A newbie's index option journal

JW Trading Journal : 2007-03-16 Result

As the DIA March 125 call (DAWCU) became expired, it concluded the first half of the monthly result. Yesterday the indicator changed at the last minute which resulted the long of DAWDO got filled at $4.20. The position was closed first thing this morning at market open ($4.00). I was debating for a little while if I should take the trade off the table because I know that I would be losing money to sell at the opening due to the spread. However it is more important to be discipline and stick to the rule. Making money for the wrong reason is as bad as trading blindly. Besides, it did close down further (final bid 3.70).

DIA MAR 125 Call expired, - 100%

2007-03 month to date return : 3.78%
2007 year to date return : 8.02%
vs. 2007 year to date SPY (S&P500) return : -2.25%

Open position: 0
 

Attachments

JW,
Considering the short term and intermediate term directional trend change in the markets, its amazing that you have remained in positive territory (for the month and year) by only trading calls.
Have you considered trading both calls and puts?
Until the SPX reverses its intermediate term downtrend and gets itself above the 50 day moving average, you could benefit by
shorting these rallies.


Jeff
 
Jeff,

I have been testing the model with put stragey and will implement it once I have obtained satisfying results.

Thanks.
 
Quote from JLB123:

2007-03-19 Trading Activity :

Initiated long position with DAWDO - DIA April 119 call @4.60.

Open position : 1
More...

what do you look for, namely, criterias in your model that such & such is going up, don't have to give the exact rules but a few pointer would help

cheers
 
Quote from dtan1e:

what do you look for, namely, criterias in your model that such & such is going up, don't have to give the exact rules but a few pointer would help

cheers
More...


It's a mix of indicators (stochastic, moving averages, etc), hedge ratio analysis (part of the pair trade methodology) surrounding the core idea being relative value and capital movements. If it's a high probability trade then I just commit a small portion of the capital per trade. However, among the twicks Money Management is probably the most important factor of the setup, though.
 
JW,
Today the market moved in the direction of the DAWDO options your holding, but the options didn't react with price movement.
With experience you will eventually learn which index options have the best price movement and which don't.
For example, here is the price movement (open to high) and the volume today on four different April index options:
Index..Option.... Price Open...Price High........Volume
DIA......119C...........4.70.............4.70................3
DJX......122C...........2.15.............2.45.............267
SPY......140C...........2.55.............3.00...........2911
OEX......655C..........2.70.............4.00...........1099


Just a little food for thought.

Jeff
 
Quote from jeffalvinson:

JW,
Today the market moved in the direction of the DAWDO options your holding, but the options didn't react with price movement.
With experience you will eventually learn which index options have the best price movement and which don't.
For example, here is the price movement (open to high) and the volume today on four different April index options:
Index..Option.... Price Open...Price High........Volume
DIA......119C...........4.70.............4.70................3
DJX......122C...........2.15.............2.45.............267
SPY......140C...........2.55.............3.00...........2911
OEX......655C..........2.70.............4.00...........1099


Just a little food for thought.

Jeff
More...

Thank you Jeff for bring this to my attention.

If I didn't execute that buy order at market close then it would've closed at 4.4 and today final bid was at 4.80. And the reason I choose a more expensive option is to protect the value at the down-side and capture as much underlying movement as possible. So it's probably why the option didn't move much because I already bought it at such a premium. Nevertheless that OEX option gave me some new ideas... I am going to test and see if OEX options will yield a higher return if DIA appears to be undervalued. Thanks again.
 
JW Trading Journal : 2007-03-22 Result

Closed DAWDO - DIA April 119 Call @6.10, +32.60%

2007-03 month to date return : 6.39%
2007 year to date return : 10.71%
vs. 2007 year to date SPY (S&P500) return : 1.10%

Open position: 0

Losses from DAWCU call expiration has shown up in the log due to March expiration. My record had booked it as February's monthly % return, which is why March is still positive. It doesn't impact year to date return, though.
 

Attachments

JW,
Are you using some kind of stops?
The reason I ask is, I was wondering why you let the 5
DIA Mar125 calls (bought 02/22/2007) run for 24 days all the way to expiration and expire worthless?

Another timely lesson that I learned in index option trading:
Your reward to risk ratio should be no worse than 1 to 1.
If your average profit is +30%, your losses (stop) should be no greater than -30%.
You cannot have total losses (-100%) and +30% to +40% winners, because it takes more than three +30% winners to make up for 1 total loss.
That means you can have a W/L record of 75% and still lose money if every 4th trade was a total loss.

If your not going to have stops, than your profit goals need to be +100% to +200% on the winning trades.
That way you can afford the occassional total loss.
But its extremely difficult to have hugh winners (100% to 200%)
buying deep in the money options like you have doing.
As an example, during the time duration of your last DIA trade (DAWDO) from March 19th to March 22nd, you made +33%.
The out of the money OEX option I showed you the other day (OEYDK) rose +251% during the same time duration.
With those kinds of profts you can afford the occassional total loss.


Jeff
 
You must log in or register to reply here.
Back
Top