Post Trade Analysis for Week Ending February 24, 2012

Hey All!

Now for the analysis on the trade entered into Wednesday.  As you know, the trade came out profitable with our targeted 6.6% ROI.  So here is our postgame analysis.  I have copied the Wednesday posting and added some additional info in a different color.  So here goes:

TRADE FOR WEEK ENDING FEBRUARY 24, 2012:

This trade is a condor.  I know, I know – I really don’t do these often and am straying from my usual pattern.  Straying just a little, but really not much, think of what a condor trade is, two spread trades put together.  Here are the details:

RUT

RUT     785     Put     ($0.34)

RUT     795     Put      $0.52

RUT     835     Call      $0.72

RUT     845     Call     ($0.24)             This trade did give an overall Net Credit of $0.66 or 6.60% ROI

ANALYSIS

1.       The 835 price level for the call side is just above the 6 month high price for the index. This is where our greatest risk was as the rest of the market was testing new highs all week.  The RUT index essentially ended up flat for the week, starting Tuesday at 830 and ending Friday at 829.  Also the ROI component of 4.8% shows the market thought this the more risky trade.

2.       The 795 price level for the put side is right at the 2^nd tier support level (actual number is 793, but 795 strike price is the closest to the actual number).  This was the easiest part of the trade.  This had a smaller ROI component @ 1.8%.  Usually anything 2.0% or below is considered pretty much a sure thing in the options market.

3.       My probability calculator put the odds at 88.62% of RUT ending up between the upper put and lower call.  Most experts out there say the minimum threshold for considering a trade in your probability calculator is 85%.  This beat that threshold. 

4.       The trend for the week so far has been downward for the RUT index.  We went just over 2 Std. Dev. below the strike price at time of trade for the put side to help in protection and went just over 1 Std. Dev. on the call side.  

5.       The trend is slightly down, but not in a sharp downturn.  We are losing a bit each day, and that is ok with our protection built in.  We have used the Std. Dev. on both sides as protection.  Also with the RUT settling Friday AM this takes some of the time risk out of the picture that would remain if we went to NDX or SPX.

6.       I did look at the other index option – SPX and NDX.  SPX had comparable ROI spreads, but the Friday AM settlement for the RUT pushed the RUT in front.  The NDX just didn’t have the ROI needed.  Wednesday morning the NDX was hitting 2.0 – 3.3 ROI on comparable spreads, so I nixed the NDX.    

7.       Summation:

a.       The boundary strikes for the condor were at or above support and resistance levels for the RUT index.  This is a key step in setting up where your “wings” of the condor are.  Pick support and resistance levels you are comfortable with and that give a good measure of safety.

b.      The probability calculator gave a favorable percent of this trade ending up in my favor

c.       I was able to get good ROIs at 1.0 – 2.0 Std Dev away from the strike price

d.      The trend line was basically flat through the week.  The condor strategy works best in non-directional markets – markets where the priceline is basically flat. 

e.      All the above showed that we put the odd in our favor.  That is what we try to do each week.  This week we saw a special situation where the RUT index was essentially flattening out.  When it flattens out then we can use our contrarian spread strategy on both sides of the price line and enter into a condor trade. 

f.        The condor will return more than the usual credit spreads we do since we are hitting both sides of the price line.  But as with anything in the options market, the more premium you get the more risk you assume. 

DISCLAIMER:  Hashley Capital Management, LLC; as well as myself are not giving any trading advice.  All data is historical in nature and is intended for use as an educational tool.  Trading in options is risky and can result in loss of capital.  There is no attempt to sell any brokerage services or act as a broker or dealer by Hashley Capital Management, LLC.  Any forward looking comments on this blog are not attempts to solicit business for Hashley Capital Management, LLC.  If you choose to follow the same path and invest in the strategies and trades used by Hashley Capital Management, LLC after doing your own due diligence than that is your decision and yours alone. 

Reach me @:

Email:  hashleycm@yahoo.com

Twitter: @hashleycm

Or leave a comment on the blog

TTFN

Ash

Trade Put on Today - Feb 22 2012

Hey ladies & gentlemen!

Doing something a little new here; I am putting up my trade and some rationale right after doing the trade.  So here goes:

TRADE FOR WEEK ENDING FEBRUARY 24, 2012:

This trade is a condor.  I know, I know – I really don’t do these often and am straying from my usual pattern.  Straying just a little, but really not much.  Think of what a condor trade is, two spread trades put together.  Here are the details:

RUT

RUT     785     Put     ($0.34)

RUT     795     Put      $0.52

RUT     835     Call      $0.72

RUT     845     Call     ($0.24)             This gives an overall Net Credit of $0.66 or 6.60% ROI

ANALYSIS

1.       The 835 price level for the call side is just above the 6 month high price for the index.

2.       The 795 price level for the put side is right at the 2^nd tier support level (actual number is 793, but 795 strike price is the closest to the actual number).

3.       My probability calculator put the odds at 88.62% of RUT ending up between the upper put and lower call. 

4.       The trend for the week so far has been downward for the RUT index.  We went just over 2 Std. Dev. below the strike price at time of trade for the put side to help in protection and went just over 1 Std. Dev. on the call side. 

5.       The trend is slightly down, but not in a sharp downturn.  We are losing a bit each day, and that is ok with our protection built in.  We have used the Std. Dev. on both sides as protection.  Also with the RUT settling Friday AM this takes some of the time risk out of the picture that would remain if we went to NDX or SPX.

6.       I did look at the other index option – SPX and NDX.  SPX had comparable ROI spreads, but the Friday AM settlement for the RUT pushed the RUT in front.  The NDX just didn’t have the ROI needed.  Wednesday morning the NDX was hitting 2.0 – 3.3 ROI on comparable spreads, so I nixed the NDX.    

7.       Summation:

a.       The boundary strikes for the condor were at or above support and resistance levels for the RUT index

b.      The probability calculator gave a favorable percent of this trade ending up in my favor

c.       I was able to get good ROIs at 1.0 – 2.0 Std Dev away from the strike price

DISCLAIMER:  Hashley Capital Management, LLC; as well as myself are not giving any trading advice.  All data is historical in nature and is intended for use as an educational tool.  Trading in options is risky and can result in loss of capital.  There is no attempt to sell any brokerage services or act as a broker or dealer by Hashley Capital Management, LLC.  Any forward looking comments on this blog are not attempts to solicit business for Hashley Capital Management, LLC.  If you choose to follow the same path and invest in the strategies and trades used by Hashley Capital Management, LLC after doing your own due diligence than that is your decision and yours alone. 

Reach me @:

Email:  hashleycm@yahoo.com

Twitter: @hashleycm

Or leave a comment on the blog

TTFN

Ash

RESULTS FOR WEEK ENDING FEBRUARY 17, 2012

Hi Ho there boys & girls , ladies & gentlemen!

A little announcement:  Hashley Capital Management is officially up and running.  The papers were signed and delivered to the IA Secretary of State this week.  So we are now officially a company!!

This was another profitable week! It was great overall.  No major health problems and we made money. 

This week was interesting.  Starting Tuesday afternoon after seeing some great spreads – 6% and better in the RUT and SPX I started to enter trades.  At about this same time both indices started their rise so the 6% spreads were quick to leave.  I wasn’t able to get any 6% trades in, but did come close. 

Alright, now onto the trades for the week:  All were in the $SPX – the afternoon settled S&P 500 index.  Since this is the traditional option expiry week both RUT and SPX settled on determinant price Friday morning, but we could not find any RUT trades – we will talk on this later.  Here is the breakdown of the trades:

SPX

SPX     1300     Put     ($0.96)

SPX     1310     Put      $1.50             This gives a Net Credit of $0.54 or a 5.4% ROI

SPX     1305     Put     ($1.08)

SPX     1315     Put      $1.56             This gives a Net Credit of $0.48 or a 4.8% ROI

SPX     1320     Put     ($0.87)

SPX     1330     Put      $1.30             This gives a Net Credit of $0.43 or a 4.3% ROI

SPX     1325     Put     ($1.06)

SPX     1335     Put      $1.59             This gives a Net Credit of $0.53 or a 5.3% ROI

ANALYSIS

1.       The price straddled the 20 day Simple Moving Average (SMA) all week.  Monday opened at 1343.06 and Friday closed at 1362.97 with 1340.83 the lowest the index hit and that happened Tuesday afternoon.  The slow and steady increase over the week and the close hugging of the price and the 20 Day SMA are technical indicators to go with the put credit spread.

2.       The overall trend for the week was that the closing price was above the 20 day SMA.  Even on Friday when there was a big upward spike at the beginning of the day and a steady decline the rest of the day the price we still stayed above the 20 day SMA.  This is a GREAT confirmation signal that our choice to go with the put credit spread was a good one.

3.       The spreads we entered into were between 1.5 and 2.0 Standard Deviations (SD) from the current price (Tuesday and Wednesday) when we entered the trade.

4.       We did not commit all our resources to this trade.  I split my resources and put on several trades this week, all with ROI above 4.0%.  AND we still kept a safety pool in case we ran into trouble.  REMINDER OF RULE FROM LAST WEEK:    BIG RULE = NEVER COMMIT ALL YOUR RESOURCES TO ONE TRADE & ALWAYS LEAVE YOURSELF SOME CAPITAL IN CASE YOU NEED TO MAKE A LAST MINUTE ADJUSTMENT.

5.       Again I created a ladder in this trade series.  REMINDER OF OTHER BIG RULE FROM LAST WEEK:    BIG RULE = THE FURTHER IN STD. DEV. YOU GET AWAY FROM THE STRIKE PRICE THE SAFER THE TRADE, BUT USUALLY THE LOWER THE PREMIUM. 

6.       I did look at the other index option – RUT and NDX.  They did not have the ROI matched with the safety and trend line analysis that made me comfortable to enter into any trades. 

7.       Summation:

a.       The closing price trend line was up for the week

b.      The closing price straddled the 20 SMA all week

c.       I was able to get good ROIs at 1.5 – 2.0 Std Dev away from the strike price

d.      All these added up to getting into the Put Credit Spreads.  We pocket our overall 5.1% and move on to the new week!!!

QUESTIONS

You don’t talk about the Greeks much when you do your analysis.  Do you use the Greeks when doing your analysis?

Another good question.  To be perfectly honest I do not use the Greeks as much as many traders of traditional options use them.  And they are not a big part of my analysis.  There is one that I do look at and do use as part of my analysis is Theta.  Theta is a measure of time decay.  All options have a defined life, I deal in weeklies that have a one week shelf life.  As the options get closer to the expiration date the option will lose some value due to time decay.  Since I deal in credit spreads I want to know what the value of my time decay is.  That is what theta measures.  Here is a definition of Theta:  Theta shows how much time value is eroding as each trading day passes.  Example:  if Theta = -.20 and the closing price on Monday is $1.00 then the opening price on Tuesday should be $0.80.  Theta is always a negative number for calculation, but you have to watch some option chains on online brokers.  Some assume that everybody knows this and puts Theta out there without a sign, implying to the newer traders that Theta is a positive number. 

I am working up a post detailing the basic points of the Greeks and will have that up soon.  If you are into just about any option trading it is a good idea to know what the Greeks are and what they can tell you.  If you like to buy options and hope they rise in value then the Greeks are very useful.  Like I said, I do not use them as a main part of my analysis, but I do look at them as a secondary metric to help confirm my analysis from other data.

Keep the great questions coming.  I love it.  Also let me know how this blog helps you or what you would like to see.  I am striving to improve the blog and make it as meaningful as possible.

DISCLAIMER:  Hashley Capital Management, LLC; as well as myself are not giving any trading advice.  All data is historical in nature and is intended for use as an educational tool.  Trading in options can result in loss of capital.  There is no attempt to sell any brokerage services or act as a broker or dealer by Hashley Capital Management, LLC.  Any forward looking comments on this blog are not attempts to solicit business for Hashley Capital Management, LLC.  If you choose to follow the same path Hashley Capital Management, LLC after doing your own due diligence than that is your decision and yours alone. 

Reach me @:

Email:  hashleycm@yahoo.com

Twitter: @awagel01

Or leave a comment on the blog

TTFN

Ash

Results for Week of February 10, 2012

Ok ladies and gents, I am hopefully finally back from being sick and getting to do nothing but lay around and suck meds all day.  For those of you who don’t know, I had been battling a recurring illness basically since the first of the year.  Finally was able to get into the doc’s office and he said I had walking pneumonia and wanted to put me in the hospital.  I convinced him to let me go home with some meds and a promise to rest.  Sooooo, I spent the last two weeks and change literally just laying around.  I was able to get some basic minimal things done, but not much more.  But now I am all better and ready to go.

Now one of the few things I was able to get done during this time is setting up my trading business as a business instead of the loose individual account thing I have been doing as a sole proprietorship.  By the end of this month (February) this blog will move from being my personal blog to being the blog for my new company – Hashley Capital Management, LLC.  Now don’t worry, the blog will still be free.  There is no plan to start charging for access to this blog.  I just like sharing what I do and how I do it, and I am pretty successful at it.  (Not to brag, but 86% weekly winners – 7 wins out of 8 weeks, 92% winners on # of trades and 15.49% increase in account balance since beginning of year)

Alright, now onto last week’s trades:  All were in the $RUT – Russell 2000 index.  Here is the breakdown of the trades:

RUT

RUT     795     Put     ($0.58)

RUT     805     Put      $1.11     This gives a Net Credit of $0.53 or 5.3% ROI

RUT     790     Put     ($0.61)

RUT     800     Put      $1.15      This gives a Net Credit of $0.54 or 5.4% ROI

ANALYSIS



The solid white lines are my Spread parameters.  The blue line is the 20 SMA.

A couple of things to look for:

1.       The price on Monday the 6^th started above the 20 day Simple Moving Average (SMA) and held that all day even though at the end of the day we were closer to the moving average than when we started.  This is a BIG technical indicator to go with the put credit spread.

2.       The overall trend for the week was that the closing price was above the 20 day SMA.  Even on Friday when there was a big decline in the price we still stayed above the 20 day SMA.  This is a GREAT confirmation signal that our choice to go with the put credit spread was a good one.

3.       The spread we entered into was just over 2.0 Standard Deviations (SD) from the current price (Wednesday’s) when we entered the trade.

4.       We did not commit all our resources to this trade.  I split my resources and put half into each trade after taking out a safety pool.  BIG RULE = NEVER COMMIT ALL YOUR RESOURCES TO ONE TRADE & ALWAYS LEAVE YOURSELF SOME CAPITAL IN CASE YOU NEED TO MAKE A LAST MINUTE ADJUSTMENT.

5.       I created a ladder on this trade.  Each leg of my two combined trades acting likes rungs on a ladder.  Usually this results in on trade having a much lower ROI than the other, but both trades being on the safe side if you have done your analysis.  This was an exception where the ROI for both trades was basically the same.  I like using ladders in my spread trades if I can get a situation like this.  I ended up with trade #1 At 2.0 Std Dev away from the strike and trade #2 at almost 2.5 Std Dev away.  BIG RULE = THE FURTHER IN STD. DEV. YOU GET AWAY FROM THE STRIKE PRICE THE SAFER THE TRADE. 

6.       I did look at the other index option – SPX and NDX.  They did not have the ROI matched with the safety and trend line analysis that made me comfortable to enter into any trades. 

7.       Summation:

a.       The closing price trend line was basically flat except for Friday.

b.      The closing price stayed above the 20 SMA all week except for Friday

c.       Being able to get an excellent ROI at 2+ Std Dev away from the strike price

d.      All these added up to getting into the Put Credit Spreads.  We pocket our 5+% and move on to the new week!!!

QUESTIONS

Why credit spreads on weekly options?  Can’t you make just as much or more with the traditional options?

A very good question, I will answer the 2^nd on first.  No you can’t make as much money using credit spreads on traditional monthly options.  Monthly options premiums for credit spreads at the beginning of each cycle (starting with the Monday after the 3^rd Friday of the month) are nowhere near what you can get for a string of 4 weekly options for a month.  Looking at the SPX Option chain the 1295-1305 Put Credit Spread expiring March 17, 2012 is yielding  9% pre commission as of 2/13/2012 at 10:00 PM.  This spread is 2.0 Std Dev away from the strike price.  The same put credit spread expiring this Friday February 18, 2012 is yielding 4% pre commission.  4*4=16, 16-9=7, 7% minimum more yield using the weeklies.

Now to the first part, I use credit spreads on weekly index options for several reasons:

1.       Credit spreads mean cash to me each week. 

2.       Shorter time frame means less time for a trade to blow up on me.

3.       I can churn my capital pool earning money on earned money sooner.  So far this year I have one trading account up  21%  and another up 17% so far this year.  This beats the Dow, S&P, and Russell 2000 indexes.

4.       As seen in the example above the weekly profit potential is greater than the traditional monthly options.

5.       The cost is less on the weeklies than the traditional options. 

6.       If I do my homework and analysis correctly, the weekly options increase the odds of success in my favor.  Not to say I don’t have losing weeks.  I do, but the weeklies allow me to recover quicker and in most cases lessen the cost of adjustments than the traditional options.

No don’t get me wrong.  Traditional options do have their place.  There are many people with all kinds of systems that are making lots of money using the traditional options.  There are people doing credit spreads on traditional options every day and making good money at it.  You can go on Amazon.com or go to Barnes & Noble and find literally tons of books on option strategies focusing in on the traditional options.  Trust me, I bought a bunch of them and checked out a bunch more from the local library in researching and developing my method.  I have just developed a system using the weeklies that fits my risk tolerance level and affords me current income AND building my capital pool to make even more money in the future. 

Reach me @:

Email:  hashleycm@yahoo.com

Twitter: @awagel01

Or leave a comment on the blog

TTFN

Ash