JP's options journal

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Concerning the PM trade:
V-shape reversal on the weekly. The top was around 92.70.
Meanwhile we had a retrace back to ~82.50, which has been tested 3 times now.
Ideal place to risk a long.

First target is prev high of 92.7. If it actually completes a cup & handle formation, could go a lot higher.

JP
 
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I really need to pick up my homework again during the weekend because there is a clear correlation between actually doing it and my results.

As for the indexes this week. Stochastics on the weekly is making a sharp turn downwards from very high. (started last week already actually). For me this is a red flag for more down to come, despite the weekly green bar.
DJ & S&P look very similar (as do a lot of stock obviously)

So for next week I think there's a big chance we revisit previous week lows or go lower than that.

I'll be looking for a short on Monday. Possible candidates are UTX / IBM / QQQ /…

JP
 
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Another month has passed. And there's good and bad news.

The good news is that my sytem works. The picture above was a prediction for the stock indexes two weeks ago and how it worked out so far.
It's a very good example of what I'm trying to accomplish. Purely a TA approach. I don't trade reversals. Waiting for the (weekly) higher timeframe to roll over and then take a position on a pullback on a smaller timeframe.
The SPY trade entry last week was a perfect example of that.
I guess one man's trend entry is another man's countertrend entry. But I consider this trading with the trend.

The bad news is that there was too much wishfull thinking in the FB and PM trade. They are still open but it looks like a full loss on both.
And on top of that I sold the SPY put for peanuts instead of keeping it as the plan said. Compared to the entry price it's trading at triple digit % profit right now.
The conclusion is that this was a month with red ink.
I won't have much time for the next two months. So there will be no new trade entries until August.

JP
 
Some thoughts on trading options.

This is a relatively new instrument for me. (trading it for less than a year and not very actively)
There are several reasons why I prefer options (now) over futures as a leveraged instrument.

The idea of this journal was to just go long calls or puts. Only trading the trend, no volatility or other Greek stuff.

Lately I've been reading a lot about multi-legged positions and all the exotic positions you can take with that. The more I read about it the more I realise how little I know about options.o_O

My thoughts on …

long calls / puts:
- Unlimited profitability
- Risk is limited to the initial position itself - no margin needed.
- Time is working against me. Not an issue if things (timing) go as planned right away.
- A downside of the above is also that the b/e point of the trade is moving away from the initial entry price as time passes.

The multi-legged stuff has (very) limited profitability compared to just long call and put positions. The main reason for me to never look too much further into this.
There are certain conditions however, like a grinding trend up, where there is a trend which moves in small steps for a longer period of time. (i.e. April uptrend in stock indexes). I believe it would be beneficial in those conditions for me to have time working for me rather than against me.
After some sim testing I'll probably try diagonal (credit) spreads later in this journal.

Anyway, comments are welcome.

JP
 
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My first attempt to trade diagonal spreads. I took these trades last tuesday when SPY was ~278.50 so the 282/281 & 283/282 were both OTM.
I didn't posted the entry since it was just a test. But they are live trades so might as well post them for the exercise and thoughts behind it.
Real trades because I wanted to see how bid/ask actually worked and that's difficult to sim. Especially limit orders and how to get best filled.

The Jun14/Jun17 282/281 put was bought for a net credit of 0.47 (incl. comm. 0.457)
The Jun14/Jun17 282/283 put was bought for a net credit of 0.55 (incl. comm. 0.543)

So I guess that's the first time in my life I receive money for opening a trade.
Feels like getting paid first and then starting to work:D

The plan was of course for prices to rise and to compare this situation vs. just buying a straightforward call.
More below...
 
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This is what is to be expected from the 14Jun/17Jun 283/282 Put. Purple line is today and the green arrow is where current price was when I took the screenshot. Both profit and loss are limited.
 
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This is how that same situation will look next week (06/12) considering price remains constant. Theoretically it's possible to not only receive credit when opening this position but also receiving again $ when closing.o_O Just mindblowing if you ask me.
I took two different spreads to have two shots at this. Just for the sake of the exercise. I consider chances for this to hit that sweet spot very, very slim.

Should I sell and give some of my credit back or just wait until it everything expires worthless ? For this test I intend to hold them as long as I can.

It's too soon to draw a conclusion but at this time I think in strong trends up/down it's better to just buy call/puts. The diagonal spread seems more interesting in these grinding trends. Relentless upgoing, but at a slower pace.

JP
 
Yes, from what I know from options as a directional play you end phrase defines this correctly. Spreads should be used with care since it can be hard to take profits too early since one leg might still have a considerable premium.
 
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