Quote from silk:
Sounds like you are not afraid to hit the buy buttons. But are undercapitalized. You should get series 7 and find a prop firm to trade at. Sounds like you like to hedge and pair. You need more capital. I was in your boat until i started trading at prop firm and had much more buying power. No telling how good you might be. But didling around with online broker never going to find out. At a firm you could have the buying power to just buy the shares of the stock and not worry about the spreads and time erosion of the options.
Quote from jeffalvinson:
__________________________________________________
Hi Bradson,
Wow! "You sound exactly like my me 15 years ago when I first started trading options."
Just like you I decided on deep in the money options with 2-3 months on companies that charted well. I also used modest profit goals like 20% to 30% and only traded one or two companies at a time (just like you).
Everything was going along well and my account was growing.
Then I became inpatient and addicted to trading and wanted to open up multiple positions in many companies (sound familar).
So I ended up with 8-10 positions at one time and the profits
were rising everyday. Until we hit a downturn in a bull market and half of my account was gone in a relatively short time.
The lessons learned were:
1: Do not open more than 2 positions at a time and those positions should be no larger than 10% (each) of your account.
Run a stop and limit loss to no more (or slightly no more) than your average profit that you make per average winning trade.
Lets say your normal winning trade is +30%. Then use a
-30% stop.
Lets look at like a business:
(10 trade month)
7 winning trades X +30% = +210% option gains
3 losing trades X.....-30% = - 90% option gains
Net Profit............................. +120% option gains
With 10% of your account into each trade,
+120% in option gains is a +12.0% account gain and with
commissions added in, roughly a 11.6% account gain.
Also consider in your 2 open positions trading pairs:
1: Calls on an uptrending stock that has pulled back to support.
2: Puts on a downtrending stock that has rallied into resistance.
Lastly if your not batting W/L: 70%, then here is a Win/Loss
Table that shows you what your profitable sell limit and stop should be for various Win/Loss averages, to create a +10% monthly account gain:
Win/Loss Tables for 10% Account Growth per Month (Non-Compounded)
(10% of Account Invested into each Trade)
Based on Approximately 8-10 Trades per Month
Win/Loss = 40% (4/10)
Wins 4 x 100% = 400%
Loss 6 x -50% = -300%
Net...............100% (10% Month)
Win/Loss = 50% (5/5)
Wins 5 X 70% = 350%
Loss 5 X -50% = -250%
Net...............100% (10% Month)
Win/Loss = 60% (6/10)
Wins 6 X 50% = 300%
Loss 4 X -50% = -200%
Net...............100% (10% Month)
Win/Loss = 66% (6/9)
Wins 6 X 35% = 210%
Loss 3 X -35% = -105%
Net...............105% (10% Month)
Win/Loss = 70% (7/10)
Wins 7 X 30% = 210%
Loss 3 X -35% = -105%
Net...............105% (10% Month)
Win/Loss = 75% (6/8)
Wins 6 X 30% = 180%
Loss 2 X -40% = - 80%
Net...............100% (10% Month)
Jeff
Quote from Bradson Petrog:
Hello Jeff-
I appreciate your advice, and I'm glad to see their are others who were in a similar boat, and who are still trading successfully. I do have much to consider.
You mention trading in pairs. I've considered the strategy but have never tried it, at least intentionally. I understand the concept enough, I think, but finding the right pair seems to be pretty daunting for me.
Take Directv (DTV) again for example. I mentioned earlier that it seems to outperform its competitors year after year, but that isn't always the case. Over the last 5 yrs DTV has dominated Dish, but over the last year Dish takes the cake. So I'm not sure how, or even IF this should be a pairs play.
They both report earnings NOV 6, so at least there wouldn't be a lay over.
Also, a couple of others that come to mind are Nucor (NUE) and United States Steel (X) corporations. Seems to me that Nucor is no doubt the better company, but I'm pretty sure as soon as I go long on NUE and short X, just for the sake of following the strategy, NUE would drop and X would start to climb.
I've traded both of these stocks successfully, but only trading on an individual basis.
Quote from jeffalvinson:
Here's an example of a pairs trade I did in Feb 2012 at the bottom of this page:
MT was uptrending and pulled backed to a support moving average. The Target was a move up to the prior rally high and the stop was -20%.
IYT just formed a 10dma/20dma bearish cross.
Target was a drop to the last support level and stop was -20%.
Before triggering the trades, I made sure that there was at least
a minimum profit of 40% available on both stocks if they hit there
individual stock price targets. That way if one stock stopped out, I would still end up with 20% overall on the pairs trade.
Jeff
--------------------------------------------------------------------------------
Quote from jeffalvinson: (page 79, "My option trades" thread)
02-21-12 09:00 AM
This morning I bought calls on MT, target=23.50 and
puts on IYT, target= 91.
--------------------------------------------------------------------------------
Quote from jeffalvinson: (page 84, "My option trades" thread)
02-23-12 07:11 AM
This turned out to be a nice pairs trade:
The MT calls stopped out at -20%.
The IYT puts hit the 91 target and sold at +40%.
Quote from trader198:
MT is in UPTREND? are you blind?
I just hide some place and laugh
Quote from Bradson Petrog:
I want to have many contracts to begin with, so that I can sell some when the 20-30% gain comes, but I can also hold on to some in case the stock goes skyward.
Dear Abby, what should I do? [/B]