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Using Options for Swing Trading


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Using Options for Swing Trading

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  #81 (permalink)
Market Wizard
Chicago, Illinois
 
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My mouth is watering @ Suncor. I traded it previously this year but got stopped out after two days. Now the chart is shaping up nicely and could get a decent sized rally going. Personally, I want to give myself the opportunity to be in the trade for +30 days, but the November expiration options are not listed as of yet. The next option would be the Dec ITM calls, but they are too expensive and have too much extrinsic value attached for them to be efficient in mirroring stock movement. I have decided to buy the December $37 calls and sell the $37 Weekly Calls against my position to collect some premium.

SU
Strategy: Buy calls
Options Bought: Dec 2013 $37 Calls x 23
Options Sold: SepWk4 $37 Calls x 23
Implied Volatility 14th Percentile (dirt cheap)
Initial Debit/Margin Requirements: $2247
Stop-loss stock price $35.60
Target stock price > $38
Reasoning:
Double Bottom formed on the Weekly:


At support on the trendline:

Special Notes Given the market's current climate and the bearish selling going into the close for SU, I am also open to the idea that the stock will drift lower to $35 before it bounces, so I will be looking for some type of confirmation prior to entering my position at the current price levels.

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  #82 (permalink)
Market Wizard
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Bermudan Option View Post

End of Q3 2013 Results


Positives
  1. I have cut back on my trading drastically in the past month or so: I am pickier in my entries and more cautious when the market looks iffy.
  2. Defining risk/reward: Thanks to Tradingview's tools, I can say where I want to get in/out of a trade on the chart. Makes managing trades much easier.
  3. My account faired much better during uncertainty: I have never blown out an account, but I had experienced +10% drawdowns during market uncertainty. This time around, I fared much better. Still lost some money, as evidenced by comparing my previous average per trade to my current average per trade, but I am impressed with myself a lot!
  4. Stepped up and changed brokers: Usually change is painful so I tried to put this off until Choicetrade messed me over for the last time. I changed brokerages and currently I am reaping the benefits of 100 free trades. More importantly though, uploading trading data to Tradervue is much easier, and so I am more consistent in reviewing my stats. This is very advantageous for me as a trader.


Things to work on for Q4 2013
  1. Setting a timeframe and sticking to it: Recently I realized this was an area I want to be more efficient in. I have bought front month options, under the impression that it will be a quick trade that lasts less than 2 weeks, but after a week or so, I forget my time expectation and start losing money as time decay takes over. Since I use DITM options often, this isn't as much of an issue as it could be, but I still want to be aware of this, especially for when I use spreads. I will tackle this by adding
  2. Knowing when to take defensive action: Sitting in positions longer has been beneficial for me in 2013. One thing though... when I am in these positions, I don't know when to sell short vs when to exit a position. In Q3 2013, I sold downside protection whenever I felt a key level was being tested. This seemed like a good idea, but thanks to the bullish overall market, I found that occasionally the stock would rebound as soon as I went short a Weekly. This didn't happen all the time, but it did happen a few times on MGM and QCOM too I believe. I need to sit down and figure out how to tackle this.
  3. Knowing how to take defensive actions: The defensive actions I took in Q3 2013 was: take partial profits, sell calls, roll forward calls, or roll down my calls. I want to be more decisive in when I decide to make each decision. I read Options As A Strategic Investment and I need to brush up on it because it opened my eyes to the ways that you can increase your probability of breakeven/profit substantially while only slightly increasing downside risk.
  4. Manage my positions better: I have found that often when I take profits, I become almost indifferent to the remaining position. This is great if it is a runner, but it sucks if it is a full retracement and I get stopped out. In the future, I want to take profits and then set an alert for where I want to sell the remaining portion (Hint: It is not at breakeven for me)
  5. Reduce +$200 losses even more: I want to lose no more than $200 (including commission) on any trade. I cut down slippage dramatically in Q3 2013, but there were still times I got burned (ISRG for example) by slippage because I had trouble unwinding a spread or the option was not traded optimally for one reason or another. The more I eradicate slippage, the better my bottom line will be.
  6. Visualize the day before it happens: Sounds weird, but when I had the hot hand, I was doing this. On the 5-6 blocks I walked to work at 7:45am, I would visualize everything that could go wrong in the market, and remind myself that I have handled large drawdowns before and I can do it again. I want to reinforce this until it is 100% internalized.
  7. Improve my average-per-trade amount: My first goal is to get it to $25/trade. I know I can do this if I am more aware and cautious as a trader.
  8. Being more consistent as a trader: Not just in terms of my results, but in terms of my reviewing of the markets as well. I want to get an overview of where I am going as a trader on a consistent basis. I will set an alarm on Google Calendar to remind myself to review my recent stats. I am thinking once every three weeks I will do a similar review to this current one.

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  #83 (permalink)
Market Wizard
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Grabbed 9 WFT contracts just now:


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  #84 (permalink)
Market Wizard
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Closed out of my SU position yesterday after the bearish action. It popped today as of course *rolls eyes*. It was essentially a scratch after commissions.

Current Positions
AKS (taken partial profits already)
WFT
BRCD
STP
ENVI

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  #85 (permalink)
Market Wizard
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Closed out all of my Non-IRA options on stock in the last 1-2 days. Currently, I have a bearish position in GLD tthat is doing niceley at the moment.
Here is the reasoning I posted on Sunday (different forum)


Quoting 

GLD

Strategy: Put Calendar Spread
Options to Buy: NovWk1 $124 Puts x 10
Options to Sell: OctWk2 $124 Puts x 10
Implied Volatility: 53rd percentile
Expecting duration of trade: About a month
Initial Debit/Margin Requirements: $1400
Stop-loss stock price: $128
Target stock price: $122
Reasoning:

Special Notes: We are coming off of a surprisingly bullish week, but the closer we get to a potential default, the more uncertain that the stock market will become. With Gold, I think there is a higher likelihood of a move. Yes, it is possible that Gold will run higher if there is a default but I believe that Gold has a chance of surprising everyone and moving lower even with a default. Also, if the default is avoided, I think Gold will tank hard.

Note: Because of the gap higher on Monday morning, I actually yanked my order and got in around $127.70 so the P/L expectancy is a little off

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  #86 (permalink)
Market Wizard
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Here is my current P/L:



Hoping a bottom gets put in soon so that the Weekly Puts expire worthless

Edit: If that happens, I am gonna look to turn the calendar spread into a diagonal bear put spread.. sell like the Weekly $120s to bring in some upside protection. It will be capping my gains, but I would have a sizeable profit if things sold off to those levels anyways

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  #87 (permalink)
Market Wizard
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Took a short position in DE but closed my position out after I realized that my stop might not take me to a key price level being broken:



However... after I reviewed the entry, I realized that actually, I bought some ITM options that had a delta of like -0.78. So, actually, I would have been still in the trade beyond when my P/L expectancy chart illustrated. Stopped myself out for a loss of like $60 including commission only to see the stock turn lowers.

Review

  • This trade was added to a short list last night but there was no real prep to it. I was second guessing myself as soon as I entered
  • The reason I was second guessing myself was only because the anticipated stop-level did not correlate with the area of resistance though. Outside of that, it was a great trade idea in my opinion.
  • In the future, I want to remind myself of the delta of the option when I am setting the position so that I know how 'tight' my stop actually is.

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  #88 (permalink)
Market Wizard
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Earlier today, I closed out a position in STP but I am looking to reestablish one in the next few days. The chart was measuring up for a potential re-entry today, but the volume has me nervous:




Here is the 1 min chart showing the volume



Here is the Daily that I have zoomed out to anticipate a better entry position:

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  #89 (permalink)
Birmingham, AL
 
 
Posts: 1,065 since Apr 2012

Enjoying your thread. Thanks for the nice work.

I've been considering adding an options swing trading strategy to complement what I do intraday, and have found reading your thread helpful.

Keep it up.

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  #90 (permalink)
Market Wizard
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indextrader7 View Post
Enjoying your thread. Thanks for the nice work.

I've been considering adding an options swing trading strategy to complement what I do intraday, and have found reading your thread helpful.

Keep it up.

Thanks for the kind words. Let me know if you do start a journal. Always looking for other Option traders to compare notes with.


Volume was heavy for the last two days but the trend is guilty until proven innocent to the downside for now. The doji on the Daily SPY today shows indecisiveness and I don't think it is a high probability market at the moment. I have two day trades in my secondary trading account already. One was a complete stop out and the other was the DE trade I bailed on prematurely. The risk/reward isn't in my corner in the current climate so I am going to be sitting on my hands and managing my GLD position unless something really nice comes along.

The high IV is screwing up my chance to leg into some calendar spreads for Earnings Report season as well. Will keep an eye on this for the future. Might look to try to take advantage of the high IV another way after some DD this upcoming weekend.

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