Finance, Food, Fun & Other Stuff: June 2012

Monday, June 25, 2012

When stuff just doesn't go right - results for June 22, 2012

Hi Fellow Traders:

Today’s blog is about the things you can’t help. Personal stuff – kids growing up; eldest daughter started Basic Training for the air Force today. I am proud of her but also a little aprehensive as a dad. It is hard to let her go. But she is now in the hands of the US Government. Sent youngest daughter to her first week long camp this weekend. She was soo excited, her mom and I were puttingon the brave face, but it was hard to leave knowing we wouldnot see her for a week.

Trading stuff –

This week I put on a trade in the NDX index on Wednesday afternoon with literally no time to spare in the market. Right at the close. I went through the formula we havve been walking through for the past weeks. The trade had a 96.2% probability of success in the Trademonster calculator which always comes in lower than the Optionshouse calculator.

Then Thursday came along and my almost 3 Std Dev cushion went away as athe day went on. The first big hit was the Spanish Finance Minister coming out saying that Spain would actually need almost 2x what he said they would need in a bailout two weeks ago. I handled this piece of bad news. The market went lower by about 30 points, but I had a 52 point cushion, so my trade was still good.

Late in the day Moody’s said they would drop the ratings of several big investment banks around the world. This is the jolt that my trade couldn’t handle. After this NDX went down about another 25 points. During this slide my trade became a loser.

Now I was able to get out of my trade and make another that recovered part of what I lost, but I did take a hit. The point I want to make here is that sometimes as traders we can do all the analysis and work and research and still end up on the losing end of the trade. If Moody’s makes theie announcement at the same time Friday instead of Thursday my loss would have been a gain. If Spain had anything close to their acto together I would have been ok. I went through all the steps in the model and had a good trade with all the data I had at the time.

Here is the trade I initially did – you guys take a look at the chart and see if you would make the same trade.

TRADES

NDX 2575 Put $2.56

NDX 2550 Put ($1.21) This gave a Net Credit of $1.35 or 5.4% ROI

Paper Trade

Last week we put on a paper trade looking at the longer time frame using the full time for the weekly options. If this trade was a real trade is would have been successful as the SOP (Sprecial Opening Price) was 2566 for the NDX. This is one of those woulda, shoulda, coulda moments. I identified a trade that would have been successful, and thus avoided the loss I took. Here is the paper trade that was a success fule trade:

NDX 2475 Put $4.80

NDX 2450 Put ($2.30) This will give a Net Credit of $2.50 for a 10.0% ROI

Again this is a spread with a $25 difference. This gives the difference in ROI and Net Credit.

I found another one of these long term weekly trades and hav eput on the paper trade as follows:

RUT 800 Call 7.45

RUT 810 Call 4.95 This can give a Net Credit of $2.50 or 25.0% ROI

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

Tuesday, June 19, 2012

Interesting articles I came across recently

Here are some links to articles I came across in the past few days:

This article talks about Option trading Myths. Very good article for those on the fence about options trading.
http://www.moneyshow.com/trading/article/40/OptionsIdea-28273/10-Busted-Myths-About-Options-Trading/

This article talks of how important implied volatility is to options trading. This is a good article as it starts to get into the technical side of option trading. More of the why trades work. In my system I deal with Implied volatility by trying to lower it through going out 1.5+ Std Dev from the underlying strike price.
http://www.moneyshow.com/trading/article/40/OptionsIdea-28196/How-to-Shift-Option-Odds-in-Your-Favor/

Let me know if these articles are helpful.

Ash

Monday, June 18, 2012

Results for the week ending June 15, 2012

Hey my trading bretheren (and sisters)!

Another week of successful trading. This week Friday went the right way warly and never looked back. Lets get to it and analyze the trades.

TRADES

SPX 1305 Put $1.26

SPX 1295 Put ($0.79) This gave a Net Credit of $0.47 or 4.7% ROI

NDX 2500 Put $1.11

NDX 1300 Put ($0.62) This gave a Net Credit of $0.49 or 4.9% ROI

Analysis

NOTE: I have put the NDX on a straight percentage basis so an even comparison could be made. Remember the NDX weekly in the 3^rd week of the month can have $10, 20, or 25. This particular spread was a $20 for a total to $2,000 margin required (20*100 units = 2000)

This week shaped up a lot like last week. There was downward activity at the beginning of the week, but it picked up toward Wednesday and went up the rest of the week. These are the types of weeks that we like. A strong trend one way or the other. This week was the strong up trend, giving us a great way to trade put credit spreads.

Look at the charts – the price is bouncing off the SMA lines to the upside. This coupled with the directional move upward in price made this an easy week for trading.

Let us take a walk through the basic tenets of my system to see how I arrived at these trades:

1. Find the direction of the market. The long term trend for both the NDX and SPX is down, but during the week there was a large uptrend. In fact this week added to last week to give the best two week return of the year. Being in the weekly options we decided to go with the short term trend over the long term trend.

2. If the market direction is down – use call spreads, if the direction is up use put spreads. Since we decided to go with the short term trend which was up, we used the put spreads.

3. Make sure there is no news that is scheduled that will effect your spread trade. No scheduled news conferences or earnings announcements were on the calendar when we made the trade.

4. Choose among the following for your trades: Indexes – SPX, RUT, NDX. Equities/ETF – PCLN, GOOG, AAPL, GLD, AMZN. I chose the NDX and SPX. These two gave the best return of the potential names on the list. I even went back to the total list of weekly options and tried those. I couldn’t find any with a greater return.

5. Find a spread at least 1.5 Standard Deviations away from the strike price with at least a 3.5% ROI. After looking at the indexes and equities I use the NDX & SPX fit this bill.

6. Use your trading platform’s probability calculator to get at least an 85% probability of success. The anaomaly that appeared last week didn’t show up this week. Both Optionshouse and Trademonster were within a point of each other. The Optionshouse number = 89.2% and the Trademonster number was 88.6%.

7. If possible use the RUT or NDX indexes as they settle Friday morning while the others settle at close of market Friday afternoon. I did try this, but the ROI just wasn’t there on these options at the time of trade.

8. Monitor your trades, but don’t obsess. I was good on this basically from the time of the trade. I did look some on Friday but it was clear early that the market was going up for the day so I was a winner!!!!

9. If in a losing position Friday morning, try to wait until the European close to tradeout of your position. This time I didn’t have to worry aout this as our trades were good from the start on Friday.

10. Don’t put all your eggs in one basket. Always trade at least two spread trades. That way if one goes bad or you have to exit early, the other one will hopefully be ok and you can still scrape up some ROI.

Another thing that is in the wings. I am looking at extending the time frame my trades are open. Weekly options are issued each Thursday and expire the following Friday. For example, the weeklies that are in play as you read this were issued on June 14^th and will expire on June 22^nd. I put on a paper trade in the NDX weeklies. Here is the paper trade I have on:

NDX 2475 Put $4.80

NDX 2450 Put ($2.30) This will give a Net Credit of $2.50 for a 10.0% ROI

Again this is a spread with a $25 difference. This gives the difference in ROI and Net Credit.

I am trying this because I saw a big difference in premiums on the put side when they came out. I think this is part of the Greek election thing that went on this past weekend. That came out the way the market thought with the pro-Austerity group winning. It also looks like as of now that they will forma ruling coalition. Of course that was the thought 6 months ago when we did this the last time.

The big premium being paid is what caught my attention. I also did my system on this trade and it passed with flying colors. The one thing that makes me alittle nervious is the longer time frame the trade is open. This trade will be open almost the full time the weekly option is open.

At the end of today’s trading (Monday June 18^th) we are doing quite well on this trade. Right now the bid price on both parts of the spread = $0.00.

This is the first of several weeks of paper trading this idea to see how I canmake it mesh with my system. So, the very very very early look seems promising. I will update you in the progress on this latest little venture.

Reach me @:

Email: hashleycm@yahoo.com

Twitter: @awagel01

Or leave a comment on the blog

TTFN

Ash

Monday, June 11, 2012

Results for Week Ending June 8, 2012

Hey there Hi there Ho there!

Well, we did it!! Another week of successful trading. Friday morning got a little suspensful with the overall down start, but the great rebound did us well. Trusting in the analytics helped us ger through the Friday morning swoon. Well, lets get to it and analyze the trades.

TRADES

SPX 1300 Put $1.10

SPX 1290 Put ($0.63) This gave a Net Credit of $0.47 or 4.7% ROI

SPX 1310 Put $1.09

SPX 1300 Put ($0.41) This gave a Net Credit of $0.68 or 6.8% ROI

Analysis

The second trade is where the sweating came in. Early Friday morning at the start of trading the SPX dropped like a stone a quick 7 points to 1307, then rebounded. One of my rules is that I try not to sell a position before the European close unless there is a quick and continued drop. I almost pulled the trigger, but held off as I saw the beginning of the rebound.

An interesting happening come about while looking at these trades. I use two trading platforms, Optionshouse and Trademonster. Trademonster is my main trading account after transferring from Optionshouse. When I put the trades in the probability calculator in each platform I got widely different results. Optionshouse came back with a 91% for the 1310/1300 and a 96% for the 1300/1290. Trademonster came in with 79% and 82% respectively. Normally there is maybe a point or two difference. This large difference was a concern. As you know the threshold I have on the probability calculator is 85%. Using the Trademonster numbers I would not have gotten into any of the trades I did this week. I called Trademonster and got nowhere. They are proprietary formulas I was told. I went with the Optionshouse numbers and was rewarded.

Why did I switch to Trademonster fromOptionshouse? I like both platforms a lot, the main reason I switched my main account to Trademonster is that Optionshouse charges a $100 monthly fee for “Professional Accounts”. They define a professional account as an account that is a professional traders OR one belonging to an LLC or any business entity. I wanted to keep the $1,200 a year so I made the switch. Trademonster also has lower commissions than Optionshouse. Both platforms were built for options traders and are very good for them. I kept my IRA accounts in Optionshouse and I use Optionshouse for my beginning students as they are a bit easier to understand. Trademonster was built by the Najarian brothers of CNBC fame. It is an excellent platform, but they are professional traders and they built their platform for more experienced traders.

Back to the analysis now. The type of trade put on this week is called a ladder. When yo look at the chart the boundary lines look like the rungs of a ladder. It is not a condor or butterfly as both sides of the spread are on the same side…they are both puts. Condors and butterflies have call spreads and put spreads at the same time. Let’s go through the basic tenets of my system to see how I arrived at this ladder trade:

1. Find the direction of the market. The long term trend for the SPX is down, but during the week there was a large uptrend. In fact the week ended up being on of the best for the market this year. Being in the weekly options we decided to go with the short term trend over the long term trend.

2. If the market direction is down – use call spreads, if the direction is up use put spreads. Since we decided to go with the short term trend which was up, we used the put spreads.

3. Make sure there is no news that is scheduled that will effect your spread trade. No scheduled news conferences or earnings announcements were on the calendar when we made the trade.

4. Choose among the following for your trades: Indexes – SPX, RUT, NDX. Equities/ETF – PCLN, GOOG, AAPL, GLD, AMZN. We used the SPX. This part is trial and error. SPX had the best ROI at the safest distance away from its market price this week so I used it, but this can change from week to week. If you look back I use the Indexes the most. If I make an equity spread most often it is in the PCLN or GLD.

5. Find a spread at least 1.5 Standard Deviations away from the strike price with at least a 3.5% ROI. After looking at the indexes and equities I use the SPX fir this bill.

6. Use your trading platform’s probability calculator to get at least an 85% probability of success. This is when I found the big gap between Optionshouse and Trademonster mentioned earlier. I decided to to with the Optionshouse mainly because I have a longer history with them.

8. Monitor your trades, but don’t obsess. I was good on this until Friday morning when the initial down trend in the market made me look like a big loser. BUT I didn’t obsess and waited it out. I was rewarded for that using the next tenet.

9. If in a losing position Friday morning, try to wait until the European close to tradeout of your position. Sometimes you will see that the market is just tanking and will need to get out sooner, but last Friday there was no continued drop. The market dropped just below the top boundary of my ladder at 1307 just after the open. Then there was a slow and steady climb back up.

Reach me @:

Email: hashleycm@yahoo.com

Twitter: @awagel01

Or leave a comment on the blog

TTFN

Ash

Sunday, June 3, 2012

Results for Week ending June 1, 2012

I’m Baaack!,

Hey guys! We had another successful week! The worst week in a loooong time for the market was pretty good to us. That is the beauty of this system. Up, down or sideways we can make money. After the close I spent the weekend off the grid in NE Iowa in a cabin with three good friends. Lots of eating, drinking and being merry. The batteries are recharged and now I am ready to get back to it next week and continue the winning streak we have going now.

TRADES FOR WEEK ENDING June 3, 2012:

Student Trade

SPX

SPX 1340 Call $0.93

SPX 1350 Call (0.35) This gave a $0.58 Net Credit for a 5.8% ROI

My Trade

PCLN

PCLN 665 Call $0.96

PCLN 675 Call ($0.42) This gave a $0.54 Net Credit for a 5.4% ROI

ANALYSIS – Student Trade

1. OK – let’s look at our system point by point on this trade as it is a textbook trade that follows my system.

2. Find the direction of the market. Both the student trade and my trade were put on Wednesday afternoon almost at the close of trading for the day. By then the market direction of general downward trend was confirmed. First we look at the 3 month, then the 1 month charts and they both show a protracted downward trend. For this trade look at the weekly chart. On Tuesday on the price was bouncing off either the 20 or 50 day SMA (Simple Moving Average) which was moving down each day. Next look at the channel done in white. The price channel is downward all week from Monday through Friday. Even from Monday to Wednesday when we made the trade the price channel was down.

3. If the direction is downward for market – use call spread, if direction if upward – use put spread. We determined the direction was downward so we will use the credit call spread.

4. Make sure that there is no standard news event that will be coming out at the end of the week that could hurt you. At the end of this week was the jobs report. Preliminary report came out Wednesday and was anemic at best. Usually the formal report will closely follow the preliminary report. When this Prelim report came out and was not good this confirmed the choice for the credit call spread.

5. Choose among the following for your trades: Indexes – RUT, NDX, SPX. Equities – GOOG, PCLN, AMZN, AAPL

6. Find a spread at least 1.5 Standard Deviations away from the strike price with at least a 3.5% or better ROI. We found a trade with a 5+% ROI so we did well on this.

7. Use your online broker’s probability calculator to get at least an 85% probability of success on your trade. This trade had an 89.02% of success when put on in the probability calculator.

8. If possible use an index like NDX or RUT where the settlement is Friday morning to minimize risk. This time we could not do that as RUT and NDX did not have trades that were above the 3.5% ROI and at least 1.5 Std Dev (Standard Deviations) away from the strike price at time of trade.

9. Monitor your trade, but don’t obsess. It is important to monitor your trade as unexpected news can happen. But don’t sit at your laptop or monitor all day every day after you made your trade to watch the little blips and bumps in the price chart of your trade. This system tries to build in margins of safety in many ways: 1) We go against the trend of the market – contrarian strategy; 2) We go at least 1.5 Std Dev away from the strike price; 3) Minimum 85% probability of success in the probability calculator. I set up alerts to hit my iPhone if the price chart hits close to my trade. I also listen to the news on CNBC in the morning as I am getting ready, and get updates on my phone throughout the day.

ANALYSIS – My Trade

1. Ok – let us do the same thing with my trade.

2. Find the direction of the market. First we look at the 3 month, then the 1 month charts and they both show a protracted downward trend. For this trade look at the weekly chart. Monday is about flat, but from then on every day there is a pattern of lower highs and lower lows. This is a classic down trend. The price also bounced off the 20 day SMA going down all week.

3. If the direction is downward for market – use call spread, if direction if upward – use put spread. We determined the direction was downward so we will use the credit call spread.

4. Choose among the following for your trades: Indexes – RUT, NDX, SPX. Equities – GOOG, PCLN, AMZN, AAPL. I decided to go with the PCLN as the others did look promising at the time of the trade.

5. Make sure that there is no standard news event that will be coming out at the end of the week that could hurt you. At the end of this week was the jobs report. Preliminary report came out Wednesday and was anemic at best. Usually the formal report will closely follow the preliminary report. When this Prelim report came out and was not good this confirmed the choice for the credit call spread. PCLN didn’t have any news coming out. Earnings came out already and they were good. Now sudden news on the company has come out so we are good there.

6. Find a spread at least 1.5 Standard Deviations away from the strike price with at least a 3.5% or better ROI. We found a trade with a 5+% ROI so we did well on this.

7. Use your online broker’s probability calculator to get at least an 85% probability of success on your trade. This trade had a 91.55% of success when put on in the probability calculator.

9. Monitor your trade, but don’t obsess. Again, set alerts for your phone or your computer. Monitor the news every once in a while and check in on your trades occasionally. But don’t live your life watching every up and down bounce on the price chart, drinking pepto is not a way to live.

OK – I just gave you two case studies in my system. Hope you could see how it works and how I was able to make money despite the market having a terrible week.

Next week will be one to watch. As I am typing this Sunday night CNBC has a special on predicting that there will be a general market turn down of huge proportions that we are just on the brink of. They are talking of Dow 11,000 and S&P 800 and NASDAQ 1,800. These are massive dips that take up back to 2008. If this happens we all could be in trouble as this would send our economy into second dip recession.

Student is now on their own after going 6 for 7 during the training phase. Despite the loser three weeks ago student is still positive on profit for all trades combined. My first disciple is now out there on their own. 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 now over.

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 #2: Students are getting educational advice as well. We do deal with live streaming data at times in the student/teacher relationship, BUT this data 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