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!

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.

Why I Stopped Investing And Started Trading

 

As a kid growing up in suburban Maryland no one ever taught me about the wonders of the stock market. Both of my parents were federal government employee's and looked forward to generous pensions when they retired. Their financial future never depended on the stock market so that probably explains why they never shared its existence with me.

After high school I went to college and later to the U.S. Army. Even during that six year period the stock market and investing wasn't a part of my consciousness. It wasn't until I began working for the federal government that I was introduced to investing. For those not familiar with the federal system, government employees have a 401k like benefit plan called the Thrift Savings Plan or TSP. Within the TSP I found out I had the option to invest in five different "funds". The TSP opened my eyes to benchmarks like the S&P500 and the Russell 2000. When I learned about dollar cost averaging and compound interest I just knew it would be just a matter of time before I became a millionaire. At the time, my plan was to max out my TSP contributions and then with my extra savings mirror my TSP fund allocations in a regular brokerage account.

So how did things go? Well, for a while everything went great! For a few years it seemed like the market was headed for the stars. Everyone at work bragged about how fast their accounts were growing. The real estate market was also going bananas at the time. I should have known something was wrong when all my neighbors talked about how large their lines of credit were. The idea that it all (or at least a good chunk of it) could disappear almost overnight never even occurred to me. Well, as we all know the bottom fell out. And as I now know the market moves in cycles. No matter how smart you are or how much you've mastered technical analysis (and all that other fancy stuff) I'm convinced no one can time the market. All we know is that it will rise and it will fall. This cycle just repeats itself over and over again.

After experiencing my first crash I must admit I became shell shocked. I didn't know if I should stay the course, forget stocks and move to bonds, focus on REIT's and dividend paying stocks, buy gold or just bury my money in the back yard! During that period I tried EVERYTHING! And just like the market my brokerage account went up and down. I knew there had to be a better way. I just didn't know where to turn or who to trust. Luckily, one day in my local Barnes and Noble I came across a book about trading options. I'll explain in my next article how that book opened up a whole new world for me. That book was the beginning of my transformation from an investor to a trader!