Anatomy of a fun 2-day trade (AMC +$60k)

[NoahA]

Stock drops to $51 showing enough gain that you can sell the initial position to cover the cost of the trade. Now you wait for the big move with the rest, like the AMC move from $50 to $48 in minutes. If that move never happens, you are lightening up throughout the day and re-entering a wait-and-see mode.

I'm constantly adjusting positions, it's a very important part of the process. Yesterday I traded 6600 contracts. You need to have cheap commissions (I pay 25c) and collect rebates whenever possible. If your broker doesn't offer that, then get a better broker. They are literally lining their pockets with your rebates.

This is priceless information. I think this right here is the key to how you make money. You're working the trade, always adjusting, and your years of experience tells you how to adjust. No different than a master mechanic that can tune an engine based on the sound its producing.

 

[NoahA]

Yep, good summary. A really good month would have 4-6 of these.

And to put this into context, how many times in that month would you try? If a good month has 5 winners, have you tried 20 times maybe, with 10 being small losses and 5 maybe being break even trades? Perhaps of the winners, most just turn into small wins, but 10% end up being huge wins?

I bet actually that if you have 5 in a good month that are big wins, you probably tried 50 times. Easily 25 will be losses too perhaps of 2-5k or so before the big 25k or 50k win comes?

 

[Dustin]

Thanks for this chart and the explanations once again.

It seems to me that you are first more of a chart trader. If this is true, I like this because it seems that most guys think that the only way to make lots of money is via the math route and not even looking at a chart. All the data just seems to go into a spreadsheet which generates stats and they trade based off this. But to be more of a price action trader seems like a sin here at ET.

But it also can't be as simple as looking for a triangle on a daily chart and takes both positions and waiting for one to work. How much of your knowledge of options helps with the decision making process? When destriero talks, its like another language, but I understand he is a high level options guy and it works for him. But for you, is there info within the option chains that help with your decisions, or are you simply buying options as a way to put on your trade since you can accomplish more with less money vs. buying or shorting the shares outright? (clearly with shares you couldn't even be in both short and long positions at the same time)

Definitely a chart trader. I have 40+ charts at my desk to watch all the setups. Price action + basic TA are everything. Experience plays a big role obviously. I quick calc says I've been looking at charts for 30,000 hours of my life, so the experience can help recognize where the big setups are, and determine the proper strikes for max reward.

The option chains (and greeks) play no role in my decision-making. I find the strike that can pay 10x if I'm right...and go with that. Some trades can be 20-40x, but those are rare. KISS

 

[NoahA]

and determine the proper strikes for max reward.

Are you able to expand on this?

 

[Dustin]

And to put this into context, how many times in that month would you try? If a good month has 5 winners, have you tried 20 times maybe, with 10 being small losses and 5 maybe being break even trades? Perhaps of the winners, most just turn into small wins, but 10% end up being huge wins?

I bet actually that if you have 5 in a good month that are big wins, you probably tried 50 times. Easily 25 will be losses too perhaps of 2-5k or so before the big 25k or 50k win comes?

Yes, and results to vary widely month to month. Sometimes it's just grinding out every day with nothing to show for it. I've had one red month this year of -$8k.

Here's my actual win/loss report for June which was my 4th best month this year. This was a difficult month.

 

[Dustin]

Are you able to expand on this?

Sure, take the AMC trade. I had some $50p leftover from Thursday, and knew I wanted to double up on the open because I thought a move to $48 and lower was very likely. But now I had to move down to the $48p strike to find the leverage. My average was about 16c on 333 contracts. I knew if I was right I could get the 5-10x. My first sale was 69c and my best sale was $1.46. After it peaked at that point (the stock bottomed) I aggressively sold the rest down to 92c.

 

[newwurldmn]

Yes, and results to vary widely month to month. Sometimes it's just grinding out every day with nothing to show for it. I've had one red month this year of -$8k.

Here's my actual win/loss report for June which was my 4th best month this year. This was a difficult month.

View attachment 262396

Are the opportunities for your trading strategy this year better, average, or worse compared to other years?

 

[NoahA]

Sure, take the AMC trade. I had some $50p leftover from Thursday, and knew I wanted to double up on the open because I thought a move to $48 and lower was very likely. But now I had to move down to the $48p strike to find the leverage. My average was about 16c on 333 contracts. I knew if I was right I could get the 5-10x. My first sale was 69c and my best sale was $1.46. After it peaked at that point (the stock bottomed) I aggressively sold the rest down to 92c.

Excellent. I'm quite rusty on options stuff since I'm heavily into trading ES/NQ, so bear with me please.

So 16 cents is very cheap for an option. I guess this was the market pricing in the low probability of a move down to $48 for this last day before expiry, correct?

How often do these low priced options present themselves? I keep reading about how options are sometimes very expensive for both calls and puts because nobody has a clue where its going so people want to be paid for a risk.

Also, when you say leverage, you simply mean the ability for the option to go up 5 or 10x in price, correct? A 16 cent option has to move to 80 cents to be a 5x trade. But if you bought the $49p for example, this might have been $1 (just pulling a number out of a hat), so a 5x trade would have to have this climb to $5 which is highly improbable, correct? So a 5x trade on the $49 is probably not possible. Do I have this right?

 

[Dustin]

Are the opportunities for your trading strategy this year better, average, or worse compared to other years?

By far better since Covid. These are the days to fill up the bank account and be prepared for when the market eventually goes back to normal. The return of retail has created all new opportunities. I've been waiting for the day that all these guys go back to work and the market gets quiet again, which will happen.

In the meantime, I'm also practicing expanding my time horizons into more swing trading for that eventuality. A return of the 2019 zombie market gives my nightmares <shudder>.

 

[newwurldmn]

By far better since Covid. These are the days to fill up the bank account and be prepared for when the market eventually goes back to normal. The return of retail has created all new opportunities. I've been waiting for the day that all these guys go back to work and the market gets quiet again, which will happen.

In the meantime, I'm also practicing expanding my time horizons into more swing trading for that eventuality. A return of the 2019 zombie market gives my nightmares <shudder>.

I feel the same way. I think 2022 will be 2019 again.