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Allistah's Weekly Options Seller Journal


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Allistah's Weekly Options Seller Journal

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  #11 (permalink)
Bay Area, CA
 
 
Posts: 136 since Jun 2010
Thanks: 5 given, 64 received

I had a Bear Call Spread on MA from last week. It was doing ok and then this morning everything gapped up and MA was around 428 a couple minutes after open. This was past my short stirke of 425 and almost to my long strike of 430. I was lucky enough that the volatility was all wacked and was still able to close this trade with a profit. I thought for sure I was going to close it for a loss but I guess I got lucky.

I don't know if it's appropriate or not to show dollar amounts and number of contracts so I've blacked them out.


When the market closes later, I'll post the final standings for this week.

-Alli

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  #12 (permalink)
Bay Area, CA
 
 
Posts: 136 since Jun 2010
Thanks: 5 given, 64 received

Here are my results for this week. I have also posted my new trades that will expire next week as well below them.

Results for week ending 6/29/2012:



New trades for next week ending 7/6/2012. I list them all as "expired" to start because thats the goal if I don't touch them. If I end up closing a trade early then I fill in the price it was bought back and along with the date. That data would then go and update the rest of the numbers.



If anyone has any questions, please feel free to ask.

Thanks,

-Alli

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  #13 (permalink)
San Jose, CA
 
 
Posts: 6 since Jun 2012
Thanks: 3 given, 2 received


You're WAY more advanced than me so hope my questions/suggestions don't sound like dumb ones.

Allistah View Post
The Goal: Sell vertical credit spreads on weekly options and let them expire worthless at the end of the week

For Selling Bull Put Spreads:
Weekly chart (StochRSI must be up or OverSold) or show major Bullish Divergence on MACD
Daily chart StochRSI must be up and below OverBought

Do you really always want them to expire worthless at the end of the week? Sure, doing so saves on commissions but in some cases, it may not be worth the risk. Perhaps there should be criteria for certain stocks that you take profits after reach x% of profit?

For StochRSI, what parameter are you using? Are you going w/the TOS default of 14 periods and switching between the daily and weekly charts? If so, that'd mean 14 days in daily charts and 14 weeks in weekly charts, right?

I've been selling way OTM naked puts on stocks that I wouldn't mind owning. I gave a few examples to one of my friends (who is WAY more advanced than me) and he suggested filtering out ones that are below their 200 day SMA. I noticed a few of your plays are are below their 200-D SMA (e.g. SINA, GOOG and BIDU). He actually first started off saying he likes to look for stocks stronger than S&P 500, which is currently above its 200-D SMA.

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  #14 (permalink)
Bay Area, CA
 
 
Posts: 136 since Jun 2010
Thanks: 5 given, 64 received

Hi cwerdna,

Nah don't worry about asking dumb questions. In my opinion the only dumb ones are the un-asked ones. :-)

I tried to update my rules earlier last week but the post got too old and then it wouldn't let me. I'm going to be updating my rules in a post after this one to get them closer to what I want to do.

I'm sorry if I don't follow my rules exactly - I'm really going to try and get something written that I follow that doesn't make things so rigid that I can't do what I do.

I think that a rule to buy back the spread if you reach x% of the profit would probably be ok. I need to come up with a rule that takes that into account in case things just up for a huge profit within one day. Since there are only 4-6 trading days with these trades at most things tend to move fast. Right now my gut is saying that if it were more than 6-8 days then I would want to do that more than I do because it leaves more time for things to go against you. So far all the ones that I've bought back early would have expired worthless. I guess if it becomes a problem then I'll look at fixing it.

I really loved Robert Miner's book and that is where I learned about the StochRSI. He calls it something different in his book but ToS has it as StochRSI. The settings that I use most are (8, 80, 20, RSIWilder, Close, 5, 3, 3, SMA). I've found that these settings hit most of the peaks and valleys. For MACD I use 8, 17, 9.

If course everything I'm saying here is my opinion and may not match others opinions but I don't really care too much about it being over the 200sma because the trade is only open for 4-6 days at the most. For example, on Thursday I saw that there was HUGE divergence on the weekly and daily charts. The huge down move tended to match the length as the last few drops as well as far as distance it has fallen. You can use Fib lines to see this. You can also just eyeball it and see it as well. Things had a nice jump up at the end of Thursday and then Friday was the big pop. I can't say how strong the divergence from the MACD on the weekly chart. You can see that in the screenshots I've posted. As I do these I'm going to be refining the rules so I'm sorry if the rules are sort of all over the place. If I didn't answer everything or if you have other questions I encourage you to keep asking.

Going to take a moment and try to post a message with rules that are closer to what I'm doing.

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  #15 (permalink)
Bay Area, CA
 
 
Posts: 136 since Jun 2010
Thanks: 5 given, 64 received

Here is an update to my rules. These rules assume a bullish trade.

The are three charts used: Weekly, Daily, an Hourly.
There are two indicators used: StochRSI and MACD (Settings below are for ThinkOrSwim). StochRSI is used to choose direction and MACD is used to watch out for divergence.

MACD settings: 8, 17, 9
StochRSI settings: 8, 80, 20, RSIWilder, Close, 5, 3, 3, SMA

Each chart gets both indicators above with those settings.

Weekly chart:
Look at this chart to find out what the overall trend of the stock is. What is the trend? Up? Down? No trend? How do you tell? Higher highs and higher lows - that's and uptrend. Lower highs and lower lows is a downtrend. This is just going to give you more info on the larger trend. ..and remember, when things are in a downtrend with lower highs and lower lows, before it changes to higher highs and higher lows, it will often go from a downtrend state to a no-trend state before it goes to an uptrend. I can't tell you how important this is to really understand how to see what the trend is just by looking at it. Higher highs and higher lows sound simple but you need to be able to look at any stock and know what the trend is. Sorry for the rant here, I just want to explain that you don't want to overlook the trend and explain how to find out what the trend is.

Daily chart:
This is the chart that I make most of the decisions from. These weekly trades are only in the market for 4-6 trading days. One week. Thats ONE candle on the weekly chart. So if the weekly is in a downtrend and ready to move up for a couple weeks on a bounce, I would take a bullish trade. Fib lines and StochRSI will help you see this. Back to the daily chart.. I like to wait until the StochRSI is oversold or turned around to the up side. If the oversold is 20, I won't jump in if it's at 19 just because, it needs to look like it's overextended and at a fib line, etc. Sometimes if the stochRSI is bottomed out at zero I'll think a lot more about getting in bullish. It's overdue for a reverse. So I'm going to try and come up with a couple rules here:

Hourly chart:
This chart is just used to help time the entry for the daily chart. I have a full time job and a lot of times I don't have the time to sit and wait for this chart to set up but it is there if I need it. My trades don't always get entered in the perfect setups but the chart is there if I have the time. Remember if you're trying to use this chart, this one will give a signal before the daily chart will, and the daily chart will give a signal before the weekly chart.


Weekly rules:
StochRSI must be pointed up or oversold
StochRSI must not be overbought
Major bullish divergence on the MACD two lines will override the StochRSI rules.
If major divergence is there, the momentum on the MACD must be turned up.

Daily rules:
StochRSI must be pointed up or oversold
StochRSI must not be overbought

Hourly rules (If you have time to wait for this to set up):
StochRSI must be pointed up or oversold
StochRSI must not be overbought

Option rules:
Weekly options become available every Thursday for the next week. I typically get into these trades Thursday-Tuesday as long as you can get the credits listed below. I suppose if I could get a signal on a Wednesday and still get a $1.30 credit for a $5 spread I would take the trade if the setup looked good.

Sell the ATM spread. You want the one that is lower in the option chain so the short strike you're selling is not ITM at the time you've sold it. Don't pick one that is above the current price.

For a $5 spread, get at least $1.30. For bullish, you will be selling a "Bull Put Spread".
For a $2.5 spread, get at least $0.70.
For a $1 spread, get at least $0.30.

Avoid selling anything if the stock is going to have an earnings announcement before expiration.

I'm going to leave them as that for now. I hope that as these weeks go by that I can update the rules and get things closer to what I'm actually doing.

Please keep in mind that I'm trying to refine these rules and get something down that I can follow without fail. If you see a problem with what I'm doing, lets talk about it. :-)

Thanks,

-Alli

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  #16 (permalink)
Missouri
 
Experience: Intermediate
Platform: NinjaTrader
Broker: AMP
Trading: ES
 
Posts: 77 since Apr 2010
Thanks: 169 given, 34 received

What day do you look to enter your trades?

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  #17 (permalink)
Bay Area, CA
 
 
Posts: 136 since Jun 2010
Thanks: 5 given, 64 received

Ah, great question. I didn't even think about talking about that. The options for the next week become available every Thursday. The exception for this is on the week when the monthly options expire. You'll just use those that week.

I try to get in the trades on the Thursday, Friday, or Monday at the latest. I think I have sold some on Tuesday but it's rare. You have to get the minimum credits and those tend to dry up each day. If you can get a setup on a Tuesday or Wednesday and still get $1.30 for a $5 strike, I think I'd take it given the amount of time left until expiration. So I guess the option chain sort of dictates when you can and can't get into a trade once you have a setup. I hope this answers your question.

Edit: I added this answer to the rules I have in the above post.

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  #18 (permalink)
Missouri
 
Experience: Intermediate
Platform: NinjaTrader
Broker: AMP
Trading: ES
 
Posts: 77 since Apr 2010
Thanks: 169 given, 34 received


Allistah View Post
Ah, great question. I didn't even think about talking about that. The options for the next week become available every Thursday. The exception for this is on the week when the monthly options expire. You'll just use those that week.

I try to get in the trades on the Thursday, Friday, or Monday at the latest. I think I have sold some on Tuesday but it's rare. You have to get the minimum credits and those tend to dry up each day. If you can get a setup on a Tuesday or Wednesday and still get $1.30 for a $5 strike, I think I'd take it given the amount of time left until expiration. So I guess the option chain sort of dictates when you can and can't get into a trade once you have a setup. I hope this answers your question.

I was looking at one of last trades you put on (I think it was AAPL) and since there was such a big up day on Friday I think the credit was down to .02 and that's why I was wondering which day you like to get in. Now I understand what you're saying about the option chain dictating when it's too late to trade.

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  #19 (permalink)
Bay Area, CA
 
 
Posts: 136 since Jun 2010
Thanks: 5 given, 64 received

Thats why I was listing the date and time I got into the trade. With the swings that can happen in a given day, a spread that sells for $1.50 in the morning may only be worth $0.80 at the end of the day or the next day. When you have the date and time, you can use the "OnDemand" feature in the ThinkOrSwim platform and see exactly what the charts were at that exact second as well as the cost of the spread. I had a hard time going back to look at losing trades without the time just for this purpose.

Also keep in mind that there is a bit of "gut feeling" that I use as well and that is going to be the hardest part to document in the rules. That is what I'm going to try and get down in the rules.

-Allistah

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  #20 (permalink)
San Jose, CA
 
 
Posts: 6 since Jun 2012
Thanks: 3 given, 2 received



Allistah View Post
I really loved Robert Miner's book and that is where I learned about the StochRSI. He calls it something different in his book but ToS has it as StochRSI. The settings that I use most are (8, 80, 20, RSIWilder, Close, 5, 3, 3, SMA). I've found that these settings hit most of the peaks and valleys. For MACD I use 8, 17, 9.

Ok. That fills in a lot of info for me now. At first, I couldn't find all those parameters for the Stochastic RSI study in Prophet charts. It turns out, one needs to be in the regular (?) charts for StochRSI study w/all those parameters. I normally don't use the non-Prophet charts.

Also, do you care about earnings announcements before expiration?

For me, one of my rules when selling naked puts is to almost never enter a position if earnings will be announced prior to expiration. I'm worried about the downside risk and either overpaying for the stock (if it's put to me) or having to pay WAY more than the premium received to close it out. I make exceptions to my own rule in a few circumstances, but I digress. Some people like to do directional earnings plays, but that's not me.

I'll have to spend some time to digest the rest of your posts and investigate for myself...


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July 23, 2012


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