Sleepless Nights

I only use a total of 1/8th of my daytrading capital on this play. That doesn't include money in the bank, money in other ventures, or money in longer term plays.

I start off risking, 1/16 at the close... if it goes my way, thats all i risked. If it goes against me. I risk the other 1/16.

The first 1/16 is limited risk, because it's done with options, or an option-nq hedge, to protect against a huge move against me.

Sure, option premium decay can cut into it, but I've never lost on this play, and i've been doing it for a few years.

If I can make 10% 10 times, I can afford to take even a 50 or 75% loss. But it hasn't happened yet.

I guess the statistics and luck are on my side.

Having this gap information one day ahead is extemely useful.

Some of the best plays occurr when it gaps the other way, because it always, always goes back to break even.

Like on friday, I knew that the gap would be closed, and therefore, I could take a position and bank big time on it. Thats not a random event. It's predictable, profitable and worth the risk. Its kinda like, the more risk u take, the more u make. I don't think many people made 30-50% on friday, I did because I stepped in front of the crowd.

You can say that I took too much risk, but if you analyze exactly what I did, and put yourself in the position of having my information, you will see that the risk was quite low for the reward.
 
Originally posted by lundy
Some of the best plays occurr when it gaps the other way, because it always, always goes back to break even.

Like on friday, I knew that the gap would be closed, and therefore, I could take a position and bank big time on it. Thats not a random event. It's predictable, profitable and worth the risk. Its kinda like, the more risk u take, the more u make. I don't think many people made 30-50% on friday, I did because I stepped in front of the crowd.
More...
lundy,

So did I, but I only made ~2.5% that day (bought QQQ at the open, and sold it in the afternoon). How did you manage to make as much as you did even though the gap went against you? :confused:

TIA.
dis
 
ok, so an initial long option position is only 1/16th of your trading capital, about 6.25%

that is still a tad high according to the conventional wisdom of 2% but a lot better than 8%.
 
dis,

firstly, i'm talking about what I made on capital i used on the trade. Secondly, i'm using options and futures, which are way more leveraged than QQQ stock. Third, if you analyze how i've implemented this strategy, you'll see that I go into a gap with an option spread.

So, I sold the puts at the open for a big gain, and then I bought more calls using my profits from the puts... I also bought NQ futures under 1110 ( don't know if i mentioned that here, but I mentioned it in the chat room). I was all out NQ futures @ 1140. Thats over 40% straight up. However, because I knew the market was going up, I was able to scalp that position throughout the day by selling at resistance, and just rebuying lower. I also sold the new calls I bought at the open when NQ hit 1140. I knew that the gap was going to get closed completely, but I wasn't going to be a pig. My calls from the previous day's spread, I held til very near breakeven.

Also, because I knew the gap was going to be closed (and I stated that the NDX would probably get a new high on Monday, which it almost did :) ), I was able to scalp NQ for more profit even after I had sold.

All of which maximized my gain to approximately 50% of capital I used to make the trades.

edit: also... I didn't just buy at the open, once it gapped down, and sell at the close... The NQ's closed considerably off their highs. I sold into strength, and was thus able to maximize my profits.
 
only 1/16 of daytading capital. which is only 30% of capital. So it's probably more like 2% of entire capital on the initial option spread.
 
commisso,

I wasn't net short into the May 7th close. I was net long via an option spread. I exited on the open for a profit.

If you don't already understand my strategy or signal, i'll just take a few words to explain it. I get a gap up signal, I go long at close. If it gaps up, I exit on open, done deal. If it gaps down, I cover part of the spread, and double dip via more calls and NQ. I sell them when the gap is closed or near there.

I guess I just have some faith in the signal I've developed. It's NEVER not closed the gap when the original direction was wrong.

It's just statistics and luck.

edit: also, I don't just buy at the open if it went against me, I make sure their is support. as I was saying early Friday morning, I was pretty sure the futures had bottomed in overnight trading @ 1105. I had a directional bias (the gap was going to be closed) and I then made sure I had other facts to support where I entered.
 
Maybe I am just a little confused... As I am not too knowledgeble about options, so please try and bear with me...

You are attempting to put on a directional bet to which way the market will gap right???

So if you place your bet long and she opens up then you just sell the open???

But if she opens in the opposite direction then you double down in hopes that she will fill the gap???

PEACE and good trading,
Commisso
 
an option is a contract to be able to buy or sell something at a specific price. because of it's flexibility, it comes with a premium.

you can either buy or sell options. Theres 2 types of options, calls (means you think it's going up) and puts (down).

options are limited risk vehicles, you can only lose the amount you paid for the option or the premium + the in the money value of the option.... (i never buy in the money options)

because they are limited risk, and option spread can be profitable if the market is volatile enough.... gaps provide that volatility imo.

so I buy a puts and calls to create a spread or straddle. If i think gap is up, I buy more calls, if i think it's down I buy more puts, usually i do a 2/1 ratio in favor of my bias.

if it gaps my way( lets just say up in this case), i sell the calls at a profit, and sell the puts at a loss. because options are limited risk but unlimited profit potential, I can usually make more than enough to cover the cost of the puts.

if it gaps against me... I sell my 1 put at a profit, and I buy more calls with that profit. I hold all the calls until the gap is filled. half the calls will be sold at a profit equal to the earlier puts' profit, and half will be sold at breakeven.

basically, options are just a safe way to take a position, and lots of people use really complex strategies with options, I don't think mines too complicated.

The whole thing can be done without options. I could do it all with NQ, altho it would be more risky, but i've done it many times successfully.
 
Tomorrows open will be lower than todays close. After a brief attempt at a rally, the NDX will sell off.

At todays close, I'll buy QQQ calls and Short the NQ at a ratio of 1/4 (hedgewise, not actual contractwise.)

I'll cover my NQ position immediately at the open tomorrow, and wait for a small rally to exit the QQQ calls. I'll short NQ into that rally, because I think it will get sold off and selling will continue into the later part of the day.

edit: if it gaps against me, I'll double dip as I beleive the gap will be closed. i'd sell the calls first, then short more NQ.

A few new things for my journal:

I'll be using the NQ as my directional bet on the gap, since small gaps cant benefit from an option spread. But I'll still be hedging a bit with options in case it goes the other way. :eek:

Secondly, I'll be posting what I think the market will do after the gap as well. modifying and adding on to my original strategy to get a enough info to be able to daytrade and position trade the next day using the info gathered from the day before.

Also, to clarify something when I say gap down, all I mean is that the open will be lower than the previous close... ( i know some people say that a gap down means when the open is lower than the previous low.)
 
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