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.
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. When looking for a trade the PCLN was the only one on my list that fit the bill.
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: 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 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
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