Friday, February 18, 2011

FEB 2011 Options Expiration Results

While I'm happy with the realized gains of $4800 for FEB, I'm also currently sitting on MTM losses of ($3018) that were from trades initiated this month. So things need to be kept in perspective. I'm also happy to be closing in on $100,000 of total gains since I abandoned the buy-and-hold mentality of long-term investing in exchange for active trading in late 2008. Even though the historical average monthly income of $3,100 per month during this time is currently barely enough to justify trading my account for a living, there is comfort in knowing that until recently I've been very conservative and haven't used even half of my available trading capital. You can actually see from my average monthly income chart below where I started out with a bang shorting the markets during the financial crisis, where I took my losses when I abandoned my legacy buy-and-hold positions, where I targeted $2,000 a month during 18-months of MBA school, and where my average has slowly been increasing since then as I decided to scale up a bit and actually attempt to trade for a living. The bottom line is I'm getting better, having fun, building my confidence, and have now proven to myself that I can be a consistently profitable trader. I'm going to continue to slowly scale up my trade size and reevaluate everything in June. If all is still going well then I'll probably be looking to go out and recruit capital and build for the long-term.

FEB 2011 Options Expiration Results

Current MTM Losses heading in to MAR 2011 Options Cycle

Updated Historical Trading Results

Average Monthly Profit Chart


  1. Just learned a very valuable lesson, luckily it didn't cost me anything but it could have been very painful. I was short the RUT 840/850 call spread and decided not to close the position going in to Friday. I thought I knew how the settlement price was calculated, and so when I saw the RUT open price of 836.56 I figured all was well. Turns out not to be the case, as the RLS is all that really matters. In this case the RLS turned out to be 838.20. Here is a link to a very good article, and a fascinating table showing how different RLS and RUT open can be. Same would apply to SPX and SET. Bottom line for me, will always close these positions out before end of day Thursday from now on.


  2. Thanks for sharing the article and your trading experience. Yeah, holding index options until the last day is a bit of a gamble as you can't control price movement at the opening on Friday. You can only control your risk as you've said, by closing it out early and avoiding any settlement surprises.

    I think this is one of the reasons why the ETF options like IWM, SPY, and DIA have become so popular. Have you ever used IWM instead of RUT? ETF options are easier for most investors to understand. I personally like the concept of cash settled index options better, but I found the bid/ask spread was tighter on the ETFs and they are usually a good enough proxy. It looks like RUT closed at 834.82 and IWM was 83.35 so that's fair.

    It really depends on your use. If you're looking to hedge holdings in the underlying index then using index options makes more sense. If you're purely speculating then I think using ETF options makes more sense as they are usually more liquid and thus you should be giving up less edge in selling an ETF spread than an index spread.

  3. Yes, actually right now I have a March IC in the RUT, and a March calendar spread in IWM, which is sort of being used as a hedge in case RUT/IWM keep trending higher. The big advantage of trading RUT is the commission savings - if you pay $1 per option then trading 4 contracts on the RUT costs about $4, but to do the equivalent on IWM requires 40 contracts or about $40. Once you start doing spreads like my calendar it comes to $80, and then obviously you are paying that much every time you have to adjust the position. Generally I look at SPY and IWM first since they have tight spreads to see what a fair price would be. Then I check the equivalent position on RUT or SPX. In my experience so far I have found that you can often fill at the mid in the RUT for a price very close to the IWM price for a spread, but SPX is often not as good as SPY. The reason I have the 40 contract calendar in IWM is because the RUT price was not as good as the IWM price when I put that position on.


  4. I've never traded RUT so I wasn't aware of the multiple disparity. That certainly is another reason to use the index instead, commissions add up. I had the same experience with SPX and SPY as you did.

  5. Jason...keep up the good work. I still believe that the creation of this blog and the things we have been able to learn from each other have been invaluable. I really do not think we would be where we are today without the creation of this blog and the meetings outside of this blog.

    Hey it might be interesting for you to put together an equity curve as well that shows your cumulative account balance with all gains and losses but before any withdraws. I think this is really what people are going to want to see when you get to the point of raising money.

    Just a thought.