Results for Week Ending May 25, 2012

Hey Spread Traders,

Another successful week last week.  The three day holiday was nice for me, just a nice relaxing time although a bit hectic with all the graduation parties we needed to attend.  I hope it was good for you.    This past week I went one way and the student went another but we were both successful.  This made for an interesting situation.  Let’s take a look. 

TRADES FOR WEEK ENDING May 25, 2012:

Student Trade

NDX

NDX     2500    Put     $6.38

NDX     2475    Put     ($3.81)           This gave a $2.57 Net Credit for a 10.28% ROI

My Trade

PCLN

PCLN    685     Call     $1.64

PCLN    695     Call     ($1.31)           This gave a $0.33 Net Credit for a 3.30% ROI

ANALYSIS – Student Trade

1.       Remember 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 accounts for the ROI calculation for the student trade. 

2.       You see a difference in our trades in that the student went with puts and I went with calls.  The student had a gut feeling that the huge move up on Wednesday for the NDX would not decay during Thursday and Friday morning so they felt safe in making this play.

3.       Now Student did do the homework getting the probability calculation of 88.4% and a SD of 1.7.  They also put this trade on Thursday right when the market opened.  Notice that on Wednesday the 20 Day SMA was down trending with a sharp slope and crossed the slightly down trending 50 Day SMA.  Then the 20 Day SMA started upward trending again before the end of the day Wednesday and basically flattened out for the rest of the week.  The 50 Day SMA was down trending until late Friday when it slowly started an uptrend.  This dual downward trend is a great signal to go for put spreads.

4.       The thought the student had was that the NDX could not fall that far in such a short time.  With the 20 and 50 Day SMA lines basically in the same plane over the last part of the week and staying flat gave a good indication to go with the put spread.

5.       This same scenario looks like it might be playing out again this week as coming off the holiday the NDX shot up.  It will be interesting to see what happens Wednesday the 30^th.

6.       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.

ANALYSIS – My Trade

1.       Again, playing the overall downward trend in the market was the first idea that we should do a call spread.  Also the since we put on the student trade with a call spread, that points to doing another call spread.

2.       Again the PCLN options looked to be the way to go for me on Thursday since the index options trades were no longer giving good premium.  So we had to go looking.  This is when we go to the backups like AMZN, PCLN, GOOG.

3.       After looking at all of them, PCLN was where the margin came in our range.

4.       The PCLN chart again this week lined up with lower higher and lower lows. This is a great indicator for the call spread.

5.       Using the Std Dev calculation to get at least 1.0 Std Dev for added safety, we ended up at about 1.75 Std Dev for this trade.

6.       Probability calculation for this trade was 92.08%

Here is a quick synopsis of my weekly process.  By following this system we are able to make a living doing this trading thing:

1.       Look at the probability calculator – all trades were 85% or higher at time of trade

2.       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.

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

4.       Use the charts to see what trends are showing.

5.       Following what the charts were telling gave two profitable trades:

a.       The NDX trade we used time decay in our favor.  We got a huge shot upward in the price and basically the market didn’t have enough time to come down.

b.      The PCLN trade we used more traditional charting – we had a pattern of lower highs and lower lows.  This is a classic signal that the price is going down so we use the contrarian thought to go with call spreads. 

6.       Following our system lead to two profitable trades.  I know it can sound dull to follow a pattern time after time and not “wing it”.  But following a pattern of success is what any successful trader will tell you is the secret to success.  “Winging it” is the sure way to lose your shirt.

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

Student is now 5 for 6 after doing the trade this week.  Despite the loser two weeks ago student is still positive on profit for all trades combined.  My first disciple will be on their own in the next couple of weeks.  When I say on their own that means that I will not be looking over their shoulder as they are making trades.  If they want to run trades by me they can do this as long as they want.  My goal is to have successful traders out there who bring me more students.  I will always support them and help them as I can.  The “hand holding” phase is ending that is all. 

If any of you have any comments, suggestions or just questions hit me up using the email, Twitter, or comments here on the blog.

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. 

Disclaimer #2:  Students are getting educational advice as well.  We do deal with live streaming data at times in the student/teacher relationship, BUT is used as a tool.  The ultimate decision and actual trades are placed by the students in their own trading accounts which are not affiliated in any way with Hashley Capital Management trading accounts. Students are being trained in doing their due diligence and homework on trades they put on.  Unless otherwise noted, student trades are put into a virtual or paper trading account.

Reach me @:

Email:  hashleycm@yahoo.com

Twitter: @awagel01

Or leave a comment on the blog

TTFN

Ash

Results for the Week Ending May 18, 2012

Hey guys,

This week gets us into our second week back on the successful track.  The market has been on a downward track for the past two weeks, but we are still making money.  That is the beauty of spreads.  Up, down, or sideways we can and do make money.  Another good thing is that if you do your research and use your analytics then when the trade is put on all you have to do is monitor.  Heck you can even set up an alert to let you know if you are getting into trouble.  I did it this week.  Got hit with a very bad case of bronchitis this week and was basically bedridden for most of the week.  But in my moments of consciousness I would just look at my alert and see all was good.  Life is getting back to normal; the graduations, the recitals, and all the other family stuff is starting to die down. 

Anyway, enough with the excuses and on to the analysis!

Note – Freecharts.com is having technical difficulties and I cannot get the charts to save or print from the site.  Once I get charts available I will post them.

TRADES FOR WEEK ENDING May 18, 2012:

Student Trade

NDX

NDX     2575    Call     $1.38

NDX     2600    Call     ($0.41)           This gave a $0.97 Net Credit for a 3.92% ROI

My Trade

PCLN

PCLN    670     Call     $0.99

PCLN    680     Call     ($0.48)           This gave a $0.51 Net Credit for a 5.10% ROI

ANALYSIS – Student Trade

1.       Remember 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 accounts for the ROI calculation for the student trade.  I wanted to stay with the indexes for this trade for simplicity.  The lower percentage return is acceptable as it is still in the 3-6% range we target.

2.       You see a difference in the ROI between my student trade and my trade.  The difference is in a couple of areas.  The first is the difference in index v. equity.  Both trades were done Thursday morning as a result of my illness.  The NDX stops trading Thursday evening so time decay works a little faster on this one. Also the PCLN weekly options traditionally have a good ROI relative to other weekly options.  The second is timing.  I put on my trade first in the morning and worked with the student and executing the trade just before lunch.    

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.       Thursday we did find a trade with the NDX. The market pattern of lower highs and lower lows showed its face here.  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.

5.       Next the probability calculators finally came in at 85% or better, although just barely.  When I made the trade the probability calculator was at 85.02%.   

6.       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.

ANALYSIS – My Trade

1.       Again, playing the overall downward trend in the market was the first idea that we should do a call spread.  Also the since we put on the student trade with a call spread, that points to doing another call spread.

2.       By the time I was able to get to my trade, the NDX premium was already below my 3% threshold.  So we had to go looking.  This is when we go to the backups like AMZN, PCLN, GOOG.

3.       After looking at all of them, PCLN was where the margin came in our range.

4.       The PCLN chart looks very much like the NDX chart lower highs and lower lows indicating that the call spread is the way to go.

5.       Using the Std Dev calculation to get at least 1.0 Std Dev for added safety, we ended up at about 1.75 Std Dev for this trade.

As the week went on volatility shot up.  Fear is starting to take a grip on the trading.  The coming week will be very interesting to see what happens price wise.  But remember, when fear (as measured by VIXX) goes up so does spread premiums, but also does risk.

Here is a quick synopsis of my weekly process.  By following this system we are able to make a living doing this trading thing:

1.       Look at the probability calculator – all trades were 85% or higher at time of trade

2.       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.

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

4.       Use the charts to see what trends are showing.

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

Student is now 4 for 5 after doing the trade this week.  Despite the loser two weeks ago student is still positive on profit for all trades combined.  My first disciple is just about ready to leave the nest. 

If any of you have any comments, suggestions or just questions hit me up using the email, Twitter, or comments here on the blog.

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