Hey Fellow Traders!
Wow, this week gave us some big excitement, and I’m not talking about the NCAA Basketball Tournament! There were some swings last week in the stock prices, VIX was falling so premiums were getting smaller by the day and there just seemed to be sooo much stuff going on this week. My fiancé’s son had the Spring Vocal Concert – they are great by the way, Daughter had a big project she was working on and eldest daughter continued on her march to military service. My Men’s Fraternity plan is due in a couple of weeks and I had to get that thing together. I have completed it, then each week with the new topic I go back and do revisions, so hopefully I can put that this to bed soon. Now this weekend the Strep Throat bug has hit the house AGAIN.
Now onto the trading – another week in the win column!! For those of you scoring at home – that means that all except the very first week of the year has been a successful trading week. Almost done with the first quarter of the year and we are at our goal of 1 losing week.
Now let’s go analyze this week’s trade to see how we put the odds in our favor.
TRADE FOR WEEK ENDING March 23, 2012:
SPX
SPX 1385 Put $1.27
SPX 1375 Put ($.84) This gives a $0.43 Net Credit for a 4.3% ROI
ANALYSIS
1. The SPX showed lots of volatility during the week, starting well above the 20 Day SMA, but by the middle of the week started heading below the SMA line. When I put on the trade the price was above but quickly sank below the SMA line. The price and SMA line were moving pretty much in tandem – this was the first piece of evidence for the put spread.
2. The 1385 price level for the put option to sell was 15 points below the 20 day SMA. Since at the time of the trade the price line was at or above the SMA line and the long term trend was to push the price higher this looked like a safe margin.
3. The 1375 price level is even further below the SMA line just adding to our degrees of safety.
4. My probability calculator put the odds at 92.01% of SPX ending up above the 1385 put.
5. The trend line this week since the move above the SMA has been for higher highs and higher lows. This is a classic technical sign that the price will be going higher. Even when the price dipped below the 20 Day SMA the pattern of higher highs and higher lows continued. Until Thursday when the price went way down this pattern was there.
6. The big price drop did put our put spread in jeopardy. The low point was 3 points away from the spread boundary. But then the price started heading up again. But by trusting our analysis and keeping with the probabilities that were way in our favor we walked out the door with a winner.
7. Also I did look at the RUT and NDX, but there really was not a trade I could see with the same ROI that the one I put on has.
8. Summation:
a. We saw a brief pause in the long term trend of an uptrending market this week. That pause came after we had placed our trade and gave us a little cause for concern.
b. The probability calculator gave a favorable percent of this trade ending up in my favor, at 92.01%. Anything over 80% is a very high probability trade, and that is what we shoot for here. A trade with a high probability of success.
c. I was able to get good ROIs at 1.0 – 2.0 Std Dev away from the strike price.
d. By waiting until Wednesday around noon to make the trade and making sure the analytics put the odds in our favor this trade had a very high probability of success. Even when the price fell perilously close to our spread boundary before rebounding we stuck with our guns. A good thing as I had a couple of fellow traders call me and say I was nuts for sticking with my guns. The exited the trade for a loss and then entered a call credit spread that later in the day they had to exit out of for a loss. BIG LESSON: Stick with your analysis if you believe it to be sound. I was prepared to exit my trade if the price fell into my spread boundary and stayed there more than 20 minutes. That was my exit strategy. I would have suffered a loss if that happened, but I realized that and was ok with it. My two buddies would have had a winning trade if they stayed the course. They didn’t and ended up losing a bunch with two losing trades instead on one. Remember one of the big tenets: Use the analysis and to justify your trades. Only when that justification is proved wrong exit the trade. Limit losses and maximize gains.
Thanks to Freestockcharts.com for the chart site I use. All of the charts you see in this blog are from freestockcharts.com. They have great charts and some nifty tools to help your analysis. I use the site tons. It is a great resource. And no, I don’t get any compensation for saying this.
DISCLAIMER: Hashley Capital Management, LLC; as well as I 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: @awagel01
Or leave a comment on the blog
TTFN
Ash
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