Thursday, December 29, 2011


GLD looks ugly and spike in volume today. Taking the contrarian trade:

Short GLD Feb12 130 Put for $0.75. Tried to do 10 contracts, only filled on 7.

Thursday, December 22, 2011

ZB ES Charts

According to my charts I've got bonds at likely support and the ES at resistance. Vol is down 50% the last two weeks, that can't continue so the combination of risk/reward on the board right now leaves me in the neutral wait-and-see camp. Of course if these patterns break they should break hard, but I'm playing the odds and taking down my short ZB here at 143'08 in after hours for a loss of around -$335 or so. The Friday before Xmas is historically slow and we're closed Monday, so I'd just assume clock out and turn off my mental radio until Tuesday. I will however set my alert and if I get lucky and stocks fall and bonds bounce then I will gladly reenter my short ZB. See you next week.

Update: Ouch, couldn't have been more wrong. Stocks didn't break through resistance but bonds fell out of bed and cost myself a point. Lack of patience and wanting to take a four day weekend off mentally cost me. I find that when I check the charts every few minutes my time frame for patience gets smaller. If I can stick to checking 2-3 times a day its easier for me to relax. I would like to say lesson learned but this experience has been a cyclical one for me.


ORCL shares tanked yesterday after earnings. Looking at the 3 year weekly chart there seems to be pretty good support at about $25, which is a little above the 200 period moving average. Will look to sell a January $25 Put today.

Monday, December 19, 2011

New trades - SLV and UNG

Wanted to do something today so made the following trades:

Short 10 SLV Jan 25 Put for $0.465
Short 10 UNG Jan 7 Put for $0.47

Obviously looking at the chart both of these have been hammered this year, that's pretty much the rationale for selling them. UNG is the more aggressive trade as that put is already in the money - this one was definitely influenced by Tom Sosnoff.

Thursday, December 15, 2011

Current Positions

VALE Update

After hovering near $21 for the last few days this finally broke under $21 today which is at least a 2 year low. Was short 60 contracts DEC 21 Puts and didn't want to have to deal with it tomorrow, so rolled down to the Jan 20 Puts for $0.50 credit. Had taken in $1680 before on the DEC Puts, so in summary have so far collected premium of $4680 to hold these naked options which currently have a 39% probablity of expiring in the money.

Tuesday, December 6, 2011

Played like a fool in the futures

I'm trying to learn to trade the futures more actively these days and have decided to try trading the /YM, with very small positions while I am learning. I am looking for some advice - here is a trade I placed today. When I look at it I think generally it should have been a good trade. I went short pretty close to the high and the market went down a fair amount after I went short. However, I lost money on the trade because my stop order hit at the absolute top. I was only trading 1 contract so the loss was only $90. Realistically I could have placed the stop 100 point above my entry (YM is $5/point so I would be risking a $500 loss, not something I want to take but it certainly wouldn't wipe me out). However, I did not do this because I am trying to develop good habits and everything I have read suggests that if you are trading futures you need to accept small losses, so my stop was placed a few points above the high of 1202 that was made at 13:54. My question is this: Is it better to place the stop at a much higher level, thereby accepting the risk of a much larger loss but lessening the chance of getting shaken out as happened to me on this trade, or did I play this well and should I just accept the bad outcome as the way it goes sometimes? I will gladly consider any advice/criticism about how I handled this trade. Thanks.

Wednesday, November 16, 2011

New Trade - Short VALE Dec 21 PUTS

Continuing my recent them of doing short puts on companies I have owned and liked in the past at higher prices, sold the Dec 21 puts on VALE today for $0.22. I like the chart showing that this was near the low of the past 9 months.

Monday, November 14, 2011

New Trade - Short MOS Nov. Puts

Essentially the same trade that worked well last week so giving it another go. Sold the 55 Puts for $0.57 and the 52.5 Puts for $0.20.

AA Short Dec 9 PUT

New position initiated today. Had AA in my portfolio awhile back, sold it for $15 earlier this year so I'm a willing buyer for $9.

RMBS Update

Bought back my short Nov 20 calls and rolled to Jan 20 for a credit of $1.85. Considered seeing if these will expire worthless this Friday, but decided that I do not want to take risk of a lot of IV disappearing after jury decision which could come at any time. Furthermore if Rambus loses the case the share price will tank, so this credit provides a lot of protection against that event. Still have 1/2 of my shares covered with strike 18 calls, will let those ride through expiration and see what happens.

New Trade JPM Dec 29 PUTS

Initiated this short PUT position today for December expiration. Break even at expiration is $28.34 which is not too much higher than the 9 month low of $27.85. May be a little volatile with the mess in Europe but that is why the premium is pretty good and gives a chance to make close to $2000 if these .20 delta options expire worthless.

Monday, November 7, 2011

MOS Weekly PUT 55

New position just initiated near end of day Monday. Sold the weekly MOS 55 put for $0.21. The motivation and theory behind this trade is essentially the same as the POT naked put from last week. MOS is a stock I have owned before and am comfortable buying at 55 if I am assigned. Did 5 contracts so it's just a small gain if it works out, but odds are favorable showing only 13.6% probability of my being assigned at the moment.

Wednesday, October 26, 2011

Have you visited Tasty Trade yet?

For those of you who haven't yet heard of, I strongly recommend it for beginning to intermediate option and/or futures traders. It's free and is a good 3-4 hours a day of actionable trading education and information.

Monday, October 24, 2011

Still Alive, anybody have experience using Prodigio on Think or Swim?

Before I post about my whereabouts the last few months, if anybody has experience using Prodigio on Think or Swim and wants to mentor a fellow trader please email me at I've got a trade idea I need help with implementing.

Well it's been a while since my last post which was July options expiration. Even before that I had really stopped posting two months prior as I had kind of settled in to what I was doing and had little to share or discuss. But a lot can change in a short period of time, I lost my ass big in the August and September expiration cycles. I still haven't updated my spreadsheet but I'm down over $80,000. For me that is a huge number as I was only averaging about $4,000 a month before the loss. So do the math and it will take me a few years just to get back to par. The good news is after taking a few weeks off I have now regained all my psychological capital and as of this morning I'm back trading again. There have been several good byproducts of such a horrifying event that I'd like to share.

The first is simply that I still have enough capital left to trade and should be able to target my monthly living expenses of $2500 indefinitely. So nothing major changes for me other than the psychology of accepting the damage. Second is that, the truth is, even at my best I was barely making a living so until or unless I lost big I was probably never going to entertain the idea of starting a new career. I had put that search on hold as I thought I was on the border line of having enough capital and experience to give trading a shot. I had been wanting to try trading for a living and now I know that I'm just simply not ready. I need more capital and more experience and I think I'll know when I get there, but it isn't today. Perhaps in the time it will take me to get to a capital level I think is adequate I will also gain that experience I need. The third positive to emerge for me is that I had a very unhealthy attachment to money. I had wrapped my whole self esteem and outlook on life based solely on having what I considered to be a safe nest egg. I had spent the previous five years of my life in what I call a permanent state of semi-paranoia always worrying about losing it.    

And as many of you have probably experienced in life, the actual event happening that you fear most isn't actually that bad. What is far worse is the torture you put yourself through worrying about it. So in a sick way I'm actually happy to exercise this demon and I think I'll be able to live a healthier happier life going forward. Money truly isn't everything and I had to break my addiction to that misguided belief. However, I would absolutely trade places and give this experience back for the money, that's the truth, see how sick my behavior is/was.

Below is the chart for bond futures where I took the majority of my losses. I was also short volatility derivatives at a VIX of 27 and cut those once we stayed above 40 for a few weeks. I was short big on ZB at a cost average of about 127 (highlighted in green) on the Friday going in to the weekend where the debt ceiling debate was threatening to end in default on our debt. I thought that was BS and was willing to short in to the weekend. Congress reached an agreement on Sunday night and bond futures opened up with a half point gap down on the chart at about 127'16. So I was comfortable in waiting and taking my short off later in the day for a small profit. That day never materialized and the chart never looked back. Each day I found myself feeling like I would love to short at these levels so I just kept staying in the trade. I'll save the daily drama of my mindset as each day rolled on but the short version is I lost my mind and eventually cut the trade for a loss at 140'24 where the purple oval is I highlighted. That's about a 14 point loss per contract, on bonds which sometimes don't trade 14 points in a year!! Had I tried to stay in any furhter I would surely have lost my mind again the day the FED announced they were keeping rates at 0% for two years and sent ZB up 5 points in two days to a new all time high of 146. You get that, a new all time high ever in the history of bond futures and I was short big. Nice trade meat.

Monday, July 25, 2011

Nothing new.

I haven't posted any trades lately because I am doing very little at the moment. Holding a big position in RMBS that was gotten by getting assigned on my naked puts. Also holding my positions in DIS and QCOM. With the debt uncertainty going on I prefer to stay out of the options game for awhile and work on my golf game instead. Will start posting again when I become more active in the market.

Saturday, July 16, 2011

July 2011 Options Expiration Results

This was a great month for traders as we had some good range-bound but volatile markets. It allows you to get paid quicker on your trades if you're right on direction. The bottom line number this month is $8096 and I needed it. The previous two months were turds as I got myself in some trouble with position size and strategies used. There were a few mistakes as always that don't show up in the numbers. I took a few trades down early for no reason other than I wasn't able to discipline myself with patience. I didn't exit one trade when I should have and missed my profit target as it was hit. There are two profitable trades on CL that were both just extremely lucky timing on the trade exits as both would have been losers had I let them go to expiration. In the end the numbers could have been better or worse. I suppose this will always be the case as if you're trading frequently you're going to continually both make mistakes and get lucky over time, it's just part of the game. At least for me it is.

I find myself successfully correcting some bad behavioral issues or problem areas from past months only to fall back in to the ones I'm not currently working on. Overall I've made great strides and my confidence is always slowly growing, though I'm constantly working on something. I suppose this also will always be the case. I read a lot of other traders post and know I'm not alone with these issues. At some level I like this as I don't want to be a robot and I enjoy trading off the psychological aspects of the market. If we were all robots and made no mistakes or let our emotions get the best of us then trading would probably be pretty boring. The trick is really to make less mistakes than the next guy.

I'm still hesitant to ramp up my position size as there always seems to be a recent loss that keeps me from getting comfortable. This is a problem area as I've got a long enough track record of consistently profitably trading to suggest the amount of capital I've been allocating given my availability is too low. I'm making great returns on the risk I take, but literally leaving too much capital on the sidelines taking no risk and thus making no returns. If I have a good first week to the new options cycle I find myself being conservative with the next trades as I'm always scoreboard watching and know where my numbers are. This is a terrible habit as I need to make each and every trade that presents itself no matter how the current or most recent trades have performed.

Though I never seem to have what I would call typical results each month as my realized gains have fluctuated wildly, I do at least attempt to deliver consistent results, it just doesn't work out that way. I know ahead of time what my best and worst case scenario should be. The reason I mention this is the results this month are pretty much what I would call typical, if there were such a thing; not necessarily in the dollar amount of realized gains but in the structure of trades themselves. It seems I'm always making changes to the style of trading, underlyings I trade, or position sizing, but recently I've settled in to a formula I like to try and trade around. This is also why I'm not as active about blogging as in the recent past, I'm just more comfortable with what I'm doing and trying out fewer new trades or strategies. On a simple level I like to be short time premium on equity and futures options, and then trade directionally with futures. I shoot for roughly a 50/50 mix and this month just happened to fall in line. I consider these two types of trades separate animals as I might be short SPY calls for the duration of the options cycle but long the ES at some point just for a short-term trade.

For those of you were consider yourself a beginner to intermediate option trader, I highly suggest tuning in to This site launched a few weeks ago and it's a four-hour daily show with about 90-120 minutes each day of what I consider to be really concise great trading information. If you like the Friday afternoon chat on Think or Swim then you'll love this show. The great thing is its archived daily so you don't need to watch live and you can skip the segments of the show that are not relevant to trading. As always if anybody has any comments or questions feel free to comment below or contact me directly via email or Twitter.

July Options Expiration Results

Updated Historical Results


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Saturday, June 18, 2011

JUNE 2011 Options Expiration Results

The bottom line number is nothing to write home about, I only made $651. Try living on that. Though I would love to have some sort of consistency and make my desired monthly goal each month, the truth is that's not a reality and I've come to live with it. Although I've never been able to live anxiety free with regards to my trading, or anything close to that, I have at least accepted that over the long run I will continue to be a profitable trader. The only questions that remain for me are how profitable, and even smoothed out over time, is it enough to actually make a living? Only time will tell. I will continue to try and keep my head on straight short-term and do more serious evaluation after one year. I need to find a happy medium in order to try and actually enjoy this experience. 

Looking a bit further inside the numbers this month I actually derived $2300 of trading profits within the June options cycle. I came in to the month with some large mark-to-market losses and I converted $1650 of those in to realized losses (RMBS trade). The truth is the accounting entry last month of -$4675 is misleading, that was just the realized losses. So considering I was coming off a really bad May options cycle where I got my ass kicked financially and psychologically, I'm actually really happy to have cleared some profits and got myself back in the game. I need to average somewhere in the area of $2500 a month over the long term to break even.  I basically took two weeks off and licked my wounds, I was in need of psychological repair and thankfully it came quickly. The amount of money I lost last month wasn't a game changer, but it was the amount I lost in such a short period of time that for some reason shook me. 

I broke down the trades again this month with color-coding and categories so I can track myself more easily over the long run. It's basically consistent with the last six months, sold a little bit of equity and futures time premium, and made some directional futures trades in ES and ZB. Below are my updated financials. As long as the average monthly profit continues to go up and to the right over the long run then I'm headed towards my ultimate goal, I'll post more on that soon.


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Sunday, May 22, 2011

6-Month Review of My Trading Journey

Background: For those of you that haven’t followed this blog or don’t know my history, in mid November 2010 I started out on a 6-month journey to attempt to trade my own capital for a living. With the expiration of May options on 5/20/11 my six months is up and the results are contained within this post. Prior to this time the previous three months had been spent in Chicago trying to find an entry-level job in the options/futures industry, and the previous 18-months to that was spent as a full time MBA student. I didn’t think I was prepared to head out on my own just yet, although that was always the long-term goal. Ironically, most of the feedback I received was to do just keep doing what I’m doing. More than one person asked why I was looking for a job if I had my own capital and a positive track record. But I will be honest and say that after two failed interviews and lots of dead ends it was out of default that I chose to give this a shot. I applied to plenty of finance related jobs outside the options/futures industry as well and got nowhere. So much for the time and money I spent on an MBA and Level I of the CFA exam, to date it’s produced zero dividends.

Goals: The first goal was simply to breakeven for my living expenses so I could at least tread water and buy myself some time. I had a ten year history of bringing in about $1000 a month writing covered calls so making my breakeven number of about $2000 a month seemed reasonable. Based on my experience and capital levels I thought that a range of $2,000-$4,000 per month was about the high or lows I could probably achieve. If I couldn’t do better than $2,000 a month then I couldn’t justify trying to actively manage my account.

I didn’t have an asset allocation model in hand or specific strategies to employ. I felt I would stick with my comfort level of selling premium, mainly in the form of short puts on stocks I wouldn’t mind owning if put to me. In addition to this I wanted to try and actively trade futures while I waited for time to decay in my short options. I felt actively trading anything would at least keep my finger on the pulse and probably produce more premium selling opportunities for me. It turns out that’s exactly what happened. I thought I would use the ES to trade futures but it turned out to be ZB for me. As a rough framework I thought I would try and sell $2,000-3,000 of time premium per month and shoot for $1,000 in actively traded futures.

Questions: I needed to see how I acted psychologically when shifting from passively looking for small income trades to supplement a primary income, to actually trying to bring in enough to call a primary income, and also to warrant not pursuing a formal career. I also wanted to see how many more trading opportunities I could find by actively monitoring the markets versus passively watching them during the time I was busy with school or a formal employer. Was it possible for me to make more trading simply by being available more? Or was the amount I brought in over the last few years passively trading about the limit no matter what my availability is. I needed to see if I felt pressure to produce even if I didn’t see any opportunities I liked, or if I could just sit idle and be patient and only act when/if I saw something I liked. It was going to be a huge test of my psyche.

My Unique Situation:
  • Low Expenses (less than $2000 per month)
  • $80,000 capital loss carry forward from the tech bust in 2000 (so I pay no taxes on the next $80,000 in gains)
  • $200,000 in my portfolio margin account
  • Single, no kids, no debt
  • 10-yr experience trading my own account, profitably
  • Nothing to lose, no job alternatives readily available and the positives of success far outweigh the negatives of failure
  • An unbelievably strong desire (as in, at almost all cost) to stay self-employed and maintain the complete freedom I’ve enjoyed most of my life.

Pros/Cons: If I can make this work, I would greatly prefer to receive the benefits of the lifestyle that come with it. If I don’t want to work I don’t have to. If I need a day or week off I can take it. I enjoy watching every aspect of globalization unfold, the politics, economics, ethics, dilemmas, etc. The only aspect of attempting to trade for a living that I don’t like is just the uncertainty. But in this day and age of labor getting squeezed, pensions chronically underfunded, ever increasing cost of living, and no allegiance from corporate employers, I have to wonder if the path of uncertainty that I’ve chosen is truly any different in the long run than the alternatives. I view the main difference as being, with formal employment you get paid every month, until you get let go and the paychecks stop. Unless you are consistently employed with no gaps from layoffs, firings, transitions, or lower amounts from unemployment benefits, then your income stream will vary at times as well. With my path, sometimes I get paid, sometimes I lose, and I never know how much those amounts will be or when they will happen. There is no normal.

But I’m willing to accept the trade off of an unknown revenue stream in exchange for not having to get up to go some place I don’t want to go, to do something I don’t want to do, with people I really don’t want to be around. I tried that for a year, it didn’t work for me. I found out that so called financial security was close to worthless when it led to misery in every other aspect of my life. For those of you that enjoy your job, the money it provides, and the people you work with, consider yourself extremely lucky as you are in the minority. I also don’t want to spend the combined amount of time and money it takes to commute to a place I don’t really want to be. Between the depreciation on a car and gasoline, trading at home for a living puts over $10,000 a year back in my pocket, think about that. My car is paid for and I fill up about once per month. Add to that the amount of time I get back not commuting and we’re talking about a significant change in lifestyle. 

There are other intangibles that make this something worthy of the journey. If I can successfully derive an electronic income, then I can choose to live anywhere I want, preferably some place where the cost of living is affordable and the quality of life is high. If successful, I would also enjoy managing money for friends and family, many of whom have not properly planned for their future financially. I felt kind of guilty when I emerged from the financial crisis with my account balance back to par by May 2009 when many of my friends are still not back to their pre-crisis levels. Or worse, they sold what was left and are literally sitting in cash. I can do better than that for them.

But let me be honest, there are major cons. The older I get the less I think I'll be tolerant of an unknown income stream. Ideally I would need to increase my capital to a high enough level to compensate for that. I've already found out from past experience that being self-employed is a knock against you should you seek formal employment. The first question is always "what have you been doing?", then they inevitably say, "well why don't you just keep doing that." Other than one year of formal employment in 2007, I've been on my own since 1996. This journey is really a one way trip for if it's not successful, my options will most likely be even worse than what led me here to begin with. There are other cons such as no face time in an office, I'm not building a career network, what little networking I do is mainly done electronically through social media (so please follow my journey on Twitter and forward to anybody you think is interested!!)

Results: I had a great first five months, better than anything I would have expected. This was quickly followed by my worst trading month ever last month. The actual results and breakdown are below, I reduced the amount of realized gains by my current marked-to-market losses of -$6,000 to get a true view of where I stand. My starting capital was $200,000 so (19,372/200,000) = 9.68% for six months. I ended up having more than half my gains come in the form of actively managed bond futures. This would have surprised me if you showed me my results six months ago, but what really ended up happening was I got out of the chute on the right foot trading futures and didn't look back. This led to less time and energy available to look for short option premium trades. I expect going forward that this will reverse and I'll get back to more of my profits coming from income trades and not directional futures trades, we'll see. If anything this is encouraging as I have a long history making money with income trades. I thought it would be tougher for me to venture in to futures trading but so far so good.

Rational Next Steps:
  • Just keep doing what I’m doing (just like the guys in Chicago told me!) But seriously, just spend the rest of 2011 trying to refine my craft, learn more, get better. 
  • Scale my trades up. I currently usually have no more than 35% of the buying power available to me accounted for. I’m fine with staying small until/unless I get comfortable going larger. I enjoy sitting in mainly cash and if I can meet my desired monetary goal while primarily sitting in cash, then I view that as a win-win. I feel no pressure to try and max out potential gains.
  • Manage money for friends/family. I’ve already verbally accepted money and have about 8-10 clients. Total capital under control including mine will be just under $1M. That is a good enough number for me to get my feet wet at managing outside capital. I am currently in the process of deciding how to do this. I’m leaning towards starting with separately managed accounts and then upgrading to an aggregate funds type of entity if things go well. In the last few weeks it seems that every time I mention this I get offered more money, I haven't even officially recruited any yet. This tells me there is even more opportunity once I am up and running.
Findings/Conclusions: I think it’s too early to make a long-term judgment call on the viability of this venture, six monthly data points are not enough to do any meaningful reflection or projections of the future. It isn’t reasonable to say that since I’ve had a 9.6% return in six months that I could probably hit the 20% mark for a full year. However, after the third month I had already seen enough prospects for the future and progress in my trading that I decided to extend the trial period to all of 2011 no matter what the six-month trial period produced. It is worth noting that the SPX returned a better return during this time frame (11.7%). However, to achieve that rate of return on my capital would have meant the whole amount would have had to been invested long, I will never be in that position again, ever.

I will skip the conversation about alpha or sharpe ratios. The bottom line is that my return versus the risk I took is more attractive than the return of the most popular benchmark SPX. I'm also not sure that an actively managed futures and options portfolio such as mine should be compared to the SPX. That type of long only equity investment is an alternative, but certainly not consistent or comparable to the risk/reward characteristics on my portfolio. Perhaps a CTA index would be a more legitimate benchmark, through May 2011 that index is at 2.22%. At the moment it's also important to point out that I'm not holding myself out to be a professional money manager and not trying to benchmark myself. I'm simply trying to learn, get better, and make enough money to survive until I can draw some further conclusions.

From a monetary standpoint alone I feel my returns so far do warrant continuing the journey for all of 2011. Had I lost money overall or wasn't even able to meet my minimum living expenses then it would be difficult to argue continuing. So thankfully things have gone good so far. Also, I was able to answer a question I had about how many more trade opportunities I could find find if given the ability to watch the markets more actively, it turned out to be quite a bit.

If anybody has any questions or comments feel free to contact me below, I also would love to hear from anybody pursuing a similar path.



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Saturday, May 21, 2011

May 2011 Options Expiration Results

This is not the month I feel good about total transparency on the blog as it is a little embarrassing, but the bottom line numbers are that I have realized losses of (-$4,675), and head in to JUN expiration with MTM losses of (-$5,965). While last month was my best ever at $11,357, this was my worst ever and these results are directly related, and now I'm basically a complete wash for the last three months. Here is a shortened explanation of this month's results. I got myself in trouble on two separate trades on bond futures (ZB), and (RMBS). I got too comfortable with my past gains over the last few months in these names, which led to a false sense of security that enabled me to use larger size without having the appropriate associated risk management in place.

For the last five months on ZB I've been trading one contract at a time, this month I used two and three contracts at times, and when a particular OTM call trade ran against me I started trying to trade around it rather than just exit at my predetermined spot if we got there. I actually ended up exiting near my predetermined worse case scenario, but I panicked a bit when it got there and closed out prematurely. Because I had too much size in play I was no longer able to trade according to plan, I found myself now caught up psychologically in the amount of capital at stake. A very frustrating byproduct of this trade running against me was that since I was already too large, I had to use tight stops on future trades in order to keep my sanity. Every single one of these trades were stopped out for a loss, and every single one of them would have been winners had I traded according to plan. Once I got off tilt things got out of control in a hurry. I was left with a string of small losses and on winners, very disturbing to look back at the mayhem I induced.

With my (RMBS) marked-to-market losses I got stupid and sold JUN puts a week before the MAYs expired, that isn't part of my trading plan and thus shouldn't have been allowed. This came back to hit me hard as the stock dropped more than 20% on some old legal proceeding news. I do not view this trade as a mistake or error simply because the stock dropped, the error was that I doubled up on size by not waiting for MAY to expire first.

I typically try and sell a few thousand dollars of time premium a month ($3-4K) spread out over a few names, and then actively trade futures while I wait for time decay in the short options. So losing -$6,000 on a single short premium trade this month is not acceptable given my capital levels and monthly goals. I shouldn't be in the position to have several small winnings trades completely wiped out by one loser. However, when you're a short premium seller with no hedge then this sometimes comes with the territory. I prefer to use small size and no hedge instead of larger size and protection in the form of spreads and delta hedging. It is expected with this type of trading that you'll expire worthless most of the time but take large losses every now and then. But it is now time that I add spread trading to my arsenal. While I have a long track record of success with small size and no hedge, I need to be more nimble going forward.

I view my errors were not in omitting a hedge, but rather it was the size of my trades given the fact that I chose not to hedge. And I will admit that had I not lost any money I wouldn't have looked back and said I probably got away with using too much size, I would have just continued doing the same thing until/unless it didn't work. That's why I view this month as an inevitability and good for my future, so long as I learn from my mistakes and manage future risk accordingly.

The were two bright spots this month. One is that I did bring in $2,259 of short time premium on a myriad of names, which is part of the desired monthly goal. The second is that the losses I incurred are large enough to hurt and thus alter my future behavior of risk management, but not large enough to affect the operation in a meaningful way. For now I'm going back to where my success/comfort zone is in trading one bond futures contract at a time with no hedge, and trying to learn more about the nuances of spread trading. When you add a long option with a short then you've got to incorporate IV skew and strike price where as straight IV sells are a lot more intuitive for me.

Updated Historical Records


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Sunday, May 15, 2011

Interesting Week: Got Chopped Up, But was given a Gift, and a Reminder

This past week was one of those where I felt like the ping-pong ball and not the paddle. The pictures pretty much tell the story. The trades below were all similar in that I used OCO orders to set my entry, exit, and stop loss points. It's frustrating to see your stop loss trigger literally be the high or low tick of the day. When it happened three different times in 24 hours it started feeling conspiratorial in nature. The only person making money this week was my broker. The total money lost on these trades isn't large, that's the purpose of using stop losses, but the net result is I had a serious of small losses and no wins. I don't mind being wrong, but for some reason if I'm wrong I would rather be really wrong and not just barely. The first thing that goes through my mind after wondering why the market hates me is if my stop losses are too tight, then I question why I use them at all, for clearly on these trades they would have all made money had I not used a stop loss.

But then Friday morning I was given a little gift. The IV on one of the stocks I follow had slowly gotten to what I felt were ridiculously high levels so I put an order in on Thursday at midnight to sell some far OTM calls to hopefully produce an income trade for the next five weeks as these were JUN expiration calls. I used an even higher price than the previous close figuring if somebody wants to pay me this stupid price I will sell, not really thinking it would get filled. So when my text message trade alert goes off at 8am I decide to log on and see what the stock is doing and why this could possibly get filled, I log on just in time to watch it crash. Less than two hours after my fill I was able to close out for a nickel. Any time you can capture five weeks of time premium in two hours that is surely a gift and I will say thank you and get out. It feels just as wrong, but in a good way, as being stopped out multiple times only to watch your desired profit exit point hit later in the day. So you take the good with the bad, if you trade long enough you will experience both multiple times.

So the picture above was my gift trade that made up monetarily for all the trades I was stopped out on, and below is my reminder. Remember one of the trades above where I lost .06 and was pissy that it would have been a winner later in the day, well it also could have been a $3.00 loser, which it was just 48 hours later. So while I was questioning the stop loss points I chose or even my use of them in general, I was thankfully reminded just why to use them. I'm happy to be sitting on a $60 loss and not $3,000. So ironically enough the gift and reminder (or second gift) were actually the same trade. I was short the JUN 15/25 strangle. Full disclosure: while the short calls of the strangle were closed out for a .70 gain, I am still short puts on this ugly chart at a cost average of $16.10, so could be in for some pain here as they are also JUN expiration.

Monday, April 25, 2011

ZB Update

I was short weekly calls on ZB that expired last Thursday before Easter at the 120, 121, and 122 strikes. The 121/122 expired worthless but I chose to not buy back the 120 at a loss and rather inherited a short position at a cost average of 120'14. Even though I had previously stated I was going from bearish to neutral on ZB, I was willing to stay short this one contract until/unless we broke to a new high. We had been in a tight one-point range for the last four days but broke above it in after hours today so I took the loss for (-$1125). In retrospect, it's interesting that last week in my post I said my gut tells me we're going to 122 so I wasn't looking to get short until then, but yet I wasn't the least bit interested in playing it from the long side up until that point. That tells my own biases were a little stronger than common sense. Also mentioned in that previous post, I have followed through and entered some OCO orders to get short at 122 with a tight stop.

I'm not about to predict what, if any, new information comes from the FED on Wednesday, and therefore won't try to predict how the market might react. I'm kind of in a wait and see mode right now for an indefinite period and it could be that I'm done with bonds for now, we'll see. It's been a good four months trading around ZB so I need to make sure I don't give back my profits, just need to be patient and only enter new trades for the right reason if it presents itself.

Closed for a loss when we broke 121'18 (-$1125)

Tuesday, April 19, 2011

Still Bearish QQQ going into end of QE2!!!

As I commented on my previous trade that I closed out, I mentioned that I would be looking to get back into a trade in the QQQ to the short side using June options. Today the VIX has pulled back a ton, giving back all the gains from just a day ago. So I sold 10 Jun '11 57/58 callspreads for $0.45, or $450. I also bought 20 Jun '11 Quarterlies/ Jun '11 Calendars -->buying the quarterlies and selling the Jun regular expiration options. I put these on for $0.21 debit or a total, $420. So my total risk for combined positions is $970, with total upside of about $1650.

Above is my aggregated risk profile.

I like the calendar using the $55 strike because I still have a target of around $54-$55 on the QQQ and I like the additional upside for an uptick in Volatility. So I may peal pieces of this off on any spike in volatility, which I think we will be seeing more of as we move closer to the expiration of QE2. I sold the callspreads to finance the calendars, but also sold them believing that QQQ will not get above the downtrend line that I have drawn in the above chart. I would probably close this position if we breach and close above my trendline on a daily chart.

I will keep you guys posted.

Monday, April 18, 2011

Going from bearish to neutral on bonds (ZB)

Long before I ever subscribed to technical analysis I got by for many years on instinct, intuition, The Force, whatever you want to call it. I've been playing ZB for four months now using TA around the fundamental forces behind the interest rate/inflation story. Last week I closed out of some short ZB and felt like I was at a reset moment. I was still short some OTM calls that didn't expire for two weeks but at the time they were a full 3'00 OTM and I wasn't ready to close out early yet, other than those I was ready to reset. I've been watching the ZB chart like I watch TV for a while now and all I can tell you is that my gut instinct says something has changed. I got short one contract on Friday simply because we were up 3'00 in three days, that's good enough for me to take a short-term downside shot. But after watching the combination of price and volume after I entered  my trade I felt something has changed. In watching the BxA sizes I noticed that there was a larger bid under bonds than in the past, I normally don't pay attention to this but it was the first sign that something was different. I've been trading off the JUN contract chart ever since we rolled and not the aggregate chart. The trading range on these are different depending on what you're looking at. So the JUN contract ZBM1 that has been very technically sound told me to get short at 121, I did, but my gut said this wasn't holding. So I backed out to the aggregate chart and the top of the range there is really 122, but I don't feel comfortable with that either right now.

So adhering to what got me to the dance I listened to my gut an put in an order over the weekend to hopefully get out on Monday and I got lucky with this S&P announcement this morning that temporarily caused a 1'00 sell off. We spent the rest of the day today recouping that loss. So one of the major ratings agency does the previously unthinkable and publicly calls out the US on its debit/credit rating and the market shrugs it off after an hour? This confirms for me that at least temporarily there is a bid under bonds right now. As a trader I have to be willing to throw my bias over board and just listen to the market. In the past I've posted here that I'm willing to be short up to 5 contracts at 122'00 with no hedge because I would double down at 125'00, I'm changing that and now taking my short size down to 3 contracts at 122'00 and I'm going to use a stop, and if I add to this position it's probably going to be in the form of an OCO order where I scale in to shorts near 122 but have a tight stop. I absolutely still believe in the inflation/interest rate fundamentals long-term, but I'm trading for short-term profits, not investing with biases and waiting around long-term to hope it comes true.
ZBM1 JUN Contract: Trading Range 118-121

Aggregate Chart: Trading Range 118-122

 ZB Trade: Entered Friday, exited this morning

The probable OCO order that I'll use when we hit 122. I'm willing to risk a quarter point (0'08 to make 3'00), so 12:1 risk/reward. I intend to stagger my OCO orders and not put them all in at the same prices. This way a spike trade past my stop loss doesn't exit all my positions. If these all get run and my stops are hit, I'll use this same trade strategy but with a larger size as we approach 125. That is where I'm willing to stay short longer term and absorb the pain of being wrong.

Saturday, April 16, 2011

April 2011 Options Expiration Results

By one measure this was my best ever month financially, but just as I felt that last month's tally of $575 didn't paint the whole picture, I also feel this month wasn't as good as it looks. Though I've had bigger recorded gains in a month before, most of those gains were from long-term spreads that were building in value over time and finally got recorded in the month they were closed out; where as all of this month's gains were derived within the April options expiration cycle. So I am excited to book $11,357 in gains derived from the last few weeks of trading, but the instruments and leverage involved has to be kept in context. Up until about six months ago I was almost exclusively an equity options premium seller, now I'm also trading futures and these cut both ways. Last month I only had a few losing trades, but two futures trades in particular almost completely wiped out about 15 winning equity option trades. This month my futures trades went my direction so the gains look big in comparison.

The Nat Gas profit of $3,042 this month needs to be held in context with the ($2,306) loss I took on that trade last month. In my view this was a rolled contract with a net gain of about $700 over a two month period. And though I'm very happy that my short bond futures paid off over $8,000, that trade could have also moved against me and I'd be sitting on a large MTM loss right now. I color coded my trades again for me to analyze more than just the bottom line profit or loss. I'll go back at the end of the year and maybe create a pie chart or something to breakdown the performance. I had a few scratch trades this month where I either decided against them shortly after or tried to exit for a few pennies above trade price to cover commissions. Though the net result is near zero and I don't like to incorporate scratch trades in to my performance, I also don't want to omit them from the record.

I also fell in to an old bad habit this month and got away from my game plan a bit. Since I had a large position in bond futures I found myself watching the chart literally every 20 minutes or so whenever I was awake. Since futures trade almost 24 hours I find it hard to ever stop thinking about it. So we had a relative dead spot for a few days where ZB traded in a small range, when you're watching every few minutes two days of small movements feels like forever. So I entered a few trades that didn't make sense for me as I was just feeling the need to try and make something happen rather than just be patient. I did recognize this behavior shortly after as I try to objectively analyze my positions each night. So I admitted the errors to myself and exited the trades soon after. I won't go in to detail on each mistake but let's just say this was the only thing keeping me from a perfect performance and admitting this would have otherwise been a phenomenal month for me. So my record shows that quantitatively I am getting better, I'm more efficient with using my capital, better trade entries/exits, better risk/reward management, but I also still have a lot to work on and I'm mindful of that.

 April 2011 Options Expiration Results

Updated Historical Results

Current positions heading in to May 2011 expiration cycle


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