Hey folks,
This week has been a weird week. Volatility has been crazy. All the indexes have swung from one way to another, up then down, then up, then down.
I tried to get something on my normal Wednesday trading day, but could not find anything. So we went into Thursday and were finally able to get a trade in the NDX.
Now let’s go analyze last week’s trading.
TRADES FOR WEEK ENDING April 20, 2012:
Student Trade
NDX
NDX 2740 Call $1.74
NDX 2730 Call ($1.15) This gave a $0.59 Net Credit for a 5.90% ROI
My Trade
NDX
NDX 2740 Call $1.95
NDX 2730 Call ($1.05) This gave a $0.90 net Credit for a 9.00% ROI
Chart 1 NDX Chart for past month
Chart 2 NDX weekly chart for last week
ANALYSIS
1. Usually 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. But when it comes to the monthly options expiration week there are some NDX options priced in $10 increments. I took advantage of that in this case to get a good ROI and lower my margin requirement so I could get into more contracts and make more money.
2. You see a big difference in the ROI between my student trade and my trade. The difference is in timing. I put my trade on first, and then about 20 minutes later the student trade was put through. This was not an effort to harm the student. It is just I try to find good trades and then show them to students and let them go through the rationale for making a trade.
3. Remember that the NDX is a Friday morning settled option. This means that the settlement price for this option is the opening price Friday morning.
4. I went through my usual procedure of looking at all the indexes and even went to my equity backups Priceline.com (PCLN) and Apple (AAPL) and Amazon.com (AMZN). Nothing hit the threshold to make a trade. Either the price was swinging too much for me or the probability calculators were not at the 85% level. So the normal Wednesday trading pattern could not be done. Chart 2 shows the Call Credit spread we entered with the NDX 2740/2750.
5. Thursday we did find a trade with the NDX. Chart 1 shows that pattern of lower highs and lower lows. This is a classic sign that the price is headed downward. This was our first sign to get into a Credit Call Spread this week.
6. Next the probability calculators finally came in at 85% or better, although just barely. When I made the trade the probability calculator was at 86.36%. When the student trade was put on it
7. So the trades were in. Just after this the NDX shot up and almost got into our spread zone. NDX hit 2738 before deeply retreating down to the 2676 level. Gave me quite a scare. But this is when you have to trust your system and your readings and your calculators. If you have set up the calculation correctly then you have done all you can do.
8. The combination of the trend shown in the charts, and the probability calculator on our side and the Std Dev at least 1.5 away from the underlying price came together to give another winning week.
All of the 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 85% or higher at time of trade
3. Use the Standard Deviation meter. All trades were at least 1.0 - 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 now 3 for 3 after doing the trade this week. Learning is coming along at pace. Soon my first disciple out there trading using my system.
If any of you have any comments, suggestions or just questions hit me up using the email, Twitter, or comments here on the blog.
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
Or leave a comment on the blog
TTFN
Ash
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