Analysis for week ending 07 22 2011

Ok, here are my results from last week.  Sorry for the delay, I had puking kids this weekend.

Last week I put up my basic criteria for trades.  In case you missed it here it is again:

1.      The short option strike price will be at least 1 Standard deviation from the underlying price of the index.

2.      The spread size usually is $10.

3.      The premium per contract is $0.40 minimum.

4.      If the index is rising I will look to the put side, and conversely if the index is falling I will look to the call side for the spread to enter.

5.      I will look at all the indices even if I find one spread that meets the above criteria.

Each trade below follows these criteria.

NDX     2425 Call     $1.83 Cr

NDX     2450 Call     $0.78 Dr     This gives a $1.05 Net Credit for a 7.00% ROI

SPX     1300 Put     $1.68 Cr

SPX     1290 Put     $1.13 Dr     This gives a $0.55 Net Credit for a 5.50% ROI

SPX     1315 Put     $0.84 Cr

SPX     1305 Put     $0.49 Dr     This gives a $0.35 Net Credit for a 3.50% ROI

I realize the last spread does not get to 4.00% ROI, but following all my other guidelines this was the best I could get.  Also the total committed capital gives me a 5.33% ROI so overall I am good.

I entered these trades last Wednesday after watching the market and charts.  The trend in the NDX  was declining while the SPX was slowly increasing.  Using my contrarian view I entered the trades you see above. 

QUESTIONS:

I have had a few questions left for me and I am seeing a pattern so here are some of those questions:

1.       What trading platform do I use?  I use Optionshouse.  But any online broker will do.  I use Optionshouse because the commissions are dirt cheap.  If you like lots of tools or bunches of analytics Optionshouse is not for you (as you can probably tell buy now I do not get any endorsement $$ for mentioning my broker!!!)  Their toolkit is limited to say the least.  I like to do my own research and have other tools I can use.  If you like tools then Think or Swim is the place for you.  They have the biggest and to me the best tools.  If you are a TD Ameritrade person … they are working on bridging the TOS platform to the TD platform so be patient.

2.      Do you buy back your options before expiration?  Not if I can help it.  My goal is to let all my spreads expire worthless.  Weeklies don’t often give the big movements to have the luxury of buying back the options before expiration.

3.      Why do you use weekly options?  I use weekly options because I can generate returns of 3-8% per week, making my trading capital work for me.  Also I have fallen into a comfortable methodology of trading.  This is key.  I know other strategies and from time to time use them.  But I make my bread and butter trading weekly vertical spreads.  I know my analysis well, I have a good feel for how the weeklies operate and I am getting better at using the greeks on the weeklies.  KNOW your strategy well and use it often and you will be on your way to successful trading.

4.      How did you learn about weekly options?  I learned of them in an Investtools seminar.  Yes, I paid the outrageous amount for their master’s program.  It is a good program and I learned tons on fundamental and technical analysis.  Plus I learned a lot on the TOS platform.  Good education program, but I think a bit overpriced.  During a seminar the leader of the seminar said he was starting to use them and during each of the breaks I prodded him with questions.  He even had to pawn me off on other presenters I was monopolizing his time.  I started researching them after that and the rest as they say is history.

Well that is it for now.  Any questions leave below or email at hashleycm@yahoo.com

TTFN

Ash

Analysis of Week Ending 07 15 2011 Trades

Ok here is the analysis from last week.

I normally trade only the NDX (Nasdaq 100), RUT (Russell 2000), SPX (S&P 500) indices.  These are traded through the CBOE (Chicago Board of Options Exchange).  If I cannot find any spreads that fit my criteria then I will look at other weeklies.  The CBOE maintains a list of available weeklies. Here is the link: Available Weeklys.  Our goal is to have the spreads we enter being worthless at expiration so we can keep the full premium.

The first day of the week I start looking at the indices to see if there are any trades that fit my criteria.  Here is that criteria:

1.      The short option strike price will be at least 1 Standard deviation from the underlying price of the index.

2.      The spread size usually is $10.

3.      The premium per contract is $0.40 minimum.

4.      If the index is rising I will look to the put side, and conversely if the index is falling I will look to the call side for the spread to enter.

5.      I will look at all the indices even if I find one spread that meets the above criteria.

After going through these criteria I found the NDX had the best opportunity.  The other indices were really not giving anything for premium.  So Wednesday morning I put on the following spreads:

NDX    2400      $3.00 Cr

NDX    2410      $1.90 Dr     This gives a $1.10 Net Credit

This gives $110 per contract with a contract size of $10.  The NDX 2400 is more than 1 Std Deviation from the underlying strike price as NDX started Monday at 2392 and went down from there.

I also put on the following spread (this is a call spread):

NDX     2415     $1.72  Cr

NDX     2425     $1.17 Dr     This gives a $0.55 Net Credit

The returns for these spreads are pretty impressive!  11% and 5.5% respectively.  A high margin of safety with the underlying price starting at 1 SD (Std Deviation) from the strike price and growing.  As the week progressed NDX never got back to the Monday opening price.  Just what we like to see.

Friday morning NDX starting running up so I decided to look and see if I could put on a put spread to increase my earnings.  Now when doing this I only looked at the NDX for the put side.  A couple of reasons for this:

1.      I can make the spread margin requirement free up to the amount of current NDX  spreads I have on at the moment.

2.      I have already put a lot of work on the NDX to enter the call side, I can use this info to see if the put side is a good trade.

Ok, the trend is starting to go up, I look for a trade at least 1 SD away from the 2320 mark.  I find one ate the 2280-2295 mark.  The spread size is a little larger than what I like to usually do, but at the late hour with time decay working I had to increase the spread size to be able to make any money on the trade.  Here is the put spread I found:

NDX     2295   $1.23  Cr

NDX     2280   $0.93  Dr     This gave me a Net Credit of $0.30

Now this trade fell below my 4.00% ideal (2.0%), but with the trend in my favor and not having to commit any margin, this trade becomes worthwhile.  I am not committing any more resources but still getting return.

Friday ended up with all positions winning.  All spreads ended up worthless at expiration.  We used our trading rules and stuck with them, and we ended up making good money this week.  Starting Monday we will replay this all over again looking for the next good trade. 

Any questions leave them as comments below or email to hashleycm@yahoo.com

TTFN

Ash

Results for the Week Ending July 15, 2011

Ok, here are the results for the week ending July 15, 2011:

We went all to the NDX Index this week. 

Credit Spreads

None

Iron Condors

NDX     2295-2280 Put

              2400-2410 Call     9.07%

NDX      2295-2280 Put

              2415-2425 Call     5.40%

Weekly Results:

Weekly ROI =      7.23%

Target ROI =       3.50%

Monthly ROI =    16.93%

Working on the analysis part and will have this up by the end of the weekend.  Any detailed questions can be sent to hashleycm@yahoo.com or leave as a comment on this blog and I will reply.

TTFN

Ash

Results for Week Ending July 8, 2011

Ok, here are the results for the just completed week ending July 8, 2011:

Spreads

SPX    1335-1340 Put       .6%
NDX   2350-2325 Put    7.2%

Iron Condor

SPX   1360-1365 Call
           1305-1315 Put    6.1%


The SPX 1335-1340 Put Spread was a last minute trade done in the last 10 minutes of the day with some of my reserve to grab a little extra cash.  For the week we ended up with a 4.39% margin net of commissions.

We still have the VVUS Covered call going on with a week to go.  Currently we will be called away, but that is ok.  By using our strategy of PRICE APPRECIATION + OPTION PREMIUM  we will realize a 5.75% return for the month the covered call will probably be in place.  That equates to a 60+% annualized return without compounding!!!  If we are called away we will look for another covered call to write.  If by chance the market price falls below the strike and we are not called away we will sell more options on our 300 shares of VVUS.

Any questions can be left as a comment below or directed to hashleycm@yahoo.com .

TTFN

Ash

Ok yall, I promised these a while ago and here they are.  This is my list of trading rules.  This is a dynamic list and changes from time to time. Periodically I will repost this with changes if any.  If there is a major change then I will alert you.  But I think there will not be many of those. 

If  you want to leave any comments, great.  Or you can email or Twitter me as well.

I am looking to put a little more analysis of the trades I do.  Now that you have my rules you can see some rhyme to my reason

TRADING RULES

1.       I trade weekly options almost exclusively. 

2.       Rarely I will trade covered calls, with a minimum 4.5% monthly profit target

3.       My weekly profit margin target is 3.5% floor

4.       Use mainly credit spreads, but RARELY Iron Condors, Calendar, or Diagonals

5.       I trade almost exclusively credit spreads on the SPX, NDX, SPY indices

a.      Some trading is done on ETF/Ns – GLD, SLV

b.      Selected trading on stocks with weeklies, these vary with the week, but mostly GOOG, PCLN, AMZN, NFLX,

c.       I try to limit the number of items to trade in,  this limits the amount of information I need to keep up with on a daily basis.

6.       Weeklies tend to follow more technical analysis than fundamental analysis. 

7.       News items tend to effect weeklies more than their monthly counterparts

8.       Each week is a new week.  Research must be done each week.

9.       I tend to trade in blocks of 5 to help manage risk

10.   I tend to make trades Wednesday noonish also to manage risk

11.   I keep a $5-7K reserve in case I need to make a late adjustment

12.   Trades are at least 1 Std Deviation out from the strike price

13.   Keep discipline

14.   Use your experience to modify, add change, delete rules as needed

15.   Keep a log of your trades and analyze all trades to see what went RIGHT as well as what went WRONG

16.   Be honest with yourself.  A great looking spreadsheet to show off is worthless if it has false info in it

17.   The only way to trade successfully is to constantly learn and refine your strategies.  My strategy works for me as I am comfortable with it.  You have to be comfortable with the strategies you use and ones you want to try.

These are my rules.  Use them as you wish.  This is my trading system and is you want help with any part of it drop a line or tweet and I will help you. 

@awagel01 for Twitter

hashleycm@yahoo.com for email