Results for Week ending April 13, 2012

Hi Ho all,

First let me apologize for the lateness in getting this out.  I have had some personal difficulties over the weekend and that took away time from this venture.  I am sorry for that.  Hopefully soon there will be resolution to this family issue.

This past week we did some new things.  One is that I am starting to train another in the ways of weekly option training.  I have a very smart student so I think things will go swimmingly.  As part of that I will also be putting in the trade that the student did.  Second, I split my trade this week.  I haven’t done that for a while so there will be a few more trades to look at this time around.

Now let’s go analyze last week’s trading.

TRADES FOR WEEK ENDING April 13, 2012:

Student Trade

SPX

SPX    1340     Put     $0.98

SPX    1340     Put     ($.60)              This gave a $0.38 Net Credit for a 3.80% ROI

ANALYSIS

1.       The SPX 20 Day SMA crossed the 50 Day SMA with the 50 Day heading lower and the 20 day going slightly higher.  This indicates that the short term trend is up, but the longer term trend is down.  This would indicate that the price action will be slightly up to flat in the near term.  And that is exactly what the SPX did, went slightly higher in the midweek, and then went flat at the end of the week.  This was the first indicator that the Put Credit Spread would be the way to go.  Also the price line broke above both the 20 and 50 Day lines. 

2.       The 1340 price level was about 1.5 Std Dev away from the underlying price at the time of the trade.  The 1330 was almost 1.75 Std Dev away at time of trade.

3.       My probability calculator put the odds at 94% of SPX ending up above the 1340 Put.

My Trades

NDX

NDX     2700     Put     $1.39

NDX     2675     Put    ($0.31)     This gave a $1.08 net Credit for a 4.32% ROI

ANALYSIS

1.        Remember that NDX is an index that is priced for options at $25 increments so that margin requirement for each contract is $2,500 instead of the usual $1,000.  That is why the ROI number is a little different than what you are probably used to seeing here.

2.       This trade we got into on Thursday morning as I couldn’t get the trade I wanted (the same trade the student made).  This one when I looked at the charts Wednesday night basically shoed the price staying between the 20 Day and the 50 Day lines.  Both lines are flattening, with a slight downward bent.  But the price did a big shoot up in the last part of trading Wednesday leading me to think that is would continue up on Thursday.

3.       Remember that the NDX is a Friday morning settled option.  Refresher:  this means that the settlement price for this option is the opening price Friday morning.  With the big shoot up Wednesday night and the continuation Thursday morning I got into the spread early Thursday morning.

4.       The price stayed way high throughout Thursday and made a dramatic fall first thing Friday morning very unlikely.  It would have to have fallen by more than what it gained on Thursday all day to hurt me. 

5.       The probability calculator also was on my side.  The probability on this trade was 91% at the time of trade.

6.       Now Friday the NDX did fall, but it was after the settlement price was determined so I was not hurt.  This was a little more risky of a trade, mainly because of the compressed time frame.  I entered into the trade because despite the slight increase in risk, my indicators were giving me the signals that this would be a good trade.

PCLN

PCLN     720     Put     $1.09

PCLN     710     Put    ($.61)     This gave a $0.48 Net Credit for a 4.8% ROI

ANALYSIS

1.        Again I got into this trade late in the week – Thursday afternoon.  The big run up was over, all major indexes and some stocks were pulling back.  PCLN is a weekly option that I go to if I cannot see any other index options that have a good return.  I had just put on and index trade in the SPX and the RUT was not giving anything at this late stage of the game, so I went to my equity standby PCLN. 

2.       The 20 Day and the 50 Day lines were moving downward, but the price was stabilizing on Thursday.  That is why I went with the Put Option Spread. 

3.       The 710/720 Credit Put Spread (to use some terminology) was at 1.5 Std Dev at tie of trade and the probability calculator was giving an 89.92% success reading.  I took that as 90%, and it is above our 85% minimum threshold.

4.       Equity options make me a little nervous, because if the trade goes against you, there could be lots of issues with your account.  I have had this happen before so I try to avoid the situation if I can.  The price was stabilizing and slightly moving up toward the end of the week so I went low on the put side as was successful.  I was successful because I used my indicators.  I was successful because I let the charts tell me what the likely action was with regards to price.  I was successful here because I listened to my system. 

All three of these trades were successful.  They all had the same basic thought process:

1.       Look at the charts – what do they say – NOT what do I want them to say.  Follow our contrarian philosophy and let the charts guide us.

2.       Look at the probability calculator – all trades were basically at 90% or higher at time of trade

3.       Use the Standard Deviation meter.  All trades were at least 1.5 Std Dev away from the strike price at time of trade.

4.       Use the weekly options so we have a defined exit point for our trades.

That in a nutshell is the heart of my system.  It has worked so far for me and hopefully you too. 

Student is entering week three of tutorial and will be making a recommendation to me this week for a trade that we will then analyze to see if the trade should be put on.  That should be really exciting!!!  Student is 2 for 2 in winning trades the first two weeks.

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 and are the opinion of Hashley Capital Management only.  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, that is your decision and yours alone. 

Reach me @:

Email:  hashleycm@yahoo.com

Twitter: @awagel01

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