Hi Folks!
Yea! Another good week. This one was very stressful. I took a while to find good trades, in fact I didn’t get into any trades this week until late Thursday and Friday. This time of higher volatility makes trading by a system even more important. You really have to be sure of your trades AND have to be ready to change them as the situation changes.
On the personal side, eldest daughter got through her first week of Basic Training. I got a call this weekend from her. She is in the Air Force and just after she left for Lackland AFB in San Antonio TX an article came out over the AP wire stating that several Air Force Drill Instructors were facing Court Martial for sexually harassing young women recruits. NOT the thing a dad wants to see! Well, part of her call was to tell me that she was ok and that the DI’s responsible were in the brig and she would not have any contact with them. That was a big relief!!! So now she is in week 2 – 1 down 7 to go!!!
Youngest daughter got back from camp this weekend. This was her first all week camp away from home. She did fine, mom on the other hand was another story. They are very close and she missed her little girl. With the eldest off, I could certainly understand how she felt.
Boy is starting driver training – that is a life transition! Wanna feel like a dad in a hurry? Start teaching a kid how to drive (Eldest girl had no interest, had a hard time even sitting in the driver’s seat so we didn’t puch it. Now the Air Force gets to teach her.)!!
Ok on to the analysis:
TRADES
NDX 2525 Put $3.09
NDX 2500 Put ($0.63) This gave a Net Credit of $2.46 or 9.84% ROI
SPX 1360 Put $0.29
SPX 1355 Put ($0.06) This gave a Net Credit of 0.23 or 4.6% ROI
The SPX ROI looks a little different because I used a smaller gap on the spread. This gap made a $500 spread instead of the usual $1,000.
Remember the NDX uses $25 steps which equates to a $2,500 spread.
ANALYSIS
Both of these trades were put on later in the week. The NDX trade was put on Thursday right before the close. I did this for a few reasons:
1. The NDX option closes trading for the week Thursday 15 minutes after the market close.
2. The settlement for NDX is determined at the opening Friday morning
3. Over the past 6 months every time there was a one day drop of 25 or more points there was an up move the next day of at least 2/3 of the down move. This is probably people coming in and buying on the dips. This is shown by the green arrows on the chart.
4. Seeing this pattern when the market dropped 30 points Thursday I wanted ot take advantage of the trend outlined in #3.
5. This was the ATM – At The Money line for the NDX so I was able to potentially get a great premium.
6. The NDX stayed true to form popping 30 points back up on Friday morning thus setting the SOP (Special Openeing Price) for NDX well above my 2525 mark.
7. The white lines show our trade in NDX
8. Now look at the pink line. This is the 20 day SMA (Simple Moving Average). Notice how the price keeps bumping into that line then moving higher. This is going on for basically the month of June. This was another indicator that the put spread would work. Each time in June when the price hit theh 20 Day SMA it moved up. I was touhing the 20 Day SMA Thursday.
The SPX trade is a whole other ball game. This was a trade that I would only tell my most experienced and gutsy followers to do. I made this trade with about 5 minutes left in the market Friday afternoon. Here is my rationale for this trade:
1. I was watching the SPX of the past couple of days and just couldn’t find a trade that met our 10 steps.
2. The big rally Friday started to bring some opportunities.
3. I kept checking back throughout the day and the metrics kept getting better and better but not hitting our limits.
4. Finally at close to the end of theday the trade I did hit our marks.
5. As you can see on the chart the index closed just above my strike making me my money. This is why I do not recommend this action for the faint of heart. The chart action was upward all day so if we were to make a trade it was going to fall on the put side. But on expiration day the spreads are very tight. So you have to use time as your friend. But this is a double edged sword. The more you wait, the less premium there is to collect. To compensate for the lower premium we adjust the strike and go with a $500 margin unit instead of our usual $1,000. Basically this means that we can double the number of contracts we are getting for the same money.
6. Again all these are very risky. So if you are wanting to be more risk averse don’t try these types of trades.
I usually don’t like to monitor trades or potential trades this closely, and I would have been fine if I didn’t make this trade Friday. But I don’t like leaving something on the table. If I can get a little extra then I like to do it. This got me that little extra helping to offset the losses we took a couple of weeks ago.
Paper Trade
RUT 800 Call 7.45
RUT 810 Call 4.95 This can give a Net Credit of $2.50 or 25.0% ROI
Last week we put on a second paper trade looking at the longer time frame using the full time for the weekly options. Again if this trade was a real trade is would have been successful as the SOP (Special Opening Price) was 789.4 for the RUT.
I have not found a paper trade in longer term use of weeklies as of now. If I see something during the day Monday I will post on blog and Twitter and Facebook.
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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