New to trading options

B

BLC

I have been trading options for about 5 months now. I am not new to investing, as I have been doing it for over 25 years. But I am new to TRADING and I understand that is an entirely different thing. I would like to be critiqued on my strategy (or lack there of) by the more experienced people here. Basically, I have watched a mountain of YouTube videos, done months of research online, scoured forums and developed my own strategy without spending one dollar on any of the "scams" out there which are people who can't trade so they become teachers.

I started out THINKING that if I bought beat down stocks, they would have to rise, right? That sure didn't work out because I lack the patience to wait years for them to recover while watching my money slowly going down or going nowhere. I can't go long in this account, I have another one for that which I try to keep my eyes off of and only check it quarterly.

So, after only three months I was down 22k. But I didn't give up. I had to find a strategy that worked for ME. It had to be somewhat defensive because I was down so far, but it also had to be seriously income generating to get me out of this hole I dug. And I wanted it done before the end of December.

Well, I got it done a month early! I am now up 14k as of today and this is on a small trading account. A 36k turnaround in less than 3 months. And I have options to thank for that. I am not about to give anyone advice because I am just too new at this and who knows, I might blow my strategy later on.

So keep your heads up! If a new guy like me can start to figure things out, then I KNOW you can. I get up every day at 3-4am and SCOUR the Internet looking for signals to trade on. I am putting in the time and the effort, as if you want to be successful the only way is through hard work and diligence.

I really love FINVIZ and if there are any other suggestions you guys & gals have, please post them up.

Thanks for listening and I hope that everyone is successful here. It's not easy being a retail trader!
 
LOL I didn't even post my strategy. I am so sorry, coffee hasn't kicked in yet:

1) I only go long on stocks that pay a strong dividend. I call these my "old man" stocks. I only have a few, for protection. I don't care what the share price is, as long as they are stable and no chance of having the dividend cut. So Blue Chip.

2) I DO NOT trade with margin. This is to protect myself as I am too new. Maybe later. But for now, it's a cash account by design.

3) I day trade 3 times a week but mostly swing trade overnight (no margin = no interest penalty).

4) I sell cash secured puts stocks that have weekly options on Monday mornings between 9:45 and 10:30am. I only do this on stocks I WANT to own, in case of assignment (I have been getting assigned about 15% of the time so far).

5) If I get assigned, the following week I will sell a covered call on that stock. I will watch the price action and if it makes a run I will usually sell 10% weekly OTM and hope it gets called away. So now I got the premium on selling the put, a premium on selling the call, and share appreciation of 10%. I call that my "triple win".

6) I also sell covered calls on my dividend paying stocks but those are way OTM as I don't want them to get called away. It's just a little added income.

7) I DO close my weekly puts early On Thursday/Friday if the decay looks good and the stock has made a run and starts to decline. I try to avoid assignment is the price is cheap enough. I do this so I have cash to reinvest as Etrade allows me to do this immediately and yes, I leave a little money on the table by not waiting for them to expire. Example: I had an XPEV put Wednesday (yesterday) that expires on Friday. I was up $1100 on it, closed it out for -$42 and reinvested it on another put that expires Friday and made +$120.

8) To this date, I have NEVER bought a call or a put. That's right, not even once. Here is my logic and I am sure to be corrected and that's fine: You make money in this world by SELLING not buying. You go broke by spending too much. If you only sell - then your wealth has to grow.

So there it is, you guys can tear me a new one now. I have a lot to learn, and I am probably doing everything wrong and just got lucky so far.

:)
 
The allure of selling options for the premium is the high win rate like, maybe, 90%? On the flipside, you are collecting small amounts of premium and accumulating it. Now, on the negative side, it just takes one big loss to wipe out a lot of your profits. I tried selling options premium for income and out of 7 trades, I lost 6 of them and thousands of dollars. Contrast that with just buying call and put options, where your risk is capped to the cost of the premium paid and the upside of calls is theoretically, unlimited. Put gains are limited to a maximum of the stock turning to zero. I would rather collect dollars instead, of cents for the risk I am taking. Fine with a 40% win rate too. It is the size of your winners being multiples of your losers that matters. No rule prevents you from selling a losing options position too. Slippage is real and must be taken into account too.
 
BLC said:
I only do this on stocks I WANT to own, in case of assignment
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I like the Wheel strategy, but I hate when people say the above as though it’s one of its positives (many do, not just you).
What they mean to say is - I WANT to own it as long as it doesn’t go too much lower and comes back to my purchase price within reasonable time. Being put a stock at 90 and then watch it trade at 70 is not a great feeling. When (and if) it comes back, the opportunity cost is significant.
 
Oh, so what I am doing actually has a name? I reinvented "The Wheel"? That's hilarious! It figures.

A downside to what I have been doing:

1) Not selling far enough OTM on stocks that have positive news announcements mid-week. This happened to me recently on NIO. Yes, I made a good premium and share appreciation; but I would have made double by simply holding and not selling a call on it. So now what I do is sell a call and IF I think if the share price might take off, I sell a cash secured put on it as well as a hedge so I don't lose my shares. For example:

I am in on NIO at 42. NIO is trading at 50. I sell an OTM covered call for 52. It blows past and stays past my strike by Wednesday to 54 and keeps climbing. Instead of buying to close, I sell a cash secured put for 50 to make up for the share appreciation loss I am going to miss out on. I did this 4 times last week on 4 different companies and all 4 were winners.

Is there better strategy than this?
 
BLC said:
I have been trading options for about 5 months now. I am not new to investing, as I have been doing it for over 25 years. But I am new to TRADING and I understand that is an entirely different thing.
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My two weeks of daily hard work (study) has left me with the knowledge of the mechanics of Option Trading (how to do it) and some knowledge of how to do it responsibly. But it has also left me feeling that I must have an in-depth knowledge of the companies I trade in AND I must study them every day (keep up-to-date) AND I must understand how the world markets work and work together and every day I must search for information on events in the world that will effect various stocks. In short, I have formed the view that trading options requires nothing short of a commitment to do all that stuff every day. . . . . . Am I correct?
 
BLC said:
LOL I didn't even post my strategy. I am so sorry, coffee hasn't kicked in yet:

1) I only go long on stocks that pay a strong dividend. I call these my "old man" stocks. I only have a few, for protection. I don't care what the share price is, as long as they are stable and no chance of having the dividend cut. So Blue Chip.

2) I DO NOT trade with margin. This is to protect myself as I am too new. Maybe later. But for now, it's a cash account by design.

3) I day trade 3 times a week but mostly swing trade overnight (no margin = no interest penalty).

4) I sell cash secured puts stocks that have weekly options on Monday mornings between 9:45 and 10:30am. I only do this on stocks I WANT to own, in case of assignment (I have been getting assigned about 15% of the time so far).

5) If I get assigned, the following week I will sell a covered call on that stock. I will watch the price action and if it makes a run I will usually sell 10% weekly OTM and hope it gets called away. So now I got the premium on selling the put, a premium on selling the call, and share appreciation of 10%. I call that my "triple win".

6) I also sell covered calls on my dividend paying stocks but those are way OTM as I don't want them to get called away. It's just a little added income.

7) I DO close my weekly puts early On Thursday/Friday if the decay looks good and the stock has made a run and starts to decline. I try to avoid assignment is the price is cheap enough. I do this so I have cash to reinvest as Etrade allows me to do this immediately and yes, I leave a little money on the table by not waiting for them to expire. Example: I had an XPEV put Wednesday (yesterday) that expires on Friday. I was up $1100 on it, closed it out for -$42 and reinvested it on another put that expires Friday and made +$120.

8) To this date, I have NEVER bought a call or a put. That's right, not even once. Here is my logic and I am sure to be corrected and that's fine: You make money in this world by SELLING not buying. You go broke by spending too much. If you only sell - then your wealth has to grow.

So there it is, you guys can tear me a new one now. I have a lot to learn, and I am probably doing everything wrong and just got lucky so far.

:)
More...

@BLC I'm completely new to options (have been reading the entire day today about them) and I'd have a few questions
  • Any specific reason for going only with dividend-paying blue chip stocks?
  • Why only weekly options?
  • I did not know that an option seller could close the contract early, is that achieved by purchasing the same put contract you sold?
  • Isn't selling naked options risky (e.g. the underlying stock crashes)?

Thanks
sm
 
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