Wow! Like the title said, this week I've gotten the Rick Flair "Whooo" smack to the face from the market. Last week was the 3G mistake and this week an unlikely probability actually happened with a BIDU trade I made. Months of gains down the drain! But I'm by no means ready to call it quits. I want to learn from my mistakes and try to get better.
So like I mentioned, a week or so ago I placed a 95/100 spread on Baidu (BIDU). BIDU is like Google of China. It had been trading in a tight range since about February of this year and the probability of it breaking 95 by May 18th was fairly low. I followed all the general rules I've previously wrote about and everything looked good so I pulled the trigger. Then out of nowhere this week BIDU announced its acquisition of a company called PPS Net TV. Apparently the market liked the purchase because the stock reacted to the positive. When I saw the quick movement I read the writing on the wall and exited my trade for a loss. BIDU closed on Friday at 95.45. This stock may be at 100 by the end of next week which would be a catastrophic loss for me if I held on the position. I could have rolled the position over to a later month but that just didn't really seem to make sense. Take you lumps and go home!
The real question is how can you avoid having months of gains only to lose a big chunk of it with one bad outcome? I don't think you can EVER take all the risk out of playing the market but in the case of what I'm doing some adjustments can be made. So after pondering about it the last few days I've decided to adjust my rules as such:
1. I will no longer write options on individual stocks. I will only use major index tracking ETF's like SPY, IWM or QQQ. This rule will hopefully avoid the sharp increase in volatility that comes with unanticipated news for an individual stock.
2. I will adjust my monthly income requirements to 1% per month to include commissions. 12% per year still isnt too bad.
3. I will only make trades where the short strike (95 in the case of the BIDU trade) is at least two standard deviations from the current price of the stock. This should make the probability of losing only 1-2%.
We'll see how things go! Have a good weekend everyone. I'm going out to work in the yard!
Saturday, May 11, 2013
Saturday, May 4, 2013
The 3G Mistake!
What's going on folks! Well, I have to say this is going to be the hardest blog post I've ever written. Over the last week a couple things came to light that has caused me to not be profitable this options cycle. But before I explain let me tell you a short story...
As I may have mentioned before during the day I'm employed as a federal agent. As any agent will tell you the hardest part of our job (particularly white collar fraud investigators) is going to trial. Most of the bad guys we go up against have the resources to hire large law firms full of associates, investigators and support staff to help defend a case. The Government generally has one Assistant U.S. Attorney (AUSA) and me to do everything. Several years ago I was part of a team of agents working on a trial. This case was so big three agents and two AUSA's were assigned to the case. I was a young agent then and had never been part of anything this large.
My part of the case had to deal with the travel expenses of a particular union official. For several months prior to the trial I went through hundreds of travel vouchers documenting what travel was legitimate business and what was just a boon doggle as we call it. By the end of the analysis I had this massive spread sheet with what seemed like an endless amount of data. During the process I was asked to change the format several times and adjust what information should be included. After a million redrafts it was finally my turn to take the stand to present the "evidence".
Somewhere during all the cutting, pasting and redrafts something got mixed up. I thought the final product was ready but little did I know it was all screwed up! I vividly recall the smirk on the defense attorney's face when he prepared to question me on the stand. Long story short, I got DESTROYED! That #$!%^ attorney had me up there for hours making me look like an idiot and making it appear the government would do anything to convict his client. I remember sitting alone on the courthouse steps when it was over. If it wasn't for my faith in God I really don't know how I could have recovered from such a public beating.
So what's the moral of the story? That experience caused me to ensure that I never, ever, ever make a mistake again at work. Of course I'm not perfect, but from that day on I always ensure my work product is checked, checked, and rechecked. Not to brag, but since then I've been pretty successful at my job.
This brings me to this months trade. Being careless I made two mistakes. First is that I intended to enter a Google 860/870 bear call spread. I don't know what numbers I put into my probability calculator but whatever I did falsely led me to believe this was a high probability trade. Well, it wasn't! My next mistake was that when I entered the trade with my broker "somehow" I placed an 850/860 instead of the already bad 860/870! When I realized this I was like dude WTF! Anyway, instead of living on a prayer and hoping the trade works out (always a bad idea) I exited the trade for a loss and found a great BIDU 95/100 trade expiring on 5/24/13. All in all I lost about 3G.
So, just like I have become quite anal at work I will I now be just as anal with my side gig here. There's really no excuse for these mistakes but I thought sharing them may be beneficial to someone out there. Well, like I tell my beautiful wife all the time when I screw up... My bad! I can't say I 'll never lose a trade, but I can say this type of mistake will never happen again. My bad y'all!
As I may have mentioned before during the day I'm employed as a federal agent. As any agent will tell you the hardest part of our job (particularly white collar fraud investigators) is going to trial. Most of the bad guys we go up against have the resources to hire large law firms full of associates, investigators and support staff to help defend a case. The Government generally has one Assistant U.S. Attorney (AUSA) and me to do everything. Several years ago I was part of a team of agents working on a trial. This case was so big three agents and two AUSA's were assigned to the case. I was a young agent then and had never been part of anything this large.
My part of the case had to deal with the travel expenses of a particular union official. For several months prior to the trial I went through hundreds of travel vouchers documenting what travel was legitimate business and what was just a boon doggle as we call it. By the end of the analysis I had this massive spread sheet with what seemed like an endless amount of data. During the process I was asked to change the format several times and adjust what information should be included. After a million redrafts it was finally my turn to take the stand to present the "evidence".
Somewhere during all the cutting, pasting and redrafts something got mixed up. I thought the final product was ready but little did I know it was all screwed up! I vividly recall the smirk on the defense attorney's face when he prepared to question me on the stand. Long story short, I got DESTROYED! That #$!%^ attorney had me up there for hours making me look like an idiot and making it appear the government would do anything to convict his client. I remember sitting alone on the courthouse steps when it was over. If it wasn't for my faith in God I really don't know how I could have recovered from such a public beating.
So what's the moral of the story? That experience caused me to ensure that I never, ever, ever make a mistake again at work. Of course I'm not perfect, but from that day on I always ensure my work product is checked, checked, and rechecked. Not to brag, but since then I've been pretty successful at my job.
This brings me to this months trade. Being careless I made two mistakes. First is that I intended to enter a Google 860/870 bear call spread. I don't know what numbers I put into my probability calculator but whatever I did falsely led me to believe this was a high probability trade. Well, it wasn't! My next mistake was that when I entered the trade with my broker "somehow" I placed an 850/860 instead of the already bad 860/870! When I realized this I was like dude WTF! Anyway, instead of living on a prayer and hoping the trade works out (always a bad idea) I exited the trade for a loss and found a great BIDU 95/100 trade expiring on 5/24/13. All in all I lost about 3G.
So, just like I have become quite anal at work I will I now be just as anal with my side gig here. There's really no excuse for these mistakes but I thought sharing them may be beneficial to someone out there. Well, like I tell my beautiful wife all the time when I screw up... My bad! I can't say I 'll never lose a trade, but I can say this type of mistake will never happen again. My bad y'all!
Friday, April 26, 2013
Keeping Your Mind Right!
What's up my people! It's Friday and I'm totally wasted! I just came back from the firing range and it was hot here in Florida today. Not to brag but this week I also received a nice reward from the U.S Attorney's Office for a job well done. But you're here to talk about options and not crime fighting (my day job) so lets get to it.
After another successful credit spread last month I was primed and ready to look for a May trade. Normally after Expiration Friday I chill over the weekend and don't even look at anything financial related. It's just nice to to step away sometimes. But last weekend was a different. It seemed that as soon as I knew my April spread was a winner I was hard charging looking for next months trade. After spending an hour or so trolling through possibilities I wasn't able to come up with anything that fit my criteria. Instead of just chilling out and waiting until this week to look for a good trade I kinda freaked out! I felt like I HAD to find something NOW! As I look back at it, I was really stressing myself out.
Anyone who has ever traded for any period of time will tell you that trading is stressful. I describe it as a mixture of fear and adrenaline. However, getting all worked up like I did is totally unnecessary. I have my rules in place to avoid all that. If there aren't any trades to be made today, then wait until tomorrow or next week. If you end up not trading for a month SO WHAT! It's better to be on the sidelines for a month than to force a bad trade and regret it later. I've found that you have to keep your mind right if you want to have a chance of being a successful trader. That's my advice for the week.
Now, as for May's credit spread. I entered an 860/870 Bear Call Spread on Google. If' you've read my blog you would know that as long as Google stays below 860 between now and the third Friday of May I'll get to keep all my premium. So far the probabilities are looking pretty good. We'll see how things progress during the month. Have a good weekend everyone!
After another successful credit spread last month I was primed and ready to look for a May trade. Normally after Expiration Friday I chill over the weekend and don't even look at anything financial related. It's just nice to to step away sometimes. But last weekend was a different. It seemed that as soon as I knew my April spread was a winner I was hard charging looking for next months trade. After spending an hour or so trolling through possibilities I wasn't able to come up with anything that fit my criteria. Instead of just chilling out and waiting until this week to look for a good trade I kinda freaked out! I felt like I HAD to find something NOW! As I look back at it, I was really stressing myself out.
Anyone who has ever traded for any period of time will tell you that trading is stressful. I describe it as a mixture of fear and adrenaline. However, getting all worked up like I did is totally unnecessary. I have my rules in place to avoid all that. If there aren't any trades to be made today, then wait until tomorrow or next week. If you end up not trading for a month SO WHAT! It's better to be on the sidelines for a month than to force a bad trade and regret it later. I've found that you have to keep your mind right if you want to have a chance of being a successful trader. That's my advice for the week.
Now, as for May's credit spread. I entered an 860/870 Bear Call Spread on Google. If' you've read my blog you would know that as long as Google stays below 860 between now and the third Friday of May I'll get to keep all my premium. So far the probabilities are looking pretty good. We'll see how things progress during the month. Have a good weekend everyone!
Friday, April 19, 2013
Where's The Proof!
Happy Friday again everyone! I just got back last night from a long week working in Memphis, TN. I'm so glad to be back in the Sunshine State. Well, if you've been keeping up with my Facebook or Twitter posts you would know that today is expiration friday for this months options. That's great news for me because as it stands my BIDU credit spread is looking fantastic! If you include this month, that's seven successful trades since I've started the system I've been sharing on my blog. I wish I'd figured all this out ten years ago! Oh well!
In my pleadings for folks to get more interested in this type of investing I received a Facebook message from my college roommate asking me what returns I've had since I got started. I figured that was a fair question. For the last two months I've been sounding off about how great this system is but what proof have I shown? You got it! Nothing! So, in the spirit of full disclosure I have decided to post my returns and statements since I started the strategy in October 2012. Man, it took me forever to figure out how to attach the statements! Anyway, since I started last October I haven't added any funds to my account. So all the gains have been only from the spreads I've traded. In summary, I'm up over 30% from October 1st to today. That's a little over 4% per month. Remember, I'm only aiming for 2% per month so as you can see some trades REALLY worked out.
So there's the proof! The numbers don't lie! I hope you guys can see that the strategy works. Please leave comments, hit me up on Facebook or follow me on Twitter @optionadventure. Have a good weekend everyone!
So there's the proof! The numbers don't lie! I hope you guys can see that the strategy works. Please leave comments, hit me up on Facebook or follow me on Twitter @optionadventure. Have a good weekend everyone!
Friday, April 12, 2013
Why I Stick To The Rules!
What's up folks! It's Friday! Another week of crime fighting behind me. I'm hoping to recharge (Yea right!) and get ready for another challenging week ahead. So, lets talk about what happened to my BIDU 97.5/102.5 spread this week. At the beginning of the week BIDU was trading right about $84.00. Our spread was in great shape! Tuesday was cool and then Wednesday came and things started to get interesting. During a morning break at work I checked my phone and saw BIDU had jumped about $5 or right around 6%! I was like what in the world is going on! There was no great BIDU news. It appeared the market in general was reacting to news from the Fed.
When I researching my trade for the month I was tempted to pick a lower strike in order to grab some extra premium. But then I thought......stick to the trading rules! The rules are there for my own protection. In trading sometimes you're biggest enemy is yourself! So I'm glad to say I resisted that temptation and picked a strike with a much higher probability of success. So instead of having to decide whether or not to exit a losing trade or roll my spread to the following month I rolled with the punches like a good boxer and survived. In after hours trading tonight BIDU is still around the $90 mark so I still have a good cushion in place with one week left to go until expiration Friday.
So what's the moral of the story? Stick to the rules that made you successful! Even if it means you make a little less money in the trade. Make no mistake, trading options is a big boy game. It's much better to make a little than lose a lot! Have a good week guys!
When I researching my trade for the month I was tempted to pick a lower strike in order to grab some extra premium. But then I thought......stick to the trading rules! The rules are there for my own protection. In trading sometimes you're biggest enemy is yourself! So I'm glad to say I resisted that temptation and picked a strike with a much higher probability of success. So instead of having to decide whether or not to exit a losing trade or roll my spread to the following month I rolled with the punches like a good boxer and survived. In after hours trading tonight BIDU is still around the $90 mark so I still have a good cushion in place with one week left to go until expiration Friday.
So what's the moral of the story? Stick to the rules that made you successful! Even if it means you make a little less money in the trade. Make no mistake, trading options is a big boy game. It's much better to make a little than lose a lot! Have a good week guys!
Whew! I'm glad that one missed!
Friday, April 5, 2013
Real World Trading!
Happy Friday everyone! I can't tell you how happy I am to be home sitting next to my little one here! I thought today I would go through a real world trade step by step. A couple weeks ago I opened the following trade:
Sell 72 BIDU 97.5 Calls
Buy 72 BIDU 102.5 Calls
Basically this means I sold 72 call option contracts of a stock named BIDU. The strike price I sold the calls were was 97.5. At the time of the trade, for every contract I sold I received $36. To complete the spread I bought an identical number of BIDU calls at the 102.5 strike. For every contract I bought I had to pay $11. So my spread for this trade $25 per contract minus my broker commissions.
The million dollar question is how did I come up with this stock and these strike prices? Well without spilling all the beans I used a "screener" to find a trade that fit all the criteria I've been talking about in my earlier posts. BIDU isn't reporting any earnings this options cycle which ends on April 20th. There was no crazy news about BIDU I could find on the web. When I ran the numbers I figured out this spread had roughly an 80% chance of success. Those are good odds to me! As long as BIDU stays under 97.5 I get to keep all my "premium". At the time I opened the trade BIDU was trading around $86. As of the close today BIDU is at $85.16. With two weeks to expiration everything looks pretty good!
Just in case things go crazy I have an alarm set to let me know if BIDU reaches $96. If the stock price gets too close to 97.5 I can always decide whether to keep the trade open (not a good idea) or adjust it to give me some more cushion (much better idea).
Anyway, it's as simple as that. I researched the trade for about 30 minutes. I check the stock price each day at the close of the market. And just in case, I have an alarm set to warn me if something drastic happens during the day.
Next week, I'll update this trade to see how things are going. Have a good weekend my friends.
Sell 72 BIDU 97.5 Calls
Buy 72 BIDU 102.5 Calls
Basically this means I sold 72 call option contracts of a stock named BIDU. The strike price I sold the calls were was 97.5. At the time of the trade, for every contract I sold I received $36. To complete the spread I bought an identical number of BIDU calls at the 102.5 strike. For every contract I bought I had to pay $11. So my spread for this trade $25 per contract minus my broker commissions.
The million dollar question is how did I come up with this stock and these strike prices? Well without spilling all the beans I used a "screener" to find a trade that fit all the criteria I've been talking about in my earlier posts. BIDU isn't reporting any earnings this options cycle which ends on April 20th. There was no crazy news about BIDU I could find on the web. When I ran the numbers I figured out this spread had roughly an 80% chance of success. Those are good odds to me! As long as BIDU stays under 97.5 I get to keep all my "premium". At the time I opened the trade BIDU was trading around $86. As of the close today BIDU is at $85.16. With two weeks to expiration everything looks pretty good!
Just in case things go crazy I have an alarm set to let me know if BIDU reaches $96. If the stock price gets too close to 97.5 I can always decide whether to keep the trade open (not a good idea) or adjust it to give me some more cushion (much better idea).
Anyway, it's as simple as that. I researched the trade for about 30 minutes. I check the stock price each day at the close of the market. And just in case, I have an alarm set to warn me if something drastic happens during the day.
Next week, I'll update this trade to see how things are going. Have a good weekend my friends.
Monday, April 1, 2013
Getting Set Up Fast!
What's up everyone! I just got back from a relaxing Spring Break with the family. Tubing, zip-lining, ice skating etc... It was a good time for all. Now its time to get back to work! If you've been keeping up with my blog you would know that my favorite investing strategy is trading Bear Call option spreads. I look to earn between 2% to 4% per month using trades that have at least an 80% probability of success. In this post I wanted to touch on getting your options brokerage account set up.
For several years I've had my primary financial accounts at a large bank. The big banks are generally OK for checking and savings accounts but when it comes to brokerage accounts they are usually WAY more expensive to deal with. When I started trading options I used Big Bank's brokerage arm because it was the easiest thing to do. I later found that my profits were being eaten alive! After a little research I found several "discount" brokerages online. Some of these sites like Options Express and Trade King were much cheaper to use than Big Bank but I still wasn't satisfied. After digging yet deeper on the web I found a company called E-Option. To date, I haven't found a cheaper place to trade options. Now I admit that E-Option's web interface isn't that pretty and lacks some of the bells and whistles of other sites but the price is right. If you can find a cheaper place to trade options please leave a comment with their name!
I found that the application process at E-Option was also a breeze. Another positive aspect of the site is that they've partnered with several companies that offer a service called "auto trading". Basically you sign up with a company and for a fee they will automatically send their trades to E-Option who will in turn execute the orders on your behalf. It's a hands off approach to investing that takes the decision making out of your hands and places it with a "professional". Auto trading is cool, but I would highly recommend you research the company you're dealing with first. Some are better than others.
Next time I'm going to dig up some old account statements and give some examples of successful trades I've made over the last several months. As always please leave comments if you have any questions. Good night ya'll!
For several years I've had my primary financial accounts at a large bank. The big banks are generally OK for checking and savings accounts but when it comes to brokerage accounts they are usually WAY more expensive to deal with. When I started trading options I used Big Bank's brokerage arm because it was the easiest thing to do. I later found that my profits were being eaten alive! After a little research I found several "discount" brokerages online. Some of these sites like Options Express and Trade King were much cheaper to use than Big Bank but I still wasn't satisfied. After digging yet deeper on the web I found a company called E-Option. To date, I haven't found a cheaper place to trade options. Now I admit that E-Option's web interface isn't that pretty and lacks some of the bells and whistles of other sites but the price is right. If you can find a cheaper place to trade options please leave a comment with their name!
I found that the application process at E-Option was also a breeze. Another positive aspect of the site is that they've partnered with several companies that offer a service called "auto trading". Basically you sign up with a company and for a fee they will automatically send their trades to E-Option who will in turn execute the orders on your behalf. It's a hands off approach to investing that takes the decision making out of your hands and places it with a "professional". Auto trading is cool, but I would highly recommend you research the company you're dealing with first. Some are better than others.
Next time I'm going to dig up some old account statements and give some examples of successful trades I've made over the last several months. As always please leave comments if you have any questions. Good night ya'll!
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