
Actual dollars at risk: $545 (ROR: 9.4%)

DIA: 259p/256p – 1 Contract – Open 10/28 – Expires 12/06 – Credit = $30.00
(Vertical Bull Put Credit Spread)
Open: Prob. OTM = 81.5%, ROR = 11.2%, Max Risk = $268.00
Now Probability OTM = 83.1%

Think or Swim

This trade followed the entry rule set: short-strike below one standard deviation from the current price, below the up trending trend channel, the 9-day SMA is above the 50-day, and the general trend for this trade is moving up. Also, the expiration date for this put spread is set for six weeks out, giving the market plenty of time to help this position to expire worthless.

SPY: 293p/290p – 1 Contract – Open 10/31 – Expires 11/15 – Credit = $21.00
(Vertical Bull Put Credit Spread)
Open: Prob. OTM = 84.9%, ROR = 7.6%, Max Risk = $277.00
Now Probability OTM = 85.1%

Think or Swim

This transaction was a last-minute trade intended to balance the dollar-risk against the two existing positions set to expire Nov 15. The general trend of SPY is moving up, and most of the entry rules were followed. The exceptions to the entry rules are; the short strike is within the trend channel (not below), and the time to expiration is only two weeks and not six.

I made this trade without first confirming with the graph above. Although I selected the ETF’s short strike that had a deep-OTM probability (85%), I did not pay attention to where the short-strike lay within the trend channel. If I had realized how far the strike was inside the channel, I might have selected another ETF.

Before this trade, the dollars at risk or Nov 15 was heavily one-sided at $635. With this trade, the total dollars at risk for Nov 15 is now $358.

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Epilogue

This week had a couple of dynamics.

One, I hit the dollar-risk limit I placed on my trading account. I could not place the number of trades to generate the appropriate lever of possible premiums. As of this writing, I am over 97% of my account maximum stated trade risk.

Second, as I looked through my trading log, I saw that the two current positions that are set to expire on Nov 15 are both Vertical Bull Call Credit Spreads – no risk countering put spreads. The entire dollar risk for that week one-sided.

Cheers…

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