Conservative Options Strategy

I took max advantage of this day. I traded nearly 500 spreads today in various accounts to buy new spreads, or to bleed out more near term poison and replace with spreads for JAN2010 (hoping a modest recovery occurs by then).

To keep the record straight, here are all trades for this account since last post:

*****
Monday Oct 20:

SELL: 5 AEM JAN9 40/45 @ 1.6

SELL: 3 CAM JAN9 30/35 @ 1.2
BUY: 3 CAM JAN10 25/30 @ 1.85

SELL: 5 DVN JAN9 90/95 @ 1.45
BUY: 4 DVN JAN10 75/80 @ 2.3

****
Tuesday Oct 21:

SELL: 5 RIG JAN9 100/105 @ 1.1

BUY: 3 RIG JAN10 100/105 @ 1.7

****
Thursday ref 55 - 110
Friday 47

SOLD: 12 GG JAN9 25/30 @ 1.05
BUY: 8 GG JAN 10 17.5/22.5 @ 2.0

****

Tuesday Oct 28

SOLD: 5 APA JAN9 80/85 @ 1.35
BUY: 4 APA JAN10 80/85 @ 1.65

SOLD: 6 CVX JAN9 70/75 @ 1.65

BUY: 7 FCX JAN10 30/35 @ 1.3

SOLD: 5 DVN JAN9 75/80 @ 1.55

BUY: 5 DO JUNE 70/75 @ 2.1

SOLD: 5 GLD DEC 75/80 @ 1.6
BUY: 8 GLD JAN10 75/80 @ 1.8
SOLD: 5 GLD JAN9 75/80/ @ 1.5

SOLD: 5 OXY JAN9 55/60 @ 1.1
BUY: 1 OXY JAN10 40/50 @ 4.2

SOLD: 5 XOM JAN9 70/80 @ 4.35
BUY: 5 XOM JAN10 75/80 @ 2.05

BUY: 150 SLV 8.74 LONG

Still planning recovery for Jan 2010.

I will NEVER NEVER EVER EVER let this happen again. I will TRADE WHAT I SEE AND NOT WHAT I THINK!!!!!!! If I survive this………

Nanook: Psychologically? Everything is just peachy, thanks for asking. LOL.
 
Quote from yucca_mtn:

Nanook: Psychologically? Everything is just peachy, thanks for asking. LOL.
More...
Onward and upward as they say! And with your strategy >>> sideways is good, too!

:cool:
 
A tale of October.

The end of September left me with a portfolio of spreads that were shaped during July, August and September. My account (at $160K) was down about 22% from its May highs. I was upset, but certain that the sectors I was in (energy, commodities, metals) were going to be less affected by the housing, consumer spending, and banking fiascos. After all, the experts I listened to were practicing what they preached, they were their putting more of their clients’ money to work as these sectors got cheaper and cheaper. They sold me, I believed the rational. (I still do.)

Now, at the end of October my account is at $70k. And I worked very hard to achieve that humble figure. Every spread that was in my portfolio at the end of September crashed and burned. Not one survived. And that is not the worst of it. The market crashed so hard and so fast that there literally was not enough time in the trading day to perform damage control. I had other accounts to worry about.

As the spreads became more and more worthless, and the prospect of seeing zero value from them loomed rapidly, I had few choices to make. I could have simply sold them. During this time I had 700 shares of GLD and 350 shares of SLV, and of course the value of these shares was falling also, but not at the rate my spreads were failing. If I simply pursued the path of selling the spreads and keeping the long positions, my account value would still be about 70 to 75K. But I chose to use the same option spreads to get me out of the mess I am in, since they got me here to begin with.

So I used whatever I could salvage from selling the poisoned spreads to buy new spreads. The math showed me I could not expect a full recovery by doing just that, so I made the decision to sell off 550 shares of GLD (at low prices) to raise the cash for new spreads. If I kept the GLD, I might reasonably expect a 10 to15% increase during the next year. If I “take advantage of the once in a lifetime” “bargain prices”, I can make a 200 to 300% gain in spread values in the same time frame with (what I hope is) a reasonable success ratio. So that is what I did for this account, and if successful I will make almost a full recovery by Jan 2010.

This is sort of the course of action I took for other accounts also, except I did NOT sell any shares in GLD or SLV. If the economic troubles deepen into a depression or whatever, the metals are the only safety net, and I am keeping that. These other accounts were not damaged so badly as this account.

This plan is still a work in progress, I have not yet sucked all the venom out of all accounts yet, but most of the work is done. I need $75 oil and 850 gold by Dec 2009 for all this to work. If these price levels come in by summer, I’ll do a lot better. I’ll post my portfolio update soon, after some of the dust settles. If the dust settles.

*****
Trades since last post:

October 29:
SOLD 10 XLE DEC 65/70 @ .3
SOLD 8 NE DEC 42.5/45 @ .15
SOLD 10 MRO JAN9 35/40 @ .72
SOLD 4 COP JAN9 60/65 @ 1.25
SOLD 5 GLD JAN9 75/80 @ 1.85

BUY 3 NE JAN10 35/40 @ 1.5
BUY 3 CCJ JAN10 10/15 @ 2.7
BUY 5 AUY JAN10 2.5/7.5 @ 1.5
BUY 5 LVS JAN10 7.5/12.5 @ 1.5
BUY 150 AUY @ 4.57 LONG

October 31:

SOLD 5 BTU JAN9 50/55 @ .6
SOLD 5 NOV JAN9 55/60 @ .15
SOLD 5 RIG JAN9 110/115 @ .75
SOLD 3 SLB JAN9 70/80 @ .95

BUY 8 SLB JAN10 75/80 @ 1.1
 
From $200K --> $70K. The very definition of OUCH!

Sorry for your loss, but your determination is impressive. Most here would have folded the old alias and moved on. If you survive this market a bit longer, my money is on you making it all work out.

Good trading to all. :cool:
 
I feel for you but there is always danger in calling something "conservative" Be careful about loading up to try and make it back as revenge trading is never a good idea.

Best of luck...
 
There really is little point in continuing this journal. My methodology has been fully and excruciatingly explained and exemplified. All my judgment calls and mistakes are here for anyone to see. All my trades for the future are placed and it only remains to see how it all works out.

I hope that there has been some food for thought for some readers. I have lots of lessons learned, but they are not fully developed yet and I need time to think about better risk management. Also any lessons to be leaned are different for every person. I have to say that although I am fully responsible for every trade I made, that Coach is correct when he brings up “revenge trades”. Every trade I made recently was based on revenge, and on assumptions that could be totally wrong in this economic environment.

I am more than a little angry that other peoples screw-ups and other peoples greed and my government’s ineptitude have all combined to lay siege to my retirement security, and that security of many of my friends and family. And hundreds of thousands of others. I tried to lay aside that anger while trading recently, and placed future success on a reasonable set of decisions. Whether or not they work is of utmost importance to me and my family, but have little value to this journal. And there is no escaping the fact that I alone allowed the damage to grow this large.

I do appreciate all the contributions of others, and wish I had learned more from their experience and advice.

For now I will continue to use what I think is an amazing investment strategy, but I will cut my losses much more quickly, and I will try to time my entries better, and I will invest a smaller percentage of my portfolio in these spreads, and I will learn more about operating bear spreads. Consider this my New Years eve resolution for Jan 1, 2010.

I reserve the right to post occasional updates from time to time, but I will no longer post individual trades. Good luck to all of you.
 
I didn't check out every trade you made, but I think that the market is beginning to make a rebound. It moved 10% back in one week, and many stocks are starting to look somewhat attractive on a PE basis. A lot of companies will report in the next few weeks and then the PE figures will be more reliable. If you figure in a 25% drop in overall earnings, the PE's look pretty normal, and the market reasonably valued.
Many of your spreads still have the potential to become quite valuable if the market hangs in there from here or rises moderately over the next few months. Don't give up even when it looks bleak. It looks darkest just before the dawn.
 
It is always worse for option traders when they get caught on the wrong side of the swing because we are left with nothing when our options expire worthless. It shouldn't happen because we can counter any losing bullish call position with puts in a ratio that either keeps us neutral or makes us money. But many times we don't. Maybe it goes against our nature to enter a trade we think might be a loser, just to buy insurance.
 
Chris, actually I make many trades that I think might be losers because I know that my average of predicting the market (and I mean magnitude, direction, and timing altogether) is nowhere near 100%. I therefore hedge many of my trades so that losses may be mitigated. Sometimes those little hedges grow to be bigger than the profits projected on the initial trade. When that happens, I rejoice, but I don't gloat since I know that it was a bit of a fluke. Nevertheless, I still persist in doing it because it makes a lot of sense in the long run to protect yourself from losses. It's part of the overall strategy. Give yourself a chance to profit from those hedges, and you just might!
 
The market is a great teacher, if it doesn't kill you first. I have come to a number of conclusions about hedges for my spreads. all of the ideas discussed here so far have not worked for me. It doesn't make sense to hedge positions that you think are good going into them. It also doesn't make sense to hedge positions that have already fallen, because it is so obviously too late.

What I am now thinking about is resorting to using technical indicators to tell me when the positions I hold are in more danger than usual, then to buy protective puts for that time period.

With the time period of my spreads (over months) I don't want to be hoping into and out of the spreads based on technical indicators. And I have previously (early on) stated that simply exiting the spreads whenever they dip below a certain percentage of the cost is a losing strategy.

So if I can establish risk based on technicals, maybe using puts to hedge the risks during those risky time frames may actually work. I was opposed to this reliance on technicals previously because I thought the inherent risk of DITM spreads was a no-brainer. Well I have been kicked in the ass hard enough to modify my beliefs. I know other contributors tried to tell me this stuff in earlier posts.

So what I am mulling over now is the simplest and most reliabe way to do that. What is looking good to me now is using the 5, 20, and 100 day moving averages on a six month chart to identify the down and up trends. The time frame of these MA's matches my spread time frames pretty well.

I might use the 5 day crossing below the 20 day as a time to buy some put protection, and the opposite to sell the protection. As to a more exact methodology, I don't know yet. Maybe just plotting the S&P is enough to keep the devils out of my portfolio, instead of worrying about plotting each position. I would also try to use the 100 day MA as a "mindset" aid to help identify general market conditions.

Anyway that is where I am. I never said I was giving up, just not posting individual trades. But the 5 just upwardly crossed the 20 a day or two ago on the S&P, so I'm not buying puts. Also I don't yet know specifically how to use protective puts, so it's not an available weapon right now. Also I have no cash right now. I'll be working on that.
 
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