Close: SPY Short IC Dec5 Qtrly

Ah, my experiment with quarterlies and selling ICs has concluded. I sold 1 IC for a .45 credit and a last week I bought back the short Call for .05 and today I bought back the vertical Puts for .35.

So, after commissions I broken even on this one. I’m ok with breaking even with a small experiment. I wanted take advantage of a year end rally which never occured, and practice selling ICs and play with the Qrtly options.

What did I learn:

• Quarterlies are nice.  It gives 4 extra expiration days each year;  they seem liquid enough.
• I definitely need to give more time when selling the ICs, but to be fair I knew going in 3 weeks was too short.  5-6 weeks seems more reasonable.  It gives better credits and more time to adjust.
• Don’t skew the trade in one direction or another more than about 0.5% .  I skewed this trade bullish thinking we would get a rally but we didn’t.  We got a pull back instead.  That gave me no cushion on the downside.   I positioned the Put vert just above support instead of below support and I skewed the Call vert to far above resistance.
• I think accounting for at least a 4.5% move in either direction seems smart as long as the vol isn’t whipsawing everyone.   With IV so high right now I think shooting for 5% or more is possible.
• the better trade would have been 86/85 Puts  93/94 Calls.   I put the trade on when the SPY was around 89.  That would have been a range of +/- 4.5% for the SPY to move.   I could have gotten a better credit and I wouldn’t have had to defend the position.  Likely I could have let it all expire worthless and kept the whole credit or maybe bought back the shorts if they got to .05 cents.
• If I had more time I could have bought back my short call and maybe sold a lower Call spread or rolled it out to the next month.

I need to continue to refine my IC trading skills but this was a good start.  I’m looking at putting on a Feb short IC  after the first of the year.  I want to wait since right now I can’t get a feel for market sentiment.

Original Trade:

The Trade: Credit .45 / Risk .55

• +1 Dec 87 Put
• -1 Dec 88 Put
• -1 Dec 95 Call
• +1 Dec 96 Call

Update: 12/23 SPY moved enough that I was able to buy back my short 95 call for .05.

Santa Rally?

This has been anything but a typical year for the markets so why I, and lot’s of other poeple, would think we would get the typical year end Santa rally I’m not sure.   I have a SPY IC on that I’m playing with (1 contract  for the Dec Qtrlys) thinking we’re range bound @ 88 – 92.  The IC is skewed to the upside to account for a rally but thus far I’m going to be lucky to keep it above the short 88 put strike.

My short 95 call is almost worth zilch now so I’m trying to close it for .o5 or better.  If that happens I’ll try to sell a 92/93 or maybe a 91/92  call spread to help make a little more coin.   Or I could just leave it alone since time is short.  Plus I’ll have the long 96 call left over as a lottery ticket.  Like I said this is an experiment for the most part.   You can read the trade post for the the details of the trade if you want more info.  It’s below.

As for the rest of the year, I’m not putting on any new trades.  Volume is low, uncertainty is high, economic news stinks and people are downright skittish.  Not a market I want to trade right now.

Jan 09 can’t come soon enough for me.

Merry Christmas everyone.

2008 Goals (Updated with results)

Note: I copied these goals from a document I started in January 07

Here are my 2008 goals.

It’s now the end of the year so I have updated each one with how I did.

1. Begin a weekly exercise routine.  We have a free workout gym at work with locker rooms and showers and it’s open weekdays 7am-7pm.  We also have a similar workout room at the clubhouse in our neighborhood where my family and I reside.  It’s open 24/7 so it’s a good alternative when I can’t use the gym at work.  It’s technically not free since it’s part of our $600/year HOA recreation dues.

Measure of Success: Workout consistently all year at least 3 days/ week for 30 minutes or more.  Can be weight training or aerobics or a combination.  Doesn’t have to be in the gyms to count.  Can be something like jogging, swimming, walking, basketball with friends, etc.

Results: A++ I couldn’t have imagined how successful I would become with this goal.  I have gone far beyond my original goals for this one.   I started out doing 2-3 days a week for about 20-30 minutes.  I did some weight training and used the elliptical machine.  I hooked up with a coworker to help keep me motivated.  We now workout 5 days a week for between 1 – 1 1/2 hours.   I can run on the treadmill for 5 miles in 60 minutes, do over 200 push ups, 200 sit-ups, 10 miles on the elliptical in 60 minutes,  and various other calisthenics.  I can play a hard game of basketball with friends for over an hour without problem.  I haven’t been in this good shape since college.   I actually have noticeable muscle tone in my arms, legs, and chest.  I’m thrilled!

2. Lose 10% of my body weight.  I am way to heavy.  At the start of 2008 I weigh about 260 lbs @ 6’1″ tall.   By all medical accounts I am considered obese.  My BMI is 39.  Normal male BMI is 20 or less.   I feel if I don’t get a handle on it I will begin to develop health problems like high BP, high cholesterol, heart disease, etc.  Also, @37 yo.  my metabolism is conspiring against me making it harder each year to drop pounds.

Measure of Success: Lose at least 26 pounds, drop my BMI down under 33 and change my eating habits to healthy ones and make them a way of life – not just a short term diet.

Results:  A+ Combined with my exercise regimen and my dieting I have lost 40 pounds of fat and put on about 5 pounds of muscle.   I couldn’t be happier.   I now weigh in at 230 lbs with a BMI of 30.   I still have more work to do but I what I have accomplished thus far is huge.   I went from wearing 42 inch pants to 38 and I am getting close to needing 36s.   My suit fits again aas do many shirts and pants I had given up on wearing.   My waist (measure across hips and belly button) was a 51 is now a 44.  I need to get that number under 40 but I’m more than half way there.

3. Remodel our kitchen.  It’s stuck in the late 80’s and when we bought the house in 2007, the agreement with Sherri was it would be remodeled ASAP.

Measure of Success: It’s remodeled with all new cabinets, counters, flooring and lighting.

Results: B- This one has taken a lot longer than I anticipated.   The planning took 6 months, and then I had to find cabinets and we had to agree on decor and lights and everything.   We eventually got everything pulled together in the summer.  The cabinets arrived in August.  In Sept Sherri was trying to finish her master degree and graduate which took 125% of her time.  That meant I had to take over a lot of her duties with the kids along with other things leaving me with no extra time.  I finally got started officially gutting the kitchen and getting thing installed in November and I’m still working on the project.

4. Increase my trading account by $5K.  Doesn’t matter if I do it by trading gains or if I add to it from outside funds such as consulting or bonuses, etc.

Measure of Success: My account has $5K more in it that it does at the begining of 2007

Results: F This was one heck of a trading year.  I basically was lucky to break even and was no where close to increasing my account size.  I learned a ton this year, the year of the worst bear market since 1929.

5. Have more family fun days.  This means I and the kids and Sherri spend the day doing things together.  Can be anything.  Bowling, movies, going to the park,  etc.  Should do it at least once a month.

Measure of success: Make it happen at least once a month on average

Results: B We did a lot more together this year.  Went bowling a few times, hung out at the parks a lot, saw some movies, went to the GA. Aquarium and the Little Kids Fun Zone, among other things.  The only reason I couldn’t give an A on this one is we didn’t achieve doing a family fun day each month.  I think got 6 of them total.   But we do do a lot more Daddy days with just me and the twins so that made up for some of the missed FFDs.

6. Master at least one additional options strategy.

Measure of Success: I learn and practice a new strategy such that I can make money 65% of the time and ROI is at least 25%.  When I lose it’s close to the break even point.  Must also develop a written trading strategy for it.

Results: C+ I have been working on mastering Bull and Bear Vertical spreads.  I have gotten a lot better at these but I’m still not there yet.  I understand the mechanics pretty well but I’m not executing them consistently well.  I picked these because they are the bread and butter of most trading strategies.    I have more work to do in this area.  I didn’t make a good written trading plan and I was spotty at practicing it.   I’m going to keep working on it in 2009.

7. Be more involved in charity work.  This can be anything from donating my time, donating money, donating a skill, etc.

Measure of Success: Just do it.  Work with a church group, habitat for humanity, a food bank, etc.

Results: C-   I helped out at one Habitat for Humanity build on the HOTTEST day in of the year here in GA.  101 degrees with 70% humanity.  That was a tough one.  I donated some money to a handful groups (not a lot of $$ mind you) like children’s groups and such.  I also gave blood once (this is big because I HATE giving blood – it makes me feel crappy the rest of the day and I feel horrible during the process.)  Only reason I’m not giving myself a “D” on this one is that day I worked with HFH and almost died from heat stroke so I figure that’s enough to push me into a C-.

Close: MSFT Dec 08 BLPS

Ugg.  I wound up with an unusual loss with one of my bread and butter trades.   I tried all expiration week to close the trade for a profit but the market just didn’t cooperate.

With my bread and butter income trades I like to keep the risk no more than $500 per position and an ROI of at least 25%.   My BBT are things like MSFT, WMT, IWM, SPY and usually emply BLPS strategy but sometimes I will use a BLCS.  As my account grows I extend the amount of risk I can take.

This trade was one I rolled over from a MSFT Nov 19/20 BLPS I had put on.  My intent was to roll 1 contract to Dec and add another 4 or 5 contracts later when the pricing stabilized.   Unfortunately the price remained volatile  and I never added to the position.  But the good news is the position stayed very small @ 1 contract keeping my losses very small (.10 cents to be exact).   Capital presevation is my #1 trading priority so I feel ok about this trade overall.

The trade was:  credit 0.28

Buy open:  1 Dec 08 $19 puts

Sell open: 1 Dec 08 $20 puts

Closed the positon for debit 0.38

ROI: Loss (0.10) =  $10 + $13 commisions = ($23.00)

Open: MSFT BLCS Jan 09

Note:  I entered this trade last week on Wed.

MSFT is a bread and butter trading stock for me.  It’s very consistant in it’s movements and is very range bound ($19 – $25)  I like to use it for low risk income generation.

Usually I like to keep it simple using a $1 wide BLPS such as selling the $19/20.  I’m switching it up a bit this go round.  I’m looking to capture a little higher ROI (normally around 25%) of about  37%.  That’s 12% more than my usual return but I’m also trying an experiment.

One of the issues with $1 wide spreads is my BEP (break even point) is close to my front short strike.  It doesn’t take much stock movement down to start losing money.

Lately, with the market whipsawing on a daily basis, my bread and butter spread is getting slung around too much – frequently breaking through my BEP.   MSFT will dip down to $17, run back to $20 and back down to $19 all in a few days.  That’s a lot of vol for MSFT.   So I’m going to try an experiment by widening the strikes to $5.  That will move my BEP lower and give me more options to adjust.  I know my max risk is higher @ $15 but the chance it will fall that far is slim.  There is strong support @ $18.30.

I can adjust this spread if it falls past 18.30 by selling a small $1 wide put spread. If the stock gets hammered too much I can just buy back my short strike and sell another lower strike.  Or I can do what I normally do which is nothing.

The stock has to fall all the way to $15 to reach my max loss which is very unlikely.   My BEP is 18.65

The Trade: $3.65 debit

Buy to Open:  1 Jan 09  $15 call

Sell to Open: -1 Jan 09 $20 call

Open: CLF BLCS Apr 09

This trade is an idea I got from thestreet.com’s resident Options expert.   It’s another experiment for me so I’m keeping the position small. (I opened this trade yesterday)

The thesis is the CLF is down some 70% from it’s highs this summer.  The hedge funds have been destroying all things commodity.  Now the selling seems to be done since the stock has popped almost 100% in the last month.  Did I miss the rally?  Not sure exactly but that’s the reason for the spread.  I just need the stock to stay above 21.5 to make money.

Stock is currently @26.10 and yes I realize my spread is in the money.   The original thesis on TCM was to buy the Apr 09 25/15 call spread.  That spread was going to cost me around $5.80 / contract.   That would put my break even @ $21 and max profit @ 25.  Profit percentage would be %66.   Not bad but I’m trying to keep my positions small and  $5.80/contract is close to my upper limit on a single options trade.  Plus I’m concerned about the stock retracing after it’s big run up.

The IV on the 25/15 is about 143/119%.  This makes my long side expensive.  The vega is -2.35.  Delta 20.  Cost $5.80 Max profit 66%  Brk even 20.80

The IV on the 22.5/20 is %127/122 making the long cheaper.  The vega drops to -.56.  Delta is 5.  Cost $1.35  Max profit 85%.  Brk even 21.35

Given all that I decided to go with the ITM  22.5/20 spread.   This is new for me since I usually don’t buy ITM spreads because of the risk of assignment.  However, this far out from expiration and the fact that calls are much less likely to be exercised early than puts, I’m going to give it a whirl.

The Trade:  $1.35 debit

Buy to Open: Apr 09 20 calls

Sell to Open: Apr 09  22.5 calls

Open: Selling SPY Iron Condor (Dec 08 Qtrly)

I’ve played around with the quarterly index options some in the past but I still don’t feel like I have a good handle on the pros and cons of using them.

I’m poking at them again with a 1 contract IC.   I have about 2 weeks before expiration which is a lot shorter time frame than I normally like when putting on an IC.  My original idea was to put on a Straddle but the IV is a little too low for my taste and I couldn’t make the numbers work.

So I decided to get some more exposure to quarterlies and practice my IC trading.

My thesis is simple:  The SPY is having a lot of trouble breaking  and holding above 90.  It’s had a couple of days between 90 and 91 but it’s weak.  It has good support @ 87.  We should have a small end of year Santa rally but it shouldn’t run much given all the bad news out there.  I think SPY is range bound 87.25 – 91.20.

Having said that I made the Call wider to give me some margin in case we get more of a Santa rally than I expect.

My max risk on this trade is .55 cents so I’m not going to break anything if things go south on me.

The Trade: Credit .45 / Risk .55

• +1 Dec 87 Put
• -1 Dec 88 Put
• -1 Dec 95 Call
• +1 Dec 96 Call

Update: 9/23 SPY moved enough that I was able to buy back my short 95 call for .05.

Sherri Graduates

The lovely and gracious Sherri has been working on her Library and Information Science masters degree for the last 3 years.   36 credit hours and lots of hard work later she has her degree complete.  Graduation was this last weekend and she is so excited to be finished.

Her degree is from University of South Carolina, College of Information Sciences.  She achieved a 3.8 gpa while being a full time mother to our 5 year old twins (2 years old when she started it all.)

We are all very proud.

So now I need to decide if I want to pursue my own masters degree.  Something to ponder over the next year.

Hello world!

Welcome to my public trading blog.  Poke around and see what this thing is all about.  I’m going to try and keep the site up as best as I can and I hope it will be useful to someone out there.  The primary purpose is to give me an easy place to keep a diary of my trading such that it can help me improve my trading.  By making it public I can give others a chance to comment and give me ideas and in the end it all serves to keep me honest.  It’s all in black and white and raw so it’s difficult to forget the bad trades in favor of the good ones.