Danno's futures-options blog

D

DannoXYZ

Hi y'all, I've been trading stock-options for quite a while and did pretty well. Here's a link to my stock-options account performance back in the heyday of the dot.coms: DannosPortfolioPerformanc2.pdf

Now gonna get my feet wet with futures-options. Here's how I started out a month ago. Funded my PFG account with bare mininum of $3000 cash. Actually sat on it for about a month with cold-feet & sweaty palms ;):
 

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I'm using this journal partly for bookkeeping and tracking my trades and to get feedback. I've done some gross and stupid errors, would be good to fine-tune how to minimize their impacts for the future.

Kinda a fun game, the actual amount I invested is trivial, so I won't miss it. Will be a good learning experience and hopefully, I'll be able to live off this sometime in the future.

Here's where I stand yesterday. I'll go back and fill in the trades in between over time. Been finding that PFG's been over/double-charging me on commissions... grrr...
 

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5-Jul-06 - set up diagonal CORN spread

My first trade!

OPEN
05-jul-06: BUY (2) Sep-245 calls 1575.00-
06-jul-06: SELL (2) Aug-260 calls 675.00+
---------------------------------------------
900.00- TOTAL

CLOSE
18-jul-06: SELL (2) Sep-245 calls 1250.00+
24-jul-06: EXPR (2) Aug-260 calls 0
---------------------------------------------
1250.00+ TOTAL

RESULTS
900.00- + 1250.00+ = 350.00+ TOTAL (+39%)

I misjudged the direction of corn on this one. I probably could've closed out the long side a little quicker to limit the loss on this trade.
 

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11-jul-06 set up COCOA vertical bear spread

It looked like cocoa had peaked and leveled off, so I bet it was gonna drop. I bought some barely ITM and sold some OTM puts:

OPEN
11-jul-06: SELL (2) Sep-1650 puts = 440.00+
11-jul-06: BUY (2) Sep-1750 puts = 1400.00-
---------------------------------------------
960.00- TOTAL


CLOSE
07/17/06: BUY (1) Sep-1650 put = 1000.00-
07/18/06: BUY (1) Sep-1650 put = 1500.00-
07/20/06: SELL (1) Sep-1750 put = 2250.00+
07/27/06: SELL (1) Sep-1750 put = 2500.00+
---------------------------------------------
2250.00+ TOTAL


RESULTS
960.00- + 2250.00+ = 1290.00+ TOTAL (+134%)


Looks like I got the direction correct, but I had no idea it was gonna dive that fast or that far. I got greedy with the short leg and set it up really close to minimize the initial outlay. That ended biting me in the @ss when cocoa dropped well past that point. Again, I should've closed out the losing side of the spread much faster. But with the majority of the drop occuring in a single day, I didn't have much time.

Can I set a stop on futures-options?
 

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That was $1k to $234k... ;) And I can't really live on that, I need to be able to keep up with the big boys! heh, heh...

I got out with $170k when the dot.com bubble crashed. Sat on cash for about a year and bought a house in the S.F. Bay area... Unfortunately, it was near the peak of the market so prices sat stagnant for 4 years. Meanwhile, I was paying out a tonne in property-taxes, mortgage-interest and maintenance costs. The banks know their game and I couldn't get rents anywhere near the mortgage. In the end, I sold the house right as prices started dropping last year and took a $100k loss overall. :(

In the meantime, I also started up an internet/mail-order biz with an incompetent partner and made a lot of management mistakes. I fought over the terms of incorporation with him for over a year while the business was hemorrhaging month after month!

I finally threw in the towel and had to admit that I sucked at real-estate speculation and business-development. Thus, back to trading! So much more FUN !!! :)
 
Hey Danno,

You did it once before, if you've got the skills (and I believe you do), you can definitely do it again, and so much more the wiser.

Are you doing this blog educate as well as speculate?

If so it might help to give the reasoning along with a graphic showing the spread and what pans out in the best/worst/average case scenrios.

Good Luck,

Jimmy Jam
 
Thanks for the encouraging words Jimmy. :) Yeah, I'll work up some charts on how I set up my positions.

21-jul-06: buy Wheat call and SoybeanMeal puts

Well, after those first two wins, I let my guard down and wasn't as cautious. I bought some one-sided positions and guessed wrong on direction:

OPEN
21-jul-06: BUY (1) Wheat Sep-400 call = 1,125.00-
21-jul-06: BUY (2) SoyMeal Sep-170 put = 1,350.00-
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2475.00- total

CLOSE
24-jul-06: SELL (1) Wheat Sep-400 call = 825.00+
24-jul-06: SELL (1) SoyMeal Sep-170 put = 475.00+
24-jul-06: SELL (1) SoyMeal Sep-170 put = 500.00+
---------------------------------------------
1800.00+ total

RESULTS
2475.00- + 1800.00+ = 675.00- TOTAL (-27%)


So... after my first four trades, I had a win-ratio of 4 out of 11-contracts. The 64% loss-rate is about the same as I had in stock-options, so I'm betting that's not gonna change by much.

That still gives me up +32% overall in the account... What I can do however, is take smaller hits on the losers to not take away from the profits too much...
 

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5-Jul-06 - diagonal CORN spread analysis

Here's the chart on 3-July that had me start the spread on corn. For all intents and purposes, it looked like a bullish formation:

060703-CORN-sep06a.gif


Selling the short OTM call lowers my cost from $1600 to 900 and increases the percentage return. Looking back at it, I should've sold the short at previous resistance levels of around 270. This would've have only lowered the cost to about $1200 or so... ah... greedy bastard. Ok, let's see what the possible outcomes would be:

060703-CORN-sep06b.gif


A. Corn moves up after short-call expires would've been the best possible scenario. I would've collected all of the premium and profited from the long-call for roughly 675+3000= 3675+ or +300% return.

B. Corn stagnates between short & long-calls. Again, I would collect 675 premium on short-call. The long-call would then be sold for a range of about $1200-1800 for profit of 1800-2700 for a 100-200% return

C. Corn drops below my long-call is the worse possible scenario (which always seem to be the case, eh? ;)). I'd still collect all of the $675 on the short call. To preserve as much of the long-call value as possible, I should sell it as soon as prices hit that level, which I lucked out and caught just in time. So I managed to recover most of the original value for a combined profit of $350 +39%.


I guess this trade turned out OK. I could've gotten even more greedy and bought just a single-sided long-call @ 245. In which case, when corn dropped, I would've lost money instead of the limited profit that I did get. Then again, I might have caught it after the peak on 12-July and could've made a $500-1000 profit. Hindsight's 20/20, but I'm not sure if I would've had the precise timing to get out in time.
 
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