How long $3000 will last option trading

S

skanan

I am a newbies in option trading.

I started about a year ago but became serious about 5 months ago. I started out another jornal on XEO here
http://www.elitetrader.com/vb/showthread.php?s=&threadid=55761&perpage=6&pagenumber=1

and decide not to focus mainly on XEO anymore.

http://www.elitetrader.com/vb/showthread.php?s=&threadid=55761&perpage=6&pagenumber=7

After 3 months with OEX/XEO trading, I losted about $300. I decided that it was not for me. It's too expensive for my captial so I'm starting on something else.

I'll limit my loss to $3000. I'll consider it as my tuition fees. If I reach that limit, I might get out of option trading.

Please feel free to question or criticize my trade.
 
I'll start out with about $50,000 capital. I intend to allocate about $20,000 maximum. I'll probably trade 1-2 contracts at a time. I plan to spread my entry along time and different strikes as well. I'll monitor overall portfolio Delta, Theta, Gamma, and Vega too.
 
Here is my inventory.

1. 1x TSO DEC 50/55 put spread for $1.60 credit.

2. 3x SPX DEC 1125/1135 put spread for $0.5 credit/contract.

3. 1x VLO DEC 85/90 put spread for $1.2 credit

2x VLO DEC 90/95 put spread for $1.35 credit/contract.

4. 1x AAPL DEC 55/60 put spread for $1.50 credit

5. 1x SPY DEC 119/121 put spread for $0.50 credit

6. 1x SPY -123 DEC + 121 JAN diag put spread for 0.10 debit.

7. 1X COP Jan06 75 +Call $0.60 debit

8. 1X XOM Jan 06 65 +Call $1 debit

Margin tie $5700.
 
What is your r/r? seem like you are too diversified to me especially when only doing 1 contracts. How long are you willing to hold?
 
Quote from magicz:

What is your r/r? seem like you are too diversified to me especially when only doing 1 contracts. How long are you willing to hold?
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I'm not so sure I can answer the r/r since it is difficult to measure. If I answer in term of maximum risk it would be much higher than my reward. For example, the $5 spread with $1.3 credit probably has reward/risk ratio only 1.3/5. However, the probability of me loosing the full $5 ($3.7 after credit) is very little but has high chance to win.

I usally aim to get at least 20% credit from my spread with higher than 50% chance of winning. For example, my $1.3 credit on $5 spread has 73% of chance to win.

I'm a short term trader so most of the short options were entered when there were less than 50 days to expiration.

As for too much diversification, .do you think it would make me loose focus ?
 
Just from personal experience, I think if you concentrate on a smaller number of the underlying and get to know them like the back of you hand. Then it would be better to risk more on a more concentrated porfolio with a higher reward.

Especially, if you are short term option trader then you should get to know your underlying even more because your profit is dependent on short term movement of the underlying.

I hope that didn't confuse you...
 
Quote from skanan:

..
After 3 months with OEX/XEO trading, I losted about $300. ..
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a quick mental math telling me, you will last 30 months.:p

ps. after 30m and you're still around then there is more than 50% chance that you make it back within next 12m.
 
I think you will chew yourself up in options. You’re doing it like a stock portfolio. Options are quick plays where it’s based on news or charts. So you’re in and out quick so you don’t lose alot of time value.
 
for one, selling spreads means twice the commish. secondly, if one spread goes against you to the max it will take the profit away from 3 of your winners (assuming you collect all of what you sold it for and not less).

this strategy just seems weak to me. you might not lose a lot of money but i really dont think you will make a lot either, even if you size up down the road.
 
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