Wednesday, March 30, 2011

West Coast products Dashboard Analytics

Over the last few weeks I have been busy developing a analytical platform to help me visually see what the WC products market is doing. Like I have mentioned in previous posts, there is not much out there fore this OTC (over the counter market). Although I am still in development I do have a working platform that I am using and looking at on a daily basis.

So first lets take a look at the Dashboard Page:

My NYMEX Screen:

My Refinery turn around and outages page:

You will notice on the Dashboard page, this is my one stop shop to see what the market is doing and has done in the most recent past. I have my own proprietary model to give me buy and sell signals on west coast products. The rest of the information is informational and helps me evaluate the overall market. I still have plenty to add to this platform. But this is a good start.

Take a look and ask me any questions you may have. I know that many can not relate to this market as it is not really open to the retail guy. But I just thought I would share anyways because I miss blogging.

Good luck Trading!!!

Tuesday, March 29, 2011

IWM Calendar

First time creating my own post, let's see how this goes. In the video I update a trade I talked about on Friday, and describe the trade I put on today. Let's see if this works.

Option Assignment Fees at Think or Swim

This is yet another first for me where I learn the hard way. I was short 10 SPY weekly Calls last Friday. Based on the way we finished the day I decided to stay short even though they were .30 ITM and take possession with a short position of 1000 shares at 131. Over the weekend I was assigned two separate times for 5 contracts each, which means I paid the $15 assignment fee two times. I never noticed this in the past at Interactive Brokers because they do not charge for assignment. So something to consider for the future, I suppose it's possible I could have got assigned 10 times for one contract each. Wouldn't that be a bitch. Depending on how many contracts your position is, and for this trade in particular, it might pay to just offset your options in the last few minutes of trading and simultaneously short the stock.

Wednesday, March 23, 2011

NG Natural Gas Trade Experience

I wanted to share my NG trade experience in case anyone has or was thinking about trading this instrument. I've been long one contract since 1/28/11 when I was assigned a long position via a short put. It's been a nightmare ever since. When the FEB contract was to expire I decided to roll to MAR because I still liked the chart and I was willing to be patient for an upside move, but I was down -$2300 at that time. It cost me .035 ticks to roll contracts, with a 10,000 multiplier that cost me $350 just to maintain a long position. So not wanting to be down -$2650 I sold a covered call for .035 to make my contract roll even.

The chart below shows the breakeven points for entry in to the MAR contract, the purple line in the middle is where I would breakeven from the -$2300 loss, and the top line is where I'm capped at a 4.30 strike covered call. I've been watching this chart daily for two months and growing uncomfortable with the position as it just isn't going anywhere. As of last week it fluctuated from +1000 to -1000 in a few hours. As long as I can roll the contract again at a fair price I'm not too upset and I'll be patient as really I only need one huge day to reap a large profit, and the reason I entered the trade in the first place was I noticed that when it starts to move, it moves pretty quickly. Well take a look at the second screen shot that shows the prices of the current and next two contracts. They are trading tick for tick with each other which is great, but check out the contango. I would have to give up .076 ticks to maintain a long position, I'm not willing to increase my cost average of this position by $760, not when it only buys me another 30 days until faced with this decision again.

So I took this trade off this morning when it hit my covered call strike at 4.30, but I had to pay .074 of time premium to buy back that short call. I potentially gave up $740 in profits. I won't know until Monday when this expires, but because the cost to roll was so high I wasn't willing to watch this position potentially move against me in the next few days. I've been upside down by as much as -$2,800 on this so I'm glad to exit for a profit and add another learning lesson and trading experience to my resume. This trade will be somewhere around $3,000, but factoring in the -$2,300 loss I took when I rolled contracts it's going to be only $700. That's not such a great return considering the risk and time involved. My lesson learned here is that you can't predict or control future contango so not knowing what it will cost to roll contracts must be acknowledged as a risk before you trade this instrument from the long side.

Sunday, March 20, 2011

VXX post-mortem

This is one of those trades that happened so fast I never did any pre or post-analysis until now. I wasn't sitting around waiting or even anticipating that VIX would spike up. I just happened to be watching on Wednesday when the panic hit. I was already in a position with short 48 strike calls on VXX for APR expiration that I sold for .46. At the time that trade was put on VIX was at 25 and VXX was 35, so this was meant to be an income play but I'd be more than willing to stay short volatility if I inherited a short position up there. Now, because I already happened to be short those calls, when the spike in vol happened I noticed my marked-to-market position on VXX was way upside down, like by more than $-2,000 on just 10 contracts. I thought this couldn't be right since VXX was at 38, I was still $10 OTM!! So I bring up the option chain to confirm what is going on and see what looks like free money.

The IV of VXX had shot up over 100% and the skew was crazy. The IV was going up higher and higher for the farther out strike prices. Normally I'm a proponent of assuming that options are efficiently priced, but take a look at the screen shot I made of theoretical price versus the price trades were going through at. I thought this was insane so I decided to double up on my short position of another 10 call contracts, pucker up and hope the world doesn't go truly insane. I was definitely nervous of what was on the news and why VIX was spiking so hard, but at this price I would be at a cost average of over 50 on VXX, the 49 calls were the farthest available strike price offered for trading, I'll take that risk. I was not assuming or even guessing that the VIX wouldn't or couldn't go higher. I just felt like I was panicking a bit and I wasn't even long stock, so I've been around a while and felt that feeling enough times that I felt comfortable that the logical play was to try and sell some fear, even though I admit I was feeling some myself. T

It turns out I got lucky and things didn't get worse. I was able to close this trade out for 72% of the max profit in just two days. I felt like taking the gains and leaving myself the margin availability to jump on a similar trade again in the next week if it appears. This post isn't to say look at me I make a quick kill, it's to show you what I was seeing in case you come across it yourself. The options market was not pricing in risk efficiently and as a trader that is something we should be taking advantage of. As long as you're not using a position size that can hurt you, your risk here is that VIX goes above 40, VXX above 50, and never comes back down. That's not a logical assumption.

I didn't pull the trigger until I had reason to believe we peaked.

Take a look at the increasing IV of the calls

Theoretical price vs trade price. The purple line is Theoretical Value, the white and red boxes are the prices trades are going through at for the 49 strike calls. The green boxes are my entry and exit points. Notice that I received far more than theo price for selling but only paid a few pennies more than theo price to buy back. This concept in isolation is an example of a good trade, the fact that I got lucky with timing is not what makes the trade good.


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Saturday, March 19, 2011

March 2011 Options Expiration

I look at this month as mixed results. At first glance the bottom line number doesn't look so hot, just $575. That doesn't pay the bills. However, I came in to the month with marked-to-market losses on some futures contracts and was forced to roll those early this cycle, and thus turn those MTM in to realized losses. So considering I started out the month with realized losses of about -$4700, I feel great that I ended up with positive realized gains. I actually had my best month ever selling equity option premium at $3863. This is kind of my bread and butter and what I've been doing for the last two years. Recently I've purposely tried to design my portfolio so that I've got offsetting types of strategies and asset classes, so I color coded my trades to get a better feel of the overall action. Historically I've just sold ITM calls or OTM puts and it's all time decay, it's all the same strategy, there really wasn't anything to track and compare other than total dollars.

But I started trading futures a few moths ago and this changes the risk/reward characteristics of the portfolio so I want to start tracking more than just percentage return or monthly realized dollar gains. I'm glad I did because without doing so I would have compared the $575 this month to the past few months and thought I didn't do so hot. But analyzing things further I learned that I had a break out month in one category. And the losses on futures this month are to be taken in stride considering I have allocated a certain percentage of my portfolio where I'm willing to take on increased leverage and risk that is not restricted to a 4-week options cycle. For instance, I've currently got MTM losses of -$4,000 on bonds and willing to add to that risk by continually rolling contracts, and I'm up $2,000 on nat gas but not looking to take the profit off the table yet. These numbers are much larger than any equity options related action I'm used to, but again they are also different risk/reward profiles and I'm ok with that. I am not in denial or trying to design a way to look past comparatively large futures losses. I would much rather have had no losses there but futures work differently than selling OTM equity options. When selling OTM options you've got time on your side and I can be wrong directionally and still capture 100% of the premium sold. But with futures it's a zero sum game and you have directional risk immediately after the first tick changes.

In trying to diversify, this month I sold some time premium via puts on names I wouldn't mind owning if put to me, I bought some ITM premium on a few names looking for a quick directional move, and searched for some high IV premium to sell OTM calls when the VIX spiked. Overall I'm actually really happy with the activity this month as I feel I'm growing as a trader and learning to allocate my capital more efficiently.

March 2011 Options Expiration Results

Current positions heading in to April Options Expiration

Some of the short puts that expired worthless for March expiration are still showing up for some reason. They are usually gone by Sunday night. I have no positions in KMP, MO, or X

Wednesday, March 16, 2011

My target price for adding risk

1175 on the S&P is only a 12.5% correction from the highs. Given we've had a 100% move from the bottom this seems more than reasonable and probably healthy as it will wash out some weak hands. I'm not predicting this will happen, but it is the target number that I'm tentatively planning on doubling down at. Tentative because I need to see how/why we got there. If it happens in the first five minutes tomorrow because all six reactors are spewing radiation, nope, probably not stepping in front of that. If it happens in a more orderly fashion and over the next few weeks, I'm probably interested. Again, i'm not saying this will happen and you will not see me saying I told you so, I'm saying I'm not willing to play further until/unless it does happen. I'm comfortable with my current positions even though the largest one is getting anal raped.

West Coast products Charting

So the charting capabilities out there are very limited. This is mostly due to the fact that this market is much more emotional and fundementally driven. But when I started trading west coast products I made a concious decision that I would try to blend in some new school with the old school. Since I am so mathmatically and technically driven it was only natural for me to come up with a way to not only chart west coast products in a form that I am use to and prefer. But to also develop a way for determine if it is overbought or oversold. So the first thing I had to do was collect the data, which I have done for LA CARBOB (gasoline). The first thing I wanted to see was a candle stick chart for flat price (see below):

Although the majority of trading on the west coast is done by way of EFP...there is some trading that happens on a fixed price basis. But on this same note...because the market is almost all traded in EFP's I wanted a chart that would allow me to determine if the diffs were overbought or oversold and below is what I came up with:

So far the model that I fit to the data seems to work well. I still have plenty of work to do...but I just thought I would share what I have been working on.

Tuesday, March 15, 2011

Not a time to Panic. Time to buy Silver and Gold as it's in the bargain bin.

So haven't written in a bit as when I go back to read what I've written over the past few months....Nothing has changed. I'm still doing the same things I was doing on the last blog. Acquiring metal stocks and chip stocks.

Gold and silver went on sale at the beginning of the market today. The reason is people were liquidating things they've made money in the cover the things they've lost money in(margin calls) Pick it up while it's on sale. 

So over the past two weeks I've sold off my chip stocks and started moving my hedges out on the metals to take advantage of the next leg up over the next year. I was a little concerned about the metals prices specifically silver and gold until the earthquake last week in Japan as it seems they had run to hard to fast and needed to back off a bit so I kept my hedges in place(via selling short calls against my long leaps).

This worked out perfectly as the metals have sold off over the past month or so just as I predicted all based on looking at the charts and so as mentioned above, as they have bottomed out I took my hedges off and rolled those options out to match the longterm leaps in the form of a huge call spread. This way I'm still protected if they do fall out of bed, but at the same time I see more upside for silver and gold now more so than even two months ago.

Why do I say this. Simple the fed is going to print us into oblivion with QE2, 3, 4, 5 and so on. They don't have a choice after this disaster going on in Japan. Bernake(Fed chief) watches the stock market and the S&P futures like a hawk. He knows that if people feel wealthy they will spend and that sooner or later that will inflate and get us out of the dark hole we're in with regard to debt. I personally don't agree with this "spend to save" mentality but I do know what that means....higher equity prices....short term and much higher inflation and gold/silver prices long term. You can see the invisible hand reach in and buy up futures at 2-3 o'clock anytime the market has gotten soft over the past 5 months. This can't continue to go forever or can it.....with a printing press sure you can.

How high can silver thoughts are based on research all the way back to biblical times in the value of an oz of silver and if you do the math....too complicated to get into at this moment it comes down to 16 oz for 1 oz of gold which ironically is also the historical measure dating back to forever ago. We've been as high as 87 to 1 and this was the ideal time to buy....which I was and was telling anyone that would listen to do the same. As usual no one brings an umbrella when it's sunny outside. FYI...I always carry one in my backpack wherever I go. :)

We've just recently broken the 40 to 1 ratio which hasn't been done in 30 years so the move is on now for silver. One of two things have to happen, gold down to get silver back in it's historical ratio or silver up. Which do you think will happen? My guess is gold goes to 2 to 3k over the next 3 year and that puts silver at 187.5 an oz. Don't believe me? Let's just say it goes to 2000 and silver only gets to ratio of 20 to 1 instead of down to 16. Still gets silver to 100 an oz.

Do yourself a favor and buy 5 calls or more if you can afford them Jan 2013 30 leaps on the SLV for 8.25 ask price as of right now....just looked, lower is better deep in the money calls and forget about them. If I'm wrong you lose 4k or so Jan 2013, if I'm correct you will be a very very happy person. If you like call spreads sell the Jan 2013 50 against that leap and you profit from the spread and the spread will cost you less.

If you do nothing else and do not follow any advice whatsoever that you hear from anyone.....just simply put this one trade on and like I said forget about it. Don't look at till next year. You will profit as the Fed continues it's printing process.

I'm not a gold bug or a silver roach or whatever you want to call em but I started buying gold back at 250 an oz and silver at 8 an oz. I've followed this metals market for 10 years much like our friend and fellow blogger follows the oil market so pay attention and listen and protect yourself.

If you're interested in looking at more than the SLV, look at SLW(best silver stock in the market only buys silver at contracted rates of $4 an oz) Look at GG, cheapest producer of gold and if you want diversity buy the GDXJ(junior miners) and the GDX(big miners).

Due your Own Diligence and Happy Investing(Trading)

Marty Blackmon

New Trade: (RMBS) Short APR 17/26 Strangle

This is my first attempt at doing a video for my trades instead of a long write up with screen shots. Please let me know what you think. I already realized one mistake. My chart has is labeled as selling FEB call/puts but those were MAR expiration option. Thank you. Jason


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Saturday, March 12, 2011

Trading West Coast Products

Pre-Post background
As many of you who follow this blog are probably aware, Jason has been the primary contributor for about the last six months or since I got an opportunity to move into the trading group at the company I work for. Prior to this trading opportunity I was working as a financial analyst and trading options in my personal account. I started trading in 2007 and have come so far from those early days. Although I was learning the markets since I began, I did not start to make huge progress until I met Jason sometime in early 2009. We began the blog in May of 2009 and the learning curve has been exponential since the start of this blog. It really was probably because of this job and the things Jason and I have learned together that afforded me the opportunity to be offered a full time trading job.

The Job
When I was first offered the job I was considered for my technical know how and deep understanding of the ins and outs of options. My first charge was to get a Options and futures trade book going...which was fairly foreign to the company, but what I considered my specialty. As I use technical analysis to plan my options trades. Although I had never traded energy futures the knowledge I had in trading options and technical analysis was transferable, and I adapted nicely. When it comes to options trading I am a net premium seller and I put together my strategy accordingly. My second charge was to develop a Hedge program around our regular business operations.We took several months collaborating before finalizing a program that I know execute on a daily basis through the use of futures and options. My third charge and what will be the meat and potatoes of this blog post was to take over an existing West coast products EFP trade book.

8 Months in 
So I am eight months in to the trading job that I was originally offered back in July of 2010.The hedge program is working as planned and the options and futures trade book for profit had been seeing nice gains and going smoothly. But as the middle east tensions escalating causing implied volatility to double from what it had been running the prior 7 months, management got scared due to a prior history that resulted in sizable losses back in 2008 when they made there first attempt at options trading. Since they did not fully understand what I was doing and up too this point any MTM loss I may have had in the past was very small they were comfortable with my trading even if they didn't fully understand the risks of the aggregate of all the positions I had on. In short basically with an elevated implied volatility environment positions that still had plenty of room to be profitable were showing large or at least larger MTM losses then management had been use to seeing the past 7 months and so they have halted trading in this book until they better understand what I am doing and what my risk is. The big disconnect is their lack of understanding between the difference of MTM vs Intrinsic value. But I am confident that in the coming months that we will get this book going again once management has a better understanding of how and increase in implied volatility can cause a huge MTM loss when the intrinsic value of the position is still in a position of profitability. Let me know if you need further explanation of this. So I tell you this to paint a picture of where I am today. I have yet to talk much about the west coast products EFP trade book. When I first started this was at the end of my priority list as it was the thing I was least familiar with....nonetheless I was learning to trade the west coast physical gas and dsl market  during the past eight months. But since the options and futures book is on hold for now, this is now my primary focus. At first I was bummed because I love to trade options but then the more I thought about the EFP trade book the more I have decided to embrace it and make it my own. As it is just another market and all the trading skills I have acquired up to know are all adaptable. I just have to learn a new market.

West Coast products Trading on EFP
First, the reason I decided to write this post was to shed some light on a market that has very little in the way of information and/or resources out there. This is not a market that you can pick up a book and learn about. It is a market that you get thrown into and you either sink or you learn to swim. About the only information you can find out there is a definition of what an EFP is.

EFP Definition: an EFP (exchange for physical) is a transaction that is negotiated off market where one party buys the physical asset and sells futures and the other party sells the physical asset and buys futures. For more information click the following link

So by trading a EFP you are only exposed to "basis risk" or in other words the spread between the physical (say LA Carbob, which is gasoline) and the futures market. So lets say January RBOB is trading at $3/gal and you see an offer at +15 cts vs January RBOB...If you choose to go long the basis or differential you would buy the physical at $3.15 and sell the January RBOB at $3. So now you make money if the basis increases say goes from +15 to +20 cts vs January RBOB. You just made 5 cts per galllon. Looking at it the other way if it goes down to +10 then you just lost 5 cts per gallon.

This trading world on the West coast is really a small world. From what I have experienced so far everyone knows everyone. It is a highly social market as well. From top traders as well as my boss I have been advised to spend as much time with other traders and anyone in the industry. As the more relationships you develop the more information you will everyone likes to talk there book. I was actually out with one of the legendary west coast traders last night and he said that his philosophy is that a trader can never have too many expenses on his expense account. At first glance this is a highly emotional and information driven market, driven off of mostly fundamentals. The reason this legendary trader made this comment is that it is his belief that the you need to get to learn how all the other traders react to different scenarios in the market and what their trading style is...also because in order to get a complete view of the market you need to gather all the pieces to the puzzle. Now from what I can gather so far traders look at simple historical charts but there is not much value given to a technical approach. This got me thinking if I could get really good at the relationship side of the business and supplement some of my own flare on technical analysis, I just might be able to create a edge different from any other market participant out there in west coast products. I have already began creating different technical tools of my own. As there is no pre-boxed software out there with what I want to look at. I bet if you asked a west coast trader what a candle stick chart was he could not tell you...or at the very least could not say he had ever used one for trading west coast products. So a charting platform is one of my tools in development...I am using excel for all my tools.

So in the meantime I am going to embrace the social aspect of the job to better my understanding of who is doing what and what drives the market. I have lots of resources at my disposal. For this purposes I am allowed to use my companies season tickets to hockey, basketball, football, and baseball events. I have authority to expense lunches and dinners with other traders or industry folks. I can attend industry conventions. We sponsor boxing events every month. And basically anything else I can think of to get people out is at my disposal. Not only will this be instrumental to my development as a west coast products will actually be a lot of fun. I have already started some of this on a small scale and to be honest have had a lot of fun and actually learned a lot in a short amount of time.

Here are some of the things I have already figured out that I need to watch in evaluating the market:

1) Refinery issues and turnarounds
2) Crack Spreads
3) DOE inventory report for PADD 5 (west coast)
4) Imports and exports (Are cargos coming or going)
5) Seasonal changes in products (RVP changes)
6) Market Inversions
7) Is the market in Backwardation or Contango
8) Seasonal tendencies
9) Demand
10) Any arbitrage that may exist

I will be using the above in conjunction with my technical tools I am developing to create my edge in this market. Along with anything I can learn from or about the habits of the other traders in the market.

I plan to have more posts on trading the west coast in the near future...and I may even share some of the tools that I have developed. My plan is to do at least one post a month.

Please comment if you have any questions or anything to add.


Thursday, March 10, 2011

Evolution of an Amateur Trader

Forgive me as I usually keep the posts on this site strictly to write ups of actual trades or something relevant to trading. I try to keep things pertinent as I get discouraged when I see people blog about nothing in particular or put up links to other sites just to act as if they are doing something. So on this post I wanted to self indulge a bit in order to share some stories that I hope resonate with somebody out there who either currently follows or finds this blog sometime down the road. I’ll warn you ahead of time it turned out to be a long post.

This past weekend I found myself looking through some old files on my computer. I was a bit taken back by what I came across. This ended up being an eye opening experience for me. The screen shot below shows the spreadsheet of my first ever foray in to trading with options that wasn't related to writing covered calls. From 2000-2007 I strictly wrote covered calls, which at the time was a third income stream for me so I just looked at everything as a bonus and wasn’t real concerned with what I was doing. I had absolutely no concept of what implied volatility was, thought technical analysis was for morons who would believe anything, and greeks were something out of a history book. For some reason the light finally went off in my head and I started viewing other ways of using options. Why it took so long I'm not quite sure, I think because prior to this time period I had a successful business that kept me busy seven days a week. There just wasn't enough time or interest in pursuing options any further then writing a call once a month and checking in later to see how things turned out.  

Flash forward three years and my oh my how things have changed. I currently would never make a trade without consulting the technicals or implied volatility, and I now incorporate the greeks when viewing my portfolio for risk or constructing new trades. The next revelation of running across this old spreadsheet was how shocking it was to see that the first 39 trades over the course of one year were 100% premium buys, speculating. Looking at my trades for the last year, I haven't bought a damn thing, it's all premium selling. This is something that occurred kind of below the radar for me. There wasn't a day when I made a conscious decision to stop one in favor of the other. But backtracking the situation, I know where the turn came.

During the financial crisis I finally started becoming aware of what implied volatility was and how it worked. I was buying $10 ITM puts on the DOW using DIA and waiting for a $1 move and making 10%. I did this several times for $1000 each and was just in love with the concept. I was usually paying something between .80-.95 extrinsic value, so a $10 ITM put was costing me $10.80 or so. So as the crisis starts to hit the shitter I start noticing that a $10 ITM put cost $13.50 now, and I'm thinking, WTF? This was great as it spurred me to find out what was going on and it obviously opened up a whole new chapter for me with trading options. So my point or question to you is, do you ever analyze your past and compare it to your present? Have you abandoned profitable strategies or trade concepts in favor of something else and just never made your way back to something that makes sense for you to be doing? Have you ever come across something trading options that you don’t understand and haven’t bothered to find the answers?

Another thing I noticed about my evolution as a trader is that I no longer run and hide or stop trading for a while when I take a loss. Take a look at the second to last trade from the bottom that is highlighted in red, I had never lost anything more than $600 before, so losing $2000 in literally one trading day scared the crap out of me. I thought, what if this happens again!! So judging by the dates on the sheet it looks like it took me two months to venture back out and make another trade. This is something that currently would never happen. A loss is a loss, and usually I know ahead of time what my worst case scenario is because I like to structure my trades with at least an attempt at a known maximum loss. So when this occurs it isn't anything for me to be worried about. My point on this story is evolving and implementing a designed exit on all my trades has helped me tremendously. If you’re not using predesigned exit points then contact us and we’ll show you an example of how we structure trades. Or just take a look at any recent trade post as that should be a good example.

The last thing I want to point out is really just kind of a personal story. That first trade highlighted in red on the top left, when I closed that out for a win and kind of solidified that I understood the concept of buying ITM calls, that was another pivotal moment in life. It was like the day the light went off in my head when I understood the concept of writing a covered call. Since I had six or seven years experience with that and had brought in a lot of extra revenue, this started my train of thinking that with this new tool in my arsenal and the desire to learn more strategies, I could probably derive enough monthly income to pay the bulk of my bills for an indefinite period of time.

So the next three trades on the spreadsheet highlighted in blue, when I closed those out for gains it solidified for me that I was ready to leave my employer and head back to school full time to get an MBA and buy myself some time. I closed those out at the end of January, gave two weeks notice at work and have been on my own since mid February 2008. I figured I had 18-24 months to figure out the next phase of my post self-employed life, but I wouldn't have been able to do it without options, they have literally changed my life. Life is one long strange road and as it turns out, during those 24 months I got better at trading, fell in love with it actually. And after a brief attempt to find a formal job in the options/futures industry that wasn't a fruitful experience, I decided to just go it alone. I have enough capital and track record that the risk/reward of taking a shot at this makes sense for me.

I actually did my taxes yesterday and in 2010 I made $52,700 trading. Not bad for somebody who considered himself to be supplementing my expenses with trading until I could figure out what I'm going to do with my life. I think I just figured it out. I’m just over $100,000 since the first trade you see on this spreadsheet. That is not only good enough for me to justify continuing down this path and forgoing looking/begging/groveling for someone to hire me, but it’s also extremely self-empowering and rewarding. I was nervous about leaving a formal job with a pension and I knew I wasn’t going to be able to make enough trading to equal what I made there, but I was willing to take the risk. I think failing to find a job in the options industry was another pivotal moment, I said screw it and decided to hire myself. I recently set up my account to automatically withdraw a paycheck every month and I have all the confidence in the world now that over the long run I can take out the amount I need every month without dwindling down my capital.

So if anybody has read this far I apologize for such a long rant but I also thank you. If you know anybody who might benefit from this story or talking with us then please forward it along. The last few days have been amazing for me. I reached a psychological state that is very healthy for me. A blind leap of faith three years ago and strong desire to be happy and follow my dreams in life has paid off. If there is anybody reading who has a similar story, please drop us a line. If there is anybody who wants to follow a similar path, please get in touch with us.

Before I end this I want to say a public thank you to two people who play a large role in my evolution as a trader. The first is my friend and fellow blogger on this site Dominic. What seemed like a chance meeting with him a few years back turned out to be the quantum leap for me as a trader. Before that time I only knew one person who invested with options and he was and still is today just a covered call guy. So when I was venturing out and wanted to expand my universe of implied volatility, all the basic option strategies, the greeks, etc., I didn't have anybody to turn to. No mentor, no peer group, it was a really lonely and frustrating place. It turned out that Dominic and I were interested in similar styles of trading and at a similar place as far as current knowledge and goals for the future. Over the last few years we’ve been able to help each other immensely with furthering out trading knowledge and experiences.

The second person I need to acknowledge is Dan Passarelli of Market Taker Mentoring. Dan runs his own business as an Options Mentor and I personally studied with him for a few months that turned out to be another huge evolutionary step for me. It turns out that I was further along the path then I realized, Dan helped tie up some lose ends for me and aggregate a lot of fringe ideas I had but wasn't previously able to bring them all together on my own. I only wish I had hired a mentor sooner because I was ready for that step a good year before I did it. The end result for this step for me was leaving with much higher self confidence and the empowerment to trade with larger size. That's a game changer if you're trying to make the leap from $20,000 a year to something more resembling a true income. If anything about this story sounds familiar to you and you think you would benefit from a mentor, Dan can be reached at the link provided and please tell him I sent you. If you have any questions about my experience my email address is at the bottom of this post. Dan's Website is

This brings me to the last thing I want to share, if there is anybody who follows our blog who might find themselves in a similar situation where you're looking to advance your trading knowledge, find a friend, mentor, or just somebody to bounce trading ideas off of, then by all means please contact us. We're actually looking to expand the blog with new writers and find greater synergies amongst each other. Please see the "About our Blog" tab and let us know if you're interested in joining us.


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(ZB) Adding to short position in 30-yr Treasuries

I was actually hoping the 30-yr bond auction today would be a dud and I could exit my short positions in the futures and the OTM calls. But it looks like the Middle East has put a temporary bid under bonds. Long-term I still think there are many headwinds for bonds to move higher, so as sickening as it feels sometimes to short against a spiking chart I did it anyway. I shorted at 120'16 and also sold a MAR3 weekly 121 call for 0'31. We're right at long-term resistance at 120'26, if we break that I'm going to have to take a wait and see attitude on adding any additional short exposure. I've got my buy to cover at the recent support near 118'16.

Also, something isn't quite right with today's action. Why was oil down? Perhaps that signals the move in bonds has less to do with the Middle East and more to do with the overall equities sell off. Whatever the reasons, I am comfortable with short exposure even if it moves against me in a big way as in time the bond situation will be resolved.


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(RMBS) Update on 18/25 short strangle

I wanted to update this trade in case anybody was following. Here is the link to the initial trade. I actually intended on updating last night 3/9 but got busy and pushed it off. So the screen shot of the chart below is yesterday's close on 3/9, which was the reason for the update because as you can see we closed right on support. However, today we broke support and I don't see a really well defined next support zone. With six trading days left I might be looking to close this leg out for a scratch trade and just let the 25 strike calls expire worthless and make the profit on the trade there. I sold the puts for .28 and the mark today is just below that. Each night I analyze my positions and ask myself if I would still put this trade on today, because if not, you should close the trade. Today's close is the first time I would say I wouldn't be interested in selling short the 18 strike puts. At the time of initiation I liked the idea. But because we've now broken a long-term support zone and the markets in general are in a much different environment then on 2/18 when I put the trade on, I'm thinking pulling this off the table for a break even on the puts but capturing 100% of the short calls is the best move. If anybody else is trading this let me know what you're thinking here.


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Wednesday, March 9, 2011

ES trade

I just placed a OCO order in on the ES. I'm playing for a bounce off support to fill the gap. I bought at 1302, limit exit at 1314, stop loss at 1299.50. Risk/reward is 12:2.5 or 4.8:1


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Tuesday, March 1, 2011

I'm probably guilty of over trading this position (MO)

Last Friday 2/25 I put on a designed low risk income trade and didn't bother to post about it. But now I want to share my experience since then and how I'm probably guilty of over-trading this position. So for the sake of context, I'll explain the original trade idea first and then show you what's happened since then. The idea was to take advantage of a relative high IV in (MO) combined with a bullish chart to sell some OTM puts for a March expiration income play. So here is what I was seeing:

  • Bullish trending channel
  • Past support at $24
  • High IV (high for MO, not high in general)

So I sold (30) MAR 24 puts for .17 on 2/25, intending to hold until expiration and pick up $487 after commissions. But at the end of trading on Monday 2/28 I could buy those puts back for .08. Normally I would strongly consider taking this play off simply based on the percentages. Any time you can lock in 50% of the maximum possible gain in one trading day, I do it. Why take another three weeks of risk to possibly pick up another 50%. Very simply, the risk/reward for me favored exiting the trade. And my real thought process was to not only lock in those gains, but I have three weeks left for another entry point on the same trade if we do get a pull back. Now let me show you what I was seeing on the chart that led me to exit the trade:

  • Closing at possible resistance
  • RSI of 85, probably overbought on the short-term (last time we hit that level MO sold off pretty good)
  • Broke out of its bullish channel, probably confirming overbought short-term.
  • And here is a non-quantitative measure for you. This is one of those days where if I was long, I would love to unload here because my gut just tells me there will be a better entry, maybe even tomorrow.

So when I'm seeing the above indicators and I'm already inclined to take the 50% in one trading day, I just did it and didn't think any further. Now here is where I get in to trouble. First of all I was more than willing to own at $24. This wasn't a gamble on my part hoping that I don't have to take possession. It was meant to be an income trade and if I got in at that price I'm happy to own and write covered calls on it. So I've already taken down a trade for one reason that really isn't correlated to the initial trade idea. Here is my second offense, I didn't even model out the trade and estimate what price I needed (MO) to pull back to in order to find that next entry point were selling puts would be attractive to me. Case in point, see the screen shot below. The stock does pull back today by 1%, even closes on the lows, and the bid/ask is .11 by .13. Even if I successfully split the middle and get .12, big deal. I pay .75 cent per contract so I need .015 cents net just to break even. Does selling in to this pullback and getting .12 when I got out at .08 make it worth while? hardly. Wow, strong move, you just netted $25 genius. It's wasn't worth the time, effort, or commissions. Now while I may get a chance to sell these again this week at a more attractive price that does justify the trade, or use this capital for another trade, the point is I was reacting without thinking all the way through and that's just bad trade management in my opinion. I feel a little silly and calling myself out on it publicly will hopefully be a reminder to me next time I face a similar situation.

The Bloggers of In The Money Trades always welcome and encourage blog participation, suggestions, or constructive criticism. Please feel free to comment on this post below or contact me privately. Let's all help each other keep our trades "In The Money"

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