What is this you ask. There are thousands of trading sites and blogs and general people espousing their trading opinions. So why am I adding yet another trading blog to the interweb? Well, it’s simple. I want to keep myself honest about my trading and give myself a historical record of my trading experiences.
So if I’m doing this to give myself a record and keep myself honest in my trades, why not just keep a diary? Well, this is a of diary of sorts but because it’s public for anyone to read it forces me to keep it going and to allow comments from anyone wishing to give them.
How it all started
I have been trading stocks off and on since 1998. I’ve always felt I was a mediocre trader just barely beating the S&P 500. In 2004 I decided to change that. I began to read all kinds of trading books, watch CNBC and generally immerse myself in the art of trading stocks. Over time I improved my stock picking skills somewhat but I really wasn’t excelling at trading. I was beating the S&P 500 by 4 or 5 points a year, which was my benchmark, but I felt like I could be a lot better.
In the late 90’s I discovered the world of options. I saw options as a way of boosting my overall performance. My first experience with options was when I bought a few OTM calls of WDC and CSCO. Within a month I had a pile of worthless calls.
Yeah, that’s right. I had no idea what I was doing. In the beginning I thought “hey, I can put down a few dollars and control hundreds of shares of stock and when the stock goes up I make out like a bandit. This is sweet.” In the case of WDC, the stock fell a few points and the calls became worthless. CSCO actually went up a few points but Theta conspired against me ultimately making the CSCO calls worthless also. After that experience I decided options were too high risk and were only for the pros and I stayed in the equities arena from then on.
Options rediscovered
Sometime around 2006 a friend of mine told me he traded options in his IRA all the time. I was flabbergasted. I couldn’t believe he would take such high risks with his retirement account. When I told him my concerns he laughed and said he wasn’t taking any more risk than someone holding a handful of index ETFs. In fact that’s all the equities he held in his account. I was confused. None of that made any sense. He told me is a covered call writer. Huh? What the heck is that? He said it’s would be easier if I just read a book called “The Short Book on Options: A Conservative Strategy for the Buy and Hold Investor” by Mark Wolfinger.
I hopped on Amazon and ordered the book. The title didn’t wasn’t an exaggeration. The whole book was all of 90 pages front to back. It opened my eyes to how options work to my advantage and how I could make money using options. I started writing covered calls not too lang after I finished reading it.
I was a happy camper writing covered calls and thinking I knew it all. One day I was reading TheStreet.com which is still a fav of mine and I stumbled on an article about vertical spreads. After reading that article I realized once again there was a whole other world out there I had no clue about.
I began to read as many books as I could find on trading options. I was hooked. I began to see with careful thought I could craft varieties of different trades that could take advantage of ANY market condition. Bull markets, bear markets, sideways and volatile markets no longer mattered. I knew it was possible to trade them all given the right knowledge. I still needed lots of practice and patience to learn how.
Two years later I am still learning; still experimenting. The good thing is I’m a lot better at it. I even managed not to blow up my trading account in 2008 during the worst bear market since 1929. I did lose money but not too much. The S&P was down about 40% from it’s 2007 highs and I was no where near that amount. I was actually up the first half of the year but got caught in the massive hedge fund sell off during July-October. The sell off was so violent that my stop losses were rendered useless as they were blown right through during gap downs and I found myself just trying to hang on. I recovered eventually by getting a lot smaller in my trading sizes and I just waiting things out until I could figure out the market’s direction.
Where to next
I’m not writing as many covered calls since I like other strategies better. I sell some calls in my IRA but in my discretionary account I prefer vertical spreads, calendars, iron condors and straddles. Over time I’m sure I will discover new ideas and will morph my trading strategies accordingly. I hope this blog will give me a vehicle to express my ideas and to show, over time, my trading evolution.
Come along with me and enjoy the ride. Give me your ideas if you care to share them. Tell me when you think I’m full of it. I can take it. Just be tactful and professional. After all, even the best traders can be humbled by Mr. Market at any time.
Sean's Trading Journal 