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.
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 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.
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.
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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