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Using Options for Swing Trading

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  #1 (permalink)
 Bermudan Option 
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Working on getting back in the trading arena and I have started brainstorming on what I want to do differently. I've dione a few hours of DD today and one question that has been on my mind for the past few weeks popped up again: How will I trade options?

I find that I can figure things out easier if I write them down so here are the pros and cons that I thought of when it comes to Bull/Bear Spreads vs Outright Purchases. Please correct me if I am wrong or if you can think of any other advantages/disadvantages:

Advantages of Spreads (Bull/Bear Spreads)
  • Managed risk: Nowadays there are a lot of traders who have experience and can accurately predict the market to the point that they should be profitable, but because they don't manage risk properly, they end up with a trading account in the red. Being able to define how much I will lose up front every time is a big plus.
  • Bid/Ask Spread is irrelevant: If I were trading outright calls/puts, I would have to ensure that the bid/ask spread is tight to avoid slippage and beginning the game too deep in the hole. With a spread though, this is irrelevant (I think?)
  • Volatility is irrelevant: Since spreads involve buying and selling, I won't ever have to worry about overpaying for an inflated option and I can participate regardless
  • I can do more with less capital: Since half of the spread is sold options, less capital overall is tied up. This works great for trading options with underlyings that are triple digits and/or move fast.

Disadvantages of Spreads (Bull/Bear Spreads)
  • Clashes with my trading timeframe: I want my trades to last between a day and two weeks. However, with bull/bear spreads, it is often about allowing time value to decay to lock in profit. The rate of decay increases as the option nears expiration but the further the option is from expiration, the slower it takes to get profits. If I trade an option that expires in 30 days to take advantage of a move that takes 3-4 days, I will be better of trading outright calls/puts. The work around I have decided to do is to use weeklies or front month options that are set to expire in two weeks or less. This leads to my next disadvantage though....
  • Greater commission costs: Having two legs or having more efficient capital usage means that I will be buying more contracts. More contracts = more fees. Fees are a big deal still since I don't have millions in my account.
  • Short term spreads limit what I can trade: Every stock doesn't have an option chain. Every optionable stock doesn't have weeklies. For the stocks that don't have weeklies, I would only be able to trade them two weeks out of every month. In addition to this, short term options will have little extrinsic value so I will have to trade volatile plays that can move 1-2 strikes in 1-2 weeks or else I will receive very little for the sold portion of the spread. Low price for sold portion of spread = no real reduction of risk. No reduction of risk means I might as well just trade an outright option
  • I can't hit home runs; only doubles and triples: "The worst mistake a trader can make is to miss a major profit opportunity. 95% of the profits come from only 5% of the trades” – Richard Dennis. Although aggressive bull/bear spreads can minimize what I leave on the table, it is impossible to knock a spread out of the park on a parabolic move because spreads don't participate in parabolic moves

Advantages of Outright Purchases
  • Profit potential is unlimited
  • More options to trade at my disposal
  • Less commission costs
Disadvantages of Outright Purchases
  • Risk is not as easily defined: I trade based on the underlying's pricing. The option that I trade however is derived by many things, one of which is the price of the underlying. There have been many occasions where the option has dropped in price even though the actual stock market price hasn't broken support/resistance.
  • I have to pay attention to the volatility and whether or not an option is inflated
  • I have to steer clear of illiquid options that have wide spreads

I have been going back and forth over what I want to trade in my head but now that I have it on paper, outright purchases seem slightly advantageous. The main disadvantage of outright trading is that I have to be more vigilant when it comes to risk management. This will be a focal point on my paper trading. The rest of the 'disadvantages' are not really setbacks, they are more like features that require further DD.

With bear/bull spreads, they severely limit what I can participate in because I wouldn't be able to use the tactic for a lot of underlyings that aren't volatile and won't have time premium with 1-2 weeks until expiration.

Solutions
  • Spreads might be ideal for the following:
  1. When volatility inflates options pricing so that it is more expensive than it should be historically
  2. When historical volatility is large because the underlying has been known to run ie: GOOG or AAPL
  3. When there looks like little chance of a home run: heavy support/resistance is nearby, market is choppy, etc. (or maybe I should just sit these out completely)
  4. Longer term trades (no plans to make this a part of my trading strategy in the near future either)
  • I could use outright options for everything else, making sure to control risk by:
  1. Set a sell-to-close contingent stop based on the underlying's price falling below anticipated support/resistance
  2. In addition to the sell-to-close stop listed above, I want to also always program a sell-to-close stop based on the option's price eroding 2% of my total portfolio value

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optiontrader767
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I think (feel free to disagree) the key to trading debit spreads is how you manage the trade. For example, if you placed a bull debit spread at-the-money and the market moves up----easy money! but what do you do when your wrong?

One idea is to turn the trade in to a skip strike butterfly. (This ups your margin requirement (alot) but lets you take in a credit to cover your losses on the original bull debit spread. In other words it "pays" for your "screw up" on the original trade. I would post a link to a page that explains it in more detail.... but Big Mike won't let me...I knew a "Big Mike" once...he was like 6'6- 350lbs....(and I'm not) so I'm cool with it.

This will have to do...

So if the trade started out:
Buy 1 Rut Dec 12 805 call at 14.80
Sell 1 Rut Dec 12 815 call at 9.50

If things go bad you would:

Sell another Rut Dec 12 815 call
buy Rut Dec 12 835 call

Do this when the credit you will take in will "cover" your losses.

You can also do a ratio butterfly- the margin requirements are less-

hope this helps

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 Bermudan Option 
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Thanks for the advice optiontrader767! Your post made me bust out my copy of Options As A Strategic Investment and reread the chapter on Butterflies. I have been thinking about the benefits of exiting positions completely vs hedging existing positions and so this added wood to the fire. Definitely an interesting idea.

The conclusion I have come to is that hedging risk to increase probability (aka buying myself extra time by selling time haha) is a useful strategy but it is kinda hard to tailor it to the way I trade and define risk.

I only want to risk risk a small preset percentage of my portfolio per trade, like 2%. At $10,000 this would equate to stopping myself out after losing $200 on a trade. I never anticipate losing everything invested in a trade. So although I might buy $3,000 worth of options I will force the exit after a 6-7% move against me.

Basically because of the way I trade, if the market moves against me, I cannot transition into a butterfly spread because margin requirements would tie up too much money (or more money than I have). If I traded smaller I could though, and I think I would do it like this:

I would tel myself that I will close out my Dec 12 RUT position if I go down $200 but I might tell myself to roll down or leg into a butterfly when I have $150 in losses to give myself extra time for the play to develop since it started out against me.

Rolling down might put my paper loss down from from $150 -> $100, thereby giving me more time for the underlying to become profitable before I lose $200 and stop myself out. It caps the profits greatly, but because of the way I define risk, I am playing with the house's money so to speak, because I would have closed the trade out had I been using the stock instead of the option.

I still need to do some research and DD on margin and the likes, but the wheels in my head are slowly churning

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 Bermudan Option 
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One week under my belt and my simulated account is in the hole 7. 5%. Sounds like crap but I am actually quite pleased with the results. I have learned a lot in the week.

(Note: I want to risk a max of $200 on each trade)



ABX: Put a spread on but fucked it up and ended up being long when I wanted to be short (or short when I wanted to be long, can't remember) I made money on the play which sucks because I expect the market to got the opposite direction in the first place. Anyways, didn't manually close out the spread and I was long shares and didn't realize it. Gold was selling off and I got out but not without wiping out my initial profits and then some

FLS: This spread was put on properly but it was wrong directionally. I lost $150 and then paid $50 round trip in commission. Lost money but very very pleased with risk management. This trade is what made me finally decide to trade outright options.

YHOO: I saw weakness on the daily timeframe after the big run up from Marissa Mayer hype. The trend was higher on the longer term and I tried to fade the trend out of greed. Got stopped out and rightfully so.



MSFT: Went short MSFT on break to a lower low on the shorter timeframe. The failed move lower led to a fast move higher and I was stopped out. I am not sure if there were any hints that the move lower would be short-lived, but if so, I certainly didn't look for it. Looking at the chart again, volume didn't give any clues intraday, but one thing I could have looked at was for the underlying to put in a lower high below resistance and/or stay below resistance for at least 30m - 1hr.



SLW: I see what I did wrong and will work on noticing this in the future. After commission, I lost more than 2% my portfolio on this one after commission. Not a whole lot, but I want to be very tight with the stops.



Still in this play:
APC: I liked how the chart was setting up, but it was Friday and I wanted to give the trade more than one trading session to go in my favor so I bought Weekly calls that expire Dec 14th.

I got into this trade early and almost paid dearly for it. I risked $10 per contract on this one and had lost $9/ct before the underlying went in the direction I expected.

This was my first runner and it made me realize that I had no gameplan in place for runners yet. During one point, I had $30 profit/ct. Since I risked $10/ct, that is 3x what I risked which is the target. Reaching this plateau, I should have taken some winnings off the table, but I did not and the market retraced.



Currently sitting a $15 profit/ct. I will have to mull over what I want to do with this because there is a potential for some sideways potential before the market takes out the resistance overheard.

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 Bermudan Option 
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Flipped some CREE 34.5 weekly calls for a nice profit. Done for the day, had some losses yesterday so I am back where I started in terms of profit but man it felt good to flip

Sent from my Nexus 4 using Tapatalk 2

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 Bermudan Option 
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Trading live with two funded accounts now:

Regular Account:
10ct of HOV Jan $5.5
Entry: $0.95
Stop: $0.80

Lotto Account
75 ct of CIM Mar $3
Entry: $0.05
Stop: N/A

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 Bermudan Option 
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SPWR
Flipped this in the virtual account already but I like the way it has digested gains so far. Might make for a low risk entry in the near future. I don't think it will be ready tomorrow, but hopefully it will get near the resistance level by midweek and push higher after a small pullback:


BAX
Strong uptrend for sure. Ascending triangle forming @ the top which I will look to play as an entry


ACAS
Strong uptrend on the Daily although the chart selected is highlighting intraday action. I am hoping for a pullback on the 65m to retest it. If this happens, I will also use the support levels from Friday to create a stop:


GM (Lotto Account)
Ford and GM are on a tear. With F however, the Doji into Friday's close is a little too scary for me, and the indicators point to overextended. GM started rallying later so hopefully it still has some gas in its tank.

Most indicators on GM, especially RSI, are in what I like to call 'hyper-mode' where it is stuck in Oversold territory so the potential for parabolic movement is there for sure. Since GM is such a large name though, there will hopefully be some obvious capitulation before it heads lower butI don't want to be holding the bag when the party is over so I am looking at some Feb 31s and holding for a move to @ least $32 but if the stars align right, a move to $35-$36 would be amazing. Looking to trade 25cts .

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 Bermudan Option 
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Ok, here is what I am holding at the moment:

Lost profits on CIM and F today. Established a position in MRVL hoping that it can keep its bullish momentum going.

Good luck everyone.

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 Bermudan Option 
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Stopped out of Ford and Marvel today. Still in CIM. Will try and do a more indepth analysis later today

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 Bermudan Option 
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I've been doing some thinking about my accounts and I am still trying to figure out how to effectively use my ThinkorSwim account because commission is too high for lotto plays that often have +25 contracts. Here is the new breakdown of my different accounts:


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 Bermudan Option 
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Hell of a day today. I am extended to the long side but I have some technical setups on fundamentally unsound companies as well.

Anyways here is an update on CIM going into tomorrow:

I entered this trade on an ascending triangle on the weekly. Right now, I am looking at another ascending triangle but on the hourly/65m timeframe instead. I think it might be do or die time here. Well maybe not die, but the stock might retrace if it doesn't break and hold above resistance

I am currently up 100% on all of the calls. Taking a profit here hasn't crossed my mind yet because I didn't come into this play attempting to risk $1 to gain $2. If this breakout fails, I might take some risk off of the table though.

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 Bermudan Option 
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Hey everyone, hope your trading week is going well. Just a quick update to throw out there along with a trade I am involved in and a trade I am interested in.

Last week ended strong and I was able to take advantage of it. Looking at my portfolio though, I am extremely overweight in Financials. It is kinda something I did on purpose because I think the sector has the most room to go higher, but also because so many of the charts in the sector are bullish. Over 1/2 of my portfolio is in Finance right now. I have more positions I want to put on in the sector this week but I am also focusing on the Nasdaq-related stock potentially bouncing back this week. AAPL has done terribly and Friday's close is still bullish for the sector. That says a lot about the overall strength of the benchmark. I am specifically looking @ Semiconductors as well because they were lagging the January rally but are starting to show signs of life and they are volatile once they get moving.

With the way the market is going, luckily there are not a lot of trades that I am in that aren't profitable. However, here is one:
BIG (Big Lots)

I am hoping that there is a fill of the previous gap lower sometime soon.

NTAP is a trade I might get involved in next week if it gets going as well:
It is consolidating around a key resistance area on the Daily timeframe:


If you look @ a shorter timeframe, the hourly shows that there is a symmetrical triangle formed:


Will have my eye on a potential break higher this week

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 Bermudan Option 
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Bermudan Option View Post
Hell of a day today. I am extended to the long side but I have some technical setups on fundamentally unsound companies as well.

Anyways here is an update on CIM going into tomorrow:

I entered this trade on an ascending triangle on the weekly. Right now, I am looking at another ascending triangle but on the hourly/65m timeframe instead. I think it might be do or die time here. Well maybe not die, but the stock might retrace if it doesn't break and hold above resistance

I am currently up 100% on all of the calls. Taking a profit here hasn't crossed my mind yet because I didn't come into this play attempting to risk $1 to gain $2. If this breakout fails, I might take some risk off of the table though.

Update on CIM:

The market didn't breakout right after the ascending triangle, but soon after. It consolidated higher for a bit and then pushed higher.

I didn't 'take profit' per say, but since the options are 3x the price that I bought them at, I sold 1/3 of my position for the price I paid to establish the entire position. So the 50 remaining contracts are all profit and the worst I can do is get out at breakeven.

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 Bermudan Option 
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Last week was a rough week. Stopped out of trades in OXY (x2), FCX, BIG, KSS and MS

OXY: I entered this trade because /CL looked primed to breakout on the weekly. I failed to take into account that the Weekly chart means the breakout can happen today or a month from now. My stop was waaay too tight and I did not wait for confirmation before buying. Ahhh welll

FCX: Had a terrible entry back in January. The underlying rallied recently but I was stopped out last week on a pullback because the options expire this week so time decay has increased rapidly

BIG and KSS: Both of these trades were based on the retail sector as a whole looking bullish. However, the retail #s revealed in January disappointed and the whole sector sold off. The sector has rebounded since then, so if I owned the stock I would be at breakeven. However, these were front-month options and I don't have the ability to stay in the trade that long. Got stopped out for a $200/$300 loss on each of them

MS: Rallied 3% when I entered but pulled back since then and I got stopped out. I am still bullish on the financial sector, but I have trades in other stocks right now (CMA/BK/CIM) and a few on the watchlist (FITB and C)

Current Positions
BBT: Consistently below VWAP and doesn't look like it has the legs to move higher. Looking to get out on a break of key support or on a low volume rally higher
RF: Sitting on hands for this one. Not much to be done here. Currently sitting on top of the monthly VWAP. Slowly putting in higher lows but having real issues w/ the $8 level
CMA: Has been trending since I entered the trade. I will stick to trendline on the 30m to manage the position
LRCX: Will use the trendline on the 30m starting 1/25 to manage the position. Hasn't moved since the day I entered the position but semniconductors will hopefully turn from laggard to leaders as the QQQs are showing strength in the last week or so.
EXC: Trend is bearish but too much time left to close out the calls. Will let them expire worthless more than likely or buy them back @ $0.05 when it looks more dire
HNZ: Rangebound. Nothing really left to do except wait until the ER. Not a huge fan of this trade at all. I did not trade my setup here.

Notes about last week
I had a gameplan going into of the week, but I completely forgot about it as soon as Monday morning rolled in. I thought the market was over, and anticipated a move lower/sideways, but I didn't enter a single short or manage my open positions more aggressively. I will be better prepared for the future

Been busy but I will break down some trades in more details. I got a lot of ideas and insight from the board this past weekend, and I need to document my journal better to get better and to eventually give back to the community. One of the main things I will be doing this upcoming trading week is determining what type of trending/non-trending day it is, and trading accordingly.

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 Bermudan Option 
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No trades executed yet but man it feels like a good day of trading already in terms of managing expectations and risk based on trend (or non-trend)

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 Bermudan Option 
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Current Positions
HNZ: Rangebound. Nothing really left to do except wait until the ER. Not a huge fan of this trade at all. I did not trade my setup here.

Well fellas. Sometimes it is better to be lucky than good:

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 Big Mike 
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Nicely done

Mike

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 Bermudan Option 
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Thanks Mike.

Today I am looking to potential day trade AAPL. Today is OpEx so the delta is extremely high and volatile. I can wield a lot of power with a little bit of money but my stops have to be razor thin because whatever is out of the money is entirely worthless @ the end of the day


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 Bermudan Option 
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Prior to that big winner, my account had suffered like a 30% drawdown. I have decreased my size for now and I'm focusing on strengthening my foundation. Because the markets have been grinding lately, I am focusing on scalping with In-the-money weekly options. It is a work in progress, currently I am only putting $150 in a trade and cutting losers short ASAP.

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 Bermudan Option 
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Watched some excellent webinars over the past 2-3 weeks on futures.io (formerly BMT)'s youtube channel. Check it out when you get a chance.

Right now I am going to work on adding a layer to my trading by daytrading/scalping price action with options on the Sim. I don't have conviction in the setups yet because I haven't tested them extensively to believe they will work in the long run. I will work the kinks out on the Sim and then take it live after I get 25% profit on the Sim. I was doing this using real money and less contracts, but no sense wasting real $$$.

In the meantime, I will still execute live trades w/ real money using front month and back month option (options that expire in 1-2 months), but this is based off of indicator divergences instead of price action.

I've got a lot of reading to do because I have much more capital than before, so I am thinking about low-risk, consistent income by selling options instead of only buying them. Still working towards that financial freedom

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mwtzzz
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Be very careful about selling premium for income. It is an unlimited risk, fixed reward thing. It has a tendency to work for periods until one day when it goes so wrong as to erase all the profits you had made up to then.

The only situation I recommend selling options is when being exercised is an acceptable part of your trading strategy. For example if you plan to buy stock then you can sell a put and let it be exercised if it goes in the money.

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 Bermudan Option 
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Thanks for the insight mwtzzz.

Fear not, the idea of selling naked makes my stomach turn to the point that I don't even trade in my boxers.

I thought about saying "I wanna profit by selling time premium via spreads" but I don't want to alienate people who are new to options trading. In this time of frequent M&A, I definitely don't want to be on the 'short' end of a buyout.

Hope to get some more discussion going down the road. Thanks again

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mwtzzz
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Thanks for the insight mwtzzz.

Fear not, the idea of selling naked makes my stomach turn to the point that I don't even trade in my boxers.

I thought about saying "I wanna profit by selling time premium via spreads"

this is perfectly fine because there is a predetermined, limited risk.

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 Bermudan Option 
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Finished rereading Trading in The Zone last week. I had read the book 1-2 years ago but recently I realized that although I understood probabilities and randomness but I was applying them and my confidence was taking a beating as a result.

Since finishing TitZ, I have started reading a book called Talent is Overrated by Geoff Colvin. It suggests that extremely talented people from all types of fields: sports, business, writing, etc, aren't born talented. The difference that separates these people from the rest of us in the same field is the way that extremely talented individuals practice. They use deliberate practice to work on individual areas of weakness and, eventually the constant refinement of skills that everyone else is average at allows 'talented' people to actually become talented. It kinda fits into the 10,000 hour discussion thread going on.

Deliberate practice is such a simple idea but only the minority of people do it because it is always mentally taxing to work on areas that you are not strong at. In trading, reviewing a losing trade, identifying what you did wrong and setting a goal that can avoid repeating the mistake is an example of deliberate practice at work. However it is painful to do all of these steps because, almost everyone believes they have what it takes to be a successful trader and so making mistakes/bad trades, and seeing those errors with your own eyes subconsciously makes us question our ability to be successful. It is ironic because our subconscious need to mentally believe we are a good trader actually prevents us from completing the work that will actually make us a good trader.

Now that I think about it, this is exactly like the idea of beliefs discussed in Trading in The Zone... Douglas discussed how traders who 'know' that the market is going to sell off subconsciously avoid all the signs that the rally will continue because that evidence will throw their initial belief into question and cause internal conflict... Similarly when traders project expectations about their skillset as a trader, they subconsciously avoid information to the contrary (making excuses for: not keeping a journal, not reviewing trades, not setting concrete attainable trading goals, etc)

Douglas states that the key to tackling the market from a less stressful context is to avoid projecting strong beliefs about market direction into the future. Perhaps in the same vein, we can avoid a lot of internal struggle about ourselves as traders if we didn't commit so much energy into the idea that we are great or infallible when it comes to trading. If we accept the fact that we can and will make mistakes, then Delibrate practice will provide an opportunity for you to get even better, instead of what it currently possess (a sign that you are not as good as you think you are). It is a simple reframe but it goes a long way

I've been reviewing my notes on Spread Trading using my copy of Options as a Strategic Investment (aka the Option Trader's Bible). I want to note that I am not trying to change my set-up at all... I've heard Big Mike harp about too many traders changing their setups, and I gotta admit that after being made aware of it, I see it everywhere! The changes I am making is to hopefully execute my setup more efficiently. I am using the same setup criteria but I expect the use of spreads to increase the probability of profitable trades and limit slippage 100%.

The main set ups I am attracted to are Verticals spread, Calendars spreads, and Reverse ratio spreads. I am gonna be using directionally based debit spreads with $200 - $250 of risk if the options expire. Currently I am using the simulator but when I take it live, I anticipate using at least 50% of my trading capital trading debit spreads. That will decrease the volatility in my trading account and provide for a (hopefully) consistent form of revenue that doesn't require sitting in front of a computer 8 hours a day.

That's it for now. If you are looking for a good read, check out bijeremiad's Trading journal. His analysis of his trading results is unlike most journals on futures.io (formerly BMT). Really reinforces consistency and the fact that small trends in your trading make the eventual larger overall trend in your profitability curve.

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FXwulf
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Another idea, since in my opinion "swing trading" is basically just directional trading which is pretty str8 forward with vertical spreads/directional calender and ratio spreads depending on vega, is to strategize something to trade ranging markets(since markets range more than they trend in general.

The basic idea is to identify the top and bottom of a channel and sell a short dated(front month) strangle outside of the channel(OTM options), collect the premium until price reaches the top or bottom upon which you sell the stock at the top or buy it at the bottom and exit the concurrent short option. The outcomes of the trade will hinge entirely on the movement of the stock(but you make profit consistently)

1. Price just sits in the channel and does not go to the top or bottom- keep selling the strangle to collect premium ( or Iron condor if your broker doesnt allow naked options)

2. Price moves to the top- short the stock, buy back the short call(depending on how price moved to the top short call may or may not be a loss)

3. Price moves to the bottom- Buy the stock, buy back the short put(depending on how price moved to the top short put may or may not be a loss),

4. wash, rinse, repeat and just play the channel
- manage short options with a .05 bid OR relative Rate of Return( in other words if the next month rate of return is higher and you can get out at .15 or whatever then by all means do that).

Exit: If the underlying asset breaks your channel buy/sell back the stock and exit the offset short option



obviously this this isnt for intraday trading or anything. But on daily/weekly TF's it can generate a great income for quite some time.


Wulf

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 Bermudan Option 
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EXC: Trend is bearish but too much time left to close out the calls. Will let them expire worthless more than likely or buy them back @ $0.05 when it looks more dire

Had on OpEX day rally here and ended up with a $280 profit. Whodda thunk it

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 dynoweb 
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Just read your thread with interest. I've been doing credit spreads for about a year now. I'm still not convinced it's a good long term strategy because of the large potential loss for the small gain. I'm playing the 90% probable trades so only picking up between 4-6% on the bear and the same on the bull side. I play the monthly expiration's and have gotten into trouble with a few of the positions a couple of times.

Keep going on this thread.

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mwtzzz
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Just read your thread with interest. I've been doing credit spreads for about a year now. I'm still not convinced it's a good long term strategy because of the large potential loss for the small gain. I'm playing the 90% probable trades so only picking up between 4-6% on the bear and the same on the bull side. I play the monthly expiration's and have gotten into trouble with a few of the positions a couple of times.

It's those large/unlimited loss scenarios that eventually cause a world of hurt. It's best not to use those kind of trading strategies. You can set up credit spreads with a known limited risk instead, a simple example being a vertical spread such as a bear put. At least there you know the maximum downside.

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 Bermudan Option 
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Another idea, since in my opinion "swing trading" is basically just directional trading which is pretty str8 forward with vertical spreads/directional calender and ratio spreads depending on vega, is to strategize something to trade ranging markets(since markets range more than they trend in general.

The basic idea is to identify the top and bottom of a channel and sell a short dated(front month) strangle outside of the channel(OTM options), collect the premium until price reaches the top or bottom upon which you sell the stock at the top or buy it at the bottom and exit the concurrent short option. The outcomes of the trade will hinge entirely on the movement of the stock(but you make profit consistently)

Thanks for the input FXwulf, the idea of trading channels is appealing but I am always nervous about the inevitable breakout/breakdown that occurs. I mentioned it in response to mwtzz earlier, but I don't see myself using any naked short positions so the short strangle isn't something I can add to my repertoire unfortunately.

You are right that I am basically attempting to trade directionally, and one tactic that I am really interested in using that would work in your channel trading example is diagonalizing a bear call spread so that the front month (or week) premium I collect can offset the costs of my longer term bet.

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 Bermudan Option 
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Just read your thread with interest. I've been doing credit spreads for about a year now. I'm still not convinced it's a good long term strategy because of the large potential loss for the small gain. I'm playing the 90% probable trades so only picking up between 4-6% on the bear and the same on the bull side. I play the monthly expiration's and have gotten into trouble with a few of the positions a couple of times.

Keep going on this thread.

Thanks dynoweb. Nice to hear someone else trading options on the board. Sounds like you know that credit spreads as you currently do them are not ideal because you already understand that the longer you trade those 90% probability spreads, the greater probability you will eventually encounter that 10% price reaction that you don't want.


I guess it depends on how you view the market and what you look for. Personally, I look for breakout opportunities and big moves so a lot of the option strategies I want to implement are geared towards taking advantage of this. Psychologically, I am not sure how well I would cope with opening a credit spread, sitting on my hands, and willing the market to not do anything crazy so that I can to hold onto profit.

My personal trading beliefs are to cut my losses as soon as things aren't doing what I want them to, so most credit spreads seem stressful, especially given the limited profits that most pay out... but one credit spread I am interested in is reverse ratio hedges. It is kinda like a long strangle: a big move in any direction will result in profit and a small movement = a loss. The difference is that one direction has unlimited profit. and the other direction has limited profit potential.

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 dynoweb 
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Thanks dynoweb. Nice to hear someone else trading options on the board. Sounds like you know that credit spreads as you currently do them are not ideal because you already understand that the longer you trade those 90% probability spreads, the greater probability you will eventually encounter that 10% price reaction that you don't want.


I guess it depends on how you view the market and what you look for. Personally, I look for breakout opportunities and big moves so a lot of the option strategies I want to implement are geared towards taking advantage of this. Psychologically, I am not sure how well I would cope with opening a credit spread, sitting on my hands, and willing the market to not do anything crazy so that I can to hold onto profit.

My personal trading beliefs are to cut my losses as soon as things aren't doing what I want them to, so most credit spreads seem stressful, especially given the limited profits that most pay out... but one credit spread I am interested in is reverse ratio hedges. It is kinda like a long strangle: a big move in any direction will result in profit and a small movement = a loss. The difference is that one direction has unlimited profit. and the other direction has limited profit potential.

Last Friday was a good example of trades getting under pressure. Since the market has had such a strong upward movement last month, my bear call spreads all got right up to the money so I closed them out early. With the income I collected on selling both the original bear spreads and the multiply bull spreads I ended up down about 5% of my margin used. But you are absolutely right about the stress that puts you under. Prices move very fast at that point.

I'll have to check out that reverse ratio hedge since I haven't seen that one before.

One interesting trade I heard about from CNBC's option express show is called a Call Spread Risk Reversal. What that looks like is a long Call spread with the spread in a range you hope the price will move to and a naked put 10% less than the current price. There are two things attractive about this trade. First the net credit/debit was $0 except for commissions. The potential upside is the difference in the long call spread and the risk is having to buy the stock for the price the naked put was sold. Since I wanted to pick up more shares of this company, it seemed like a really low risk way of getting into this position. I'll give you the prices with the option, hopefully that's alright to do.

BTO Apr 13 29 Call
STO Apr 13 32 Call
STO Apr 13 25 Put

The equity price when I entered into this trade was around $27. Since I've started this position, the price has moved lower so the same deal would give credit. Buy ideally, I want the price to go up.

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 Bermudan Option 
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Hmmm. Haven't watched CNBC in a while. The position is still naked a short option though. I know you said that you wouldn't mind owning the stock... you have to remember that you are selling insurance to own the stock whether it is @ 24.99 or 13.12... What happens if it pulls an ORCL and gaps down 10%?

Also, you are financing a speculative long option bullish bet that the price will go higher with a speculative short option bullish bet that the price will go higher. Essentially you have added leverage to a directional move and increased your risk exposure to a downside move to varying degrees (selling puts atm puts = moderately bullish... buying an OTM bull spread = more aggressively bullish) Also, you said you want to pick up more shares in your post. Does that mean you already own shares? Because that would make a portion of your portfolio that is a bet that the stock is moving higher lol.


Oh and:
Difference between strike prices in bull spread ($300) - initial debit + Credit for Short Put = Max profit

Max loss = ???


The risk still outweighs the reward too much for me to trade it. If you already own a position there might be some better ways to use options to protect against a move lower but still gain regular profits? I skipped that portion of Options As A Strategic Investment so I don't know what to recommend lol. Good luck!

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 dynoweb 
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I appreciate your thoughts on that. The way I was looking at this is that I wanted to add shares of that stock into my portfolio, so I'm starting out with the conceptual basis of my options play as having just bought the shares. Owning the shares always carries the potential loss of the entire investment. The naked put I sold forces me to make my purchase of this stock at 10% below the current market price. So this option you could say, saved me the 10% loss on the stock if I just bought it. On the credit spread, I do cap my gains at only 300/contract but my biggest risk is that it expires worthless. Since my options trade didn't cost me any debit, my loss would be not being able to leverage that margin amount for a better trade.

Yes you're right, I do already own a few shares of this stock but I wasn't thinking of the insurance play with puts. Just trying to capture the upside if it does make the move I hope it does, or if it goes the other way, get in at a cheaper price.

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 Bermudan Option 
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QCOM: 6 contracts 67.5 April/May Calendar spread. (Sell April $67.5 Calls at the same time that I buy May $67.5 Calls)
Options Reasoning: Implied Volatility almost has to increase as the Earnings report is built into the back month option. Currently @ 33rd percentile. As long as volatility doesn't collapse, my risk has been quantified so that I will have $200 loss only when the key $63.5 resistance level breaks. I plan on being naked going into the earnings report and I will likely sell going into the earnings report, perhaps holding 1-2 options through the report.
Technical Analysis Reasoning: Bounce off the trendline on the Daily, might break out on the longer term timeframe as well tbh
'Fundamental' Reason: (Note that there is no extensive research in this portion, this in my trying to rationalize the trade) The most popular Android tablets and phones have the Snapdragon processor created by Qualcomm. Nexus 4 was released late last quarter and might have a positive impact as they have been in and out of stock for the past few months consistently. Also, the Galaxy S4 is scheduled to have a Snapdragon processor as well. If Samsung and Google's flagship phones have the processor, that can be construed as a positive sign about QCOM's product and its future.


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 Bermudan Option 
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Entered the position and I have 6 calendar spreads open for a debit of $92 each

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 d1david 
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I have been selling option verticals since I can't sell naked options to generate premium.... they really aren't that difficult to learn and your risk is limited.... I have been doing 20 or 30 contracts like on APPL or AMZN, or BBRY and risk 10k to get approx 3k but probability of sucess of around 75%...
So far... its been working...

Also what I really like to do is sell cash covered puts on stocks I wouldn't mind buying at certain price... for instance... a few weeks ago, sold JCP $14 puts.... as I thought 14 was a good buy.... my puts expired and I pocketed the money...

or I like selling $12 BBRY puts as I feel that the $12 is strong support and wouldn't mind owning it at that level... so far I got to go to the well several times..

for those of you that want to learn these strategies, I would suggest playing around on the paper money account with a broker like TOS and mess around with it till you get comfortable... TOS has many archived swim lessons that help teach the ropes as well and its free

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 Bermudan Option 
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Bbry puts sounds kinda good because the stock is so volatile you will pocket some nice change if they expire worthless. Still not a fan of risk outweighing reward but I might grow to like it down the road perhaps. If your losses are $10,000 and your wins are $3,000, you have to be right like 75% of the time just to break even, right? I prefer grinding it out with singles and doubles and getting a home run every now and then instead. To each is own though, sounds like it works for you. AAPL looks like it might be moving sideways for the foreseeable future so credit spreads aren't a bad idea there potentially. I might grab some long term LEAPs for a cheap bull call spread down the road.

Anyways haven't made any short term trades recently. With the profits from my HNZ trade earlier in the thread I opened a Roth IRA account. Everyone should look into those if they get a chance. The best way to describe it is a savings account where you can't take out any of the interest (read: profits) that you earn. I have Dec calls on JASO w/ a $6 strike and a Diagonal bull call spread on the iShares Italy ETF Dec expiration on the longer termed options as well. I think that the euro crisis will rebound this year hopefully.

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 deefster 
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@Bermudan Option
You seem to like Calendars, curious if you have ever looked at diagonal spreads. One of my favorites is a diag with a back-month ITM long option and a front month OTM short option.
Example would be an IWM May/June 95/94 Call spread. May is OTM and short, June is ITM and long.

Take a look at a PnL graph. One of the nicer characteristics is that you make money even if it moves immediately in your favor, but like a calendar it will benefit from some sideways market action before expiration.

Cheers,

Nice to see other option traders here.

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 Bermudan Option 
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Funny you should mention that... Diagonals are my absolute favorite type of options trade lol. I have the trade you mentioned in play currently for my EWI (Italy ETF) trade. (long Dec13 $12 calls, short May13 $13 calls)

Diagonal bear call spreads are my preference tho where I can often have a long position for free at the end of the day if I skip a strike price or two. I prefer to have a directional bias and the strategy allows for me to hit a few singles until I get a home run.

I haven't utilized it recently because it is cheap to put on but it ties up a chunk of capital since you have to have the difference between strike prices in cash because it is a credit spread. Too capital intensive for my IRA but I will use it once I start the shorter term time frame again. My strategy is to buy a long term OTM option like 3 month out and then sell ATM weekly against it if the underlying hits a resistance level. I can reevaluate whether to reestablish the position weekly and it has the quickest time decay. The only issue is the high gamma means that if the weekly ends up ITM I will lose money on the weekly faster than I gain in on the monthly option.

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 Bermudan Option 
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Bermudan Option View Post
Bbry puts sounds kinda good because the stock is so volatile you will pocket some nice change if they expire worthless. Still not a fan of risk outweighing reward but I might grow to like it down the road perhaps. If your losses are $10,000 and your wins are $3,000, you have to be right like 75% of the time just to break even, right? I prefer grinding it out with singles and doubles and getting a home run every now and then instead. To each is own though, sounds like it works for you. AAPL looks like it might be moving sideways for the foreseeable future so credit spreads aren't a bad idea there potentially. I might grab some long term LEAPs for a cheap bull call spread down the road.

Anyways haven't made any short term trades recently. With the profits from my HNZ trade earlier in the thread I opened a Roth IRA account. Everyone should look into those if they get a chance. The best way to describe it is a savings account where you can't take out any of the interest (read: profits) that you earn. I have Dec calls on JASO w/ a $6 strike and a Diagonal bull call spread on the iShares Italy ETF Dec expiration on the longer termed options as well. I think that the euro crisis will rebound this year hopefully.

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JASO up 10% today after like a 3% pullback in the morning. Talk about volatile. Options have increased just under 50% already . Should have bought more lol. Will do some serious DD over the weekend.

Also earlier today I bought Jan 2015 LEAPS in SIRI and CLWR. Outright options, no real spreads to implement at the moment because volatility is extremely low for both of the underlyings. Plus I made a pretty bullish bet that both will double in a year and a half, so selling any options will either bring in a minimal amount of profit, or it will cost me more in margin than it is worth.

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 Bermudan Option 
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I have a few option trades scheduled to give live Monday:

TSO
Strategy: Bullish Calendar Spread
Options Sold: $60 May 2013
Options Bought: $60 June 2013
Implied Volatility This is higher than I would like.
Initial Debit/Margin Requirements: $1.04 x 3 ct ($104 x 3 contracts = $312)
Stop loss @: $200 + commissions
Reasoning: $60 is a key resistance area on the daily that was sold off from 2x already this year. If the stock does break out, I think it will hesistate/consolidate at the $60 first. I think that rules out the stock being above $60 prior to May expiration. I have been waiting for the energy sector to break out and I am hoping that it does before June expiration.
Special Notes: Because this has weekly options. I can also sell weeklies against the position if the May options expire worthless to bring in more capital.
End Goal: I want to be long TSO for a reduced cost


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 Bermudan Option 
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PNC
Strategy: DIagonal Bear Call Spread
Options Sold: May 70 calls
Options Bought: August 72.5 calls
Implied Volatility Extremely low.
Initial Debit/Margin Requirements: $682 debit AND $2750 tied up in margin
Stop loss @: $200 + commissions
Reasoning: PNC has been in a steady uptrend as evidenced on the chart. $70.5 is the high time since the recession so I think there might be some short term hesitation if/when it meets that level. Financials are doing well overall, and the PNC long term options are cheap thanks to low IV so I thought it was smarter to buy further out and take advantage of the discounted price. Also, the next Earnings Report will be covered in the August calls.
Special Notes: As you can see, diagonal bear call spreads tie up a LOT of capital. PNC doesn't have any weeklies, so my only real plan is to sit on my hands and/or potentially turn the trade into a calendar spread when the May options expire. It ties up too much capital to create another diagonal bear call spread again more than likely.
End Goal Own the PNC August calls for free or for a severe discount. I want to participate in XLF's rally to $20.


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 Bermudan Option 
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AAPL
Strategy: Double Diagonal aka Diagonal Iron Condor aka man this seems complicated
Options Sold: $440 Put & $460 call (Both expire 5/10/13)
Options Bought: $430 Put & $470 call (Both expire 5/24/13)
Implied Volatility For Apple, these volatility levels are very low, which is a prerequisite for calendar spreads. I am betting that volatility levels will increase during a big move lower (which will inflate the price of the options) or stay relatively the same as the underlying pushes higher (which works against my position but to a minimal degree)
Initial Debit/Margin Requirements: $233 debit AND $1000 in margin
Stop loss @: $200 + commissions
Reasoning: As I mentioned here, I believe that AAPL is at a pivotal price level right now, testing its intraday VWAP. I think that institutional buyers are gonna be hitting the bid/ask pretty hard in the near future which will lead to a big price swing. I have no idea which direction and given the low volatility, a double diagonal appears to be a safe bet.
Special Notes: This should be interesting... lol
End Goal: There are two other ways to think of this trade that help understand the end goal:
1.) I have a short strangle in the near term and a long strangle in the longer term or...
2.) I have a diagonal bear call spread and a diagonal bull put spread.

In both instances, I am betting that the underlying does nothing for a week, in the next two weeks, I am hoping that price action picks up in a major way, and it would be a win-win situation if Implied volatility spiked as well.


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 Bermudan Option 
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Filled and stopped out of my AAPL double diagonal. Not sure if I set my trigger order wrong, or if I was just lucky. Lost only about $80.

No fill on PNC or TSO. TSO is running without me so I might have to yank that off the table. PNC I might turn into a GTC order.

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 Bermudan Option 
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Filled on PNC and stopped out. Set my OTO order wrong.

Re-entered my position like Thursday. Also entered a few other trades. Will update later this evening

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 Bermudan Option 
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Bermudan Option View Post
PNC
Strategy: DIagonal Bear Call Spread
Options Sold: May 70 calls
Options Bought: August 72.5 calls
Implied Volatility Extremely low.
Initial Debit/Margin Requirements: $682 debit AND $2750 tied up in margin
Stop loss @: $200 + commissions
Reasoning: PNC has been in a steady uptrend as evidenced on the chart. $70.5 is the high time since the recession so I think there might be some short term hesitation if/when it meets that level. Financials are doing well overall, and the PNC long term options are cheap thanks to low IV so I thought it was smarter to buy further out and take advantage of the discounted price. Also, the next Earnings Report will be covered in the August calls.
Special Notes: As you can see, diagonal bear call spreads tie up a LOT of capital. PNC doesn't have any weeklies, so my only real plan is to sit on my hands and/or potentially turn the trade into a calendar spread when the May options expire. It ties up too much capital to create another diagonal bear call spread again more than likely.
End Goal Own the PNC August calls for free or for a severe discount. I want to participate in XLF's rally to $20.


I am in this trade right now, it was going good but the move higher today hasn't been met with open arms by me 100%.

Here is an interesting thing about this spread. An options delta shows how much money I am likely to make if the stock moves $1. Gamma on the other hand shows the rate at which the delta changes. The PNC short calls are set to expire soon and so the gamma can really get moving in a hurry in as extrinsic value evaporates. The long calls that expire in August on the other hand are full of extrinsic value, so the gamma is low. What this means is that for every $1 above the $70 strike, the short option will lose close to a $1, while the long option might only gain $0.6. That means the I will lose $0.40 for every $1 that the stock goes up.

As a result, I currently have a move in the direction I guessed, but because the gamma is so high for the short calls, I am now losing money slightly faster than I am making it if PNC continues to push higher. Hopefully the $70 level acts as resistance as it was the 2010 high. If not, I will have to buy back the short calls for a loss and decide whether I want to hold onto the Long $72.5 Calls or not.

It makes sense when you think about it, but I can explain it a bit more if anyone is interested in learning more.

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 Bermudan Option 
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Market Overview
Overall Market
I feel like the SPY is due for a pullback so I am hesitant on creating any more outright call purchases for now. I am leaning towards more calendar and diagonal spreads so that my positions have (some) built-in downside protection. I have also moved stops higher for profitable trades.

Semiconductors
I want to give QCOM another shot. It has rebounded nicely from its E.R. sell-off. It is directly/indirectly related to the semiconductors industry which I am bullish on as well. I think QCOM has some real upside potential and I want some type of exposure to the Semiconductors rally that is taking place.

Energy Sector
Energy is starting to break out in my opinion. No super heavy volume yet, but if you pull up a weekly chart, it just broke through a key resistance area. It might pull back this week and push higher the following week or something, but long story short, I want to be overweight the Energy sector in 2013. I will looking to establish positions in my main trading account as well as my Roth IRA account (link in signature)

Materials Sector
This sector looks like it is on the verge of really breaking out on the monthly timeframe. The weird thing is, half the sector is full of dogs (X, FCX, NEM and other companies with metal exposure) and then the other half are high flying and on a tear. There are about three potential trades I am contemplating.


Account Related
Day Trade Limits
I am out of day trades in my regular account (I am not used to using a margin account for option trading). I have a trade I want to establish in CF which is low risk and high reward, but because of the potential for being stopped out the day I put the trade on, I don't want to risk putting the trade on in my main account and exceeding three day trades, so I will used my IRA account even though the trade will only last like a month. I have four trading accounts, but the IRA account is the only other one with the clearance to do vertical spreads.

HLF adjustment
I have an existing position (2 Oct $40 Puts @ $3.40) and these puts have been slowly losing money as HLF drifts higher. I know there are a large short interest in this positions so it definitely has short squeeze potential but I have a somewhat tight stop in place. It is at a key resistance point right now and may take off next week. I have been sitting here, twiddling my thumbs, when I could sell some weekly $43 puts against my long Oct $43 puts. This will turn my outright puts into a bear calendar spread. That way I will be making money while I wait, and reducing my costs overall if the market does push higher and the long option is stopped out.

Commission fees
I managed to negotiate a lower price with ToS/TD Ameritrade but I am still paying a lot in commission. I am definitely not overtrading, but I want to cut costs wherever I can if I plan to do this full-time in the future. I have two cash accounts with the discount broker Choicetrade but I am looking to turn one into a margin account. A 4 legged position on ToS costs me around $23, but on Choicetrade, it will literally cost me $5.60. That is 75% cheaper! If Choicetrade gives me Lvl 4 clearance, then I will move almost all of my trading to the discount broker.

Option selling
For the multi-leg ToS option traders and/or option sellers out there, when you open a sell-to-open position, also set it to trigger a good-until-canceled order to buy the option back at a limit of $0.05. This is because if a contract is valued at $5 or less, ToS does not charge any commission on the trade.

I tried it with success earlier this week on LULU. It will save you money and encourages you to get out of the low-reward high-risk position ASAP.

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 Bermudan Option 
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I am in this trade right now, it was going good but the move higher today hasn't been met with open arms by me 100%.

Here is an interesting thing about this spread. An options delta shows how much money I am likely to make if the stock moves $1. Gamma on the other hand shows the rate at which the delta changes. The PNC short calls are set to expire soon and so the gamma can really get moving in a hurry in as extrinsic value evaporates. The long calls that expire in August on the other hand are full of extrinsic value, so the gamma is low. What this means is that for every $1 above the $70 strike, the short option will lose close to a $1, while the long option might only gain $0.6. That means the I will lose $0.40 for every $1 that the stock goes up.

As a result, I currently have a move in the direction I guessed, but because the gamma is so high for the short calls, I am now losing money slightly faster than I am making it if PNC continues to push higher. Hopefully the $70 level acts as resistance as it was the 2010 high. If not, I will have to buy back the short calls for a loss and decide whether I want to hold onto the Long $72.5 Calls or not.

It makes sense when you think about it, but I can explain it a bit more if anyone is interested in learning more.

Just a quick update on this position, I lucked out and bought back the short calls on the sell off we had Thursday afternoon, and so now I am naked long the August $72.5 calls. Got a nice little chunk of change on Friday's rally as a result.

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 Bermudan Option 
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Gonna be posting my tradervue stats this week. I've been trading but haven't updated this journal in a while. Looking to get back in the swing of things on futures.io (formerly BMT).

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 Bermudan Option 
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These are the stats of my trading in Q2 2013


Definitely room for improvement but ironically this was a lot better than Q1 2013 if I remove the HNZ trade. That is a positive to take from the stats. This was my first quarter using spread trades, and I made some mistakes that I have learned from.One thing I want to mention is that I was up over $1000 on PNC and up a sizeable amount on a Ford trade as well. However, thanks mostly to greed, I was not taking profits off the table or reducing my size as the market pushed higher, and so when the market had a wide range and sell off on May 22nd, I was stopped out, or gave back a chunk of profits.

Things to work on
  1. Trading illiquid option chains meant that I encountered a lot of slippage. This quarter, I have committed to trading more liquid options where I can, and being more cautious with my stop placement for illiquid options.
  2. My average winner was not 3x (or even 2x) my average loser. In fact my average winner was smaller than my average loser. That is a quick way to blow an account up. In Q3, I am focusing on verbalizing where my target price is in my analysis.
  3. Holding onto an entire position increases the likelihood of illogical trading decisions When I had a position that fluctuated +/- $200/day, it was harder for me to recognize and manage risk. Now, I am more concerned about locking in profits this time around. So far in Q3, I have already taking some profits (and risk) off the table by selling bits and piece of my position earlier.
  4. Choosing the right strike price: I realized this in Q3 2013, but it took place in Q2 2013. I was too aggressive in my strike prices and it really was not advantageous to my bottom line. Because I was choosing Deep out-of-the-money options, I was directionally right often, but I was not capitalizing in an efficient manner. For example, I might have bought 12 option contracts deep out-of-the money @ $0.25/ct instead of buying 6 contracts at the money for $2.50. The money that I have to invest up front is much lower when the contracts are out of the money, but a) it is harder to get a return unless the move is damn near parabolic and b) even if I double my money, I invested less, so my overall take home will be less as well. Deep out of the money options are advantageous if they end up in-the-money eventually, or at-the-money quickly, but other than that, I am transitioning to trading at-the-money options and slightly in the money options for cheaper stocks so that I can set my stops better and make better profit off of those days the stock moves 1 to 3% higher instead of only the days it moves 5 to 10% higher

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 Bermudan Option 
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Breakdown
AAPL Vertical Spread

My reasoning for the Trade
Here is the visual explanation:


Reasons for concern
Earnings Report around the corner might bring volatility

Trade Overview
I was spot on in this trade which was a good thing AND bad thing. I expected AAPL to reach resistance, but for it to consolidate and/or head lower after consolidation. Instead, AAPL reached my resistance level and did not stick around.


I did not realize that the target had been hit until I did DD today. I remember being up nicely to start Thursday morning though.

Entry & Exit plotted


Thoughts
Microsoft and Google disappointing on their Earnings kinda guaranteed a move lower. I would have gotten out sooner, but the initial gap higher threw me off. I could've sold into that as well since technically there was not much more upside to the position at that point anyways.

Numbers
Net P/L: Lost $170.81

What I did that I can be proud of
I took some profits on Thursday and closed out 1/3 of my position. Since Friday was filled with such uncertainty, I probably should have closed out 2/3 of my position and left one to ride. Still an improvement over the last quarter of trading. Also, I lost less than $200 on the position.

How I can become better for future trades
I like the trade idea, the next time though, I will be more attentive with a weekly option. I have been trading LEAPs and options with +2 months until expiration. I was not mentally prepared to watch an option closely and it showed with my handling of the position. I can/will set alerts for price targets so that I have an reminder of what my objective is. Also, my gross loss in the position was actually only $123, but commission bent me over and had its way with me. One reason for this is because I made a mistake and sold the last two vertical spreads separately when I intended on selling them at the same time. I plan on only using ThinkOrSwim for complex options and margin heavy trades, so I will be paying substantially less in commission moving forward.

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 Bermudan Option 
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I am kicking myself about missing the MSFT Earnings Trade. It doesn't take a genius to know that Surface RT tablets are worthless compared to Surface Pro tablets in terms of capability and so they will sit in warehouses forever.

Here are some more Earning Trades that follow the similar logic that I feel towards Microsoft, "Yeah, your company stock did good last quarter but your company is still an industry laggard bro"


JCP (Earnings Play)
Strategy: Diagonal Bull Put Spread (executed Friday)
Options Bought: 5 JulyWk4 $16 Puts
Options Sold: 5 August $15 Puts
Implied Volatility 15th percentile
Initial Debit/Margin Requirements: $13 per diagonal spread (I have five total spreads) & $500 in margin
Stop-loss stock price $15 before the end of the upcoming week
Target stock price ???
Reasoning: The overall trend is still down and I don't anticipate them to turn it around anytime soon.

I am betting that the price of the stock will not go lower than $15.5 this week, but that after the earnings report, it picks up momentum to the downside. Two of the last earnings reports had big moves of up to 16%. With this trade, there is a debit up front. I was hoping to get a credit so that I own the options for free after the end of this week, but the strike price would have been too deep out of the money imo.


GRPN (Earnings Play)
Strategy: Diagonal bull put spread (executed Friday)
Options Bought: 6 JulyWk4 $8.5 Puts
Options Sold: 6 August $7 Puts
Implied Volatility 11th Percentile
Initial Debit/Margin Requirements: $3 credit x 6 spreads ($900 tied up in margin)
Stop-loss stock price Break below $8 prior to the end of this week
Target stock price ???
Reasoning: GRPN rallied because they changed their CEO. The man is not a miracle worker though, and I think that things will have to get worse before they get better because the current CEO has to unwind the mess they are in and do damage control first.
Special Notes: This trade is counter-trend trade.

If the #s disappoint, I feel like one of two things will happen... either a) strong money continues to accumulate shares like they have been doing so a move lower is absorbed quickly or b) smart monet realizes what a dump this is and starts dumping all the stock they have accumulated. Seems like a lower probability of success going against the trend, but a higher chance of reward if it is a really unexpected #


VALE (Earnings Play)
Strategy: Diagonal bull put spread
Options Bought: 13 JulyWk4 $14 Puts
Options Sold: 13 August $13 Puts
Implied Volatility 64th percentile
Initial Debit/Margin Requirements: $1 credit for each spread (Ties up $1117.20 in margin)
Stop-loss stock price Close out the order if the stock goes below $13.59
Target stock price ???
Reasoning: Looking back I am not quite sure. I think I got trigger happy because of JCP and GRPN.
Special Notes:Not quite sure why I am in this trade. I will potentially close it out this Monday unless the stock rallies. I am already down on this position because it sold off 3% after I entered on Friday morning. Mining companies are expected to do bad, so the upside potential is probably greater than the downside potential. With that said, if this rallies, I will potentially own the puts for nothing

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 Bermudan Option 
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BP (Earnings Play)
Strategy: Calendar Spread (Scheduled to go live Monday)
Options Bought: 16 July Wk4 $44.5 Calls
Options Sold: 16 August Wk1 $44.5 Calls
Implied Volatility 31st percentile
Initial Debit/Margin Requirements: $136 (no margin)
Stop-loss stock price AON trade
Target stock price ???
Reasoning: Theoretically, I think that BP can reach $44.5 by the end of this week at the rate that the energy sector is going. I think a good Earnings report will be a catalyst to break out of the symmetrical triangle on the Weekly and head higher.

Special Notes: This play uses two Weekly options and is a pretty cheap way to make a leveraged bet going into the Earnings. Only a few days after the Earnings Report until the Long options are set to expire though. I have learned my lesson from the AAPL trade and will be watching the stock like a hawk if/when the short options expire worthless.

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 Bermudan Option 
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Nice pop on VALE to get those short options out-of-the-money again. I will hold onto them as long as it doesn't make a lower low this week.

GRPN is rallying but I am hoping it gets dunked lower as it tests the $9 level:


The closer it is to $8.5 by the end of the week, the better my shot at my puts being ITM on a disappointing earnings.

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 Cogito ergo sum 
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I have bee reading this thread with interest, thank you for sharing. Do you also trade non-directional structures around earnings?

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 Bermudan Option 
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Cogito ergo sum View Post
I have bee reading this thread with interest, thank you for sharing. Do you also trade non-directional structures around earnings?

I have a Roth IRA with some LEAPs in it and I am thinking about buying some short term options to turn them into long Strangles in the short term to prevent downside losses.

Other than that, the main non-directional play I would anticipate using would be an extension of my current diagonal trades by adding a diagonal bear call spread to my normal strategy of a diagonal bull put spread. That would turn it into a double diagonal.

I am gonna be looking at CSCO and HPQ when I get home because those are two more underlying that I think can disappoint but I will contemplate the double diagonal to see if it is viable. Also, they have weeklies so that allows me to bring down my cost basis repeatedly before the E.R. That way, I might start out with a front week weekly and the weekly/monthly option that the ER is in.... Instead of a diagonal though, I can throw a double calendar spread, and then keep rolling back forward the short option to bring in profit/bring down cost basis.

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 Bermudan Option 
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TAN (ETF for solar stocks) is looking primed for a potential move higher in August


I am currently holding GTAT and STP (and JASO in my Roth IRA)

However, w/ GTAT and STP both are August expiration. Since that trend shown above is on the Weekly, I might need more time to take advantage. I am looking to close out my existing positions on both options during an intraday pullback sometime this week and then roll them forward to the September expiration. I am gonna be buying ITM options for a higher delta because I have a clear idea of support that I want to jump out if it is broken.

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 Bermudan Option 
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Google Finance just screwed me over. It reported MTG's earning report as being on July 29th ( and still currently says that if you'd like to check here). I scooped some In-the-money shares up earlier this morning on the pullback and planned to sell my position going into the earnings report later on.

Turns out the earnings report is tomorrow morning. FML.

I've got about a grand at risk right now w/ a delta of 0.96. Yikes. I am gonna grab a pizza and watch a movie to decompress. I will sell some shares short in my ToS account to hedge my position as much as possible

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Bermudan Option View Post
Google Finance just screwed me over. It reported MTG's earning report as being on July 29th ( and still currently says that if you'd like to check here). I scooped some In-the-money shares up earlier this morning on the pullback and planned to sell my position going into the earnings report later on.

Turns out the earnings report is tomorrow morning. FML.

I've got about a grand at risk right now w/ a delta of 0.96. Yikes. I am gonna grab a pizza and watch a movie to decompress. I will sell some shares short in my ToS account to hedge my position as much as possible

I would also look at Yahoo.
US Earnings: Company Earnings Calendar - Yahoo! Finance

Matt

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 Bermudan Option 
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mattz View Post

Color me confused but their E.R. was last week.


With regards to MTG, I didn't hedge my position like I said I was going to. I literally worried myself awake and woke up around 1am and couldn't get back to sleep, then when I finally did go back to sleep, I had two dreams about MTG having disappoints results. One had MTG fall to $0.30 per share (and I distinctly remember that the sell off was on heavy volume in my dream too so it was super legit lol) and the other it disappointed and sold off a few percentage points. Anyways MTG's earnings were taken positively as the stock is up premarket. I will stand to make some money today. I feel like I made the right decision in the short term, but definitely not the long term. Taking 50/50 bets like I ended up doing is not the road to consistent profitability. I will make sure this does not happen again.

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Color me confused but their E.R. was last week.


With regards to MTG, I didn't hedge my position like I said I was going to. I literally worried myself awake and woke up around 1am and couldn't get back to sleep, then when I finally did go back to sleep, I had two dreams about MTG having disappoints results. One had MTG fall to $0.30 per share (and I distinctly remember that the sell off was on heavy volume in my dream too so it was super legit lol) and the other it disappointed and sold off a few percentage points. Anyways MTG's earnings were taken positively as the stock is up premarket. I will stand to make some money today. I feel like I made the right decision in the short term, but definitely not the long term. Taking 50/50 bets like I ended up doing is not the road to consistent profitability. I will make sure this does not happen again.

I know EXACTLY what you are talking about as far as your trading decisions, but stress is such a negative element on health that I would encourage you not only to turn your trading mistakes into lessons but the way you react as well. You might have a good strategy, and a good head on your shoulders, but stress will impair it in the long run.
Good luck with your strategy and I do hope it will work out for you.
Matt

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 Bermudan Option 
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I know EXACTLY what you are talking about as far as your trading decisions, but stress is such a negative element on health that I would encourage you not only to turn your trading mistakes into lessons but the way you react as well. You might have a good strategy, and a good head on your shoulders, but stress will impair it in the long run.
Good luck with your strategy and I do hope it will work out for you.
Matt

Yeah, I am used to having a $200 stop, and more recently, having that stop placed so that a decisive move has to happen for me to get stopped out. Having 5x my regular stop potentially exposed is a stressful change of pace. I do not intend on holding through Earnings Report ever again for any of my short term holds.

I am functioning at 50% because I didn't get enough sleep last night. No new positions, will just be managing the existing positions for now. SPY looks like it will pullback/consolidate today anyways

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Market looks like it might consolidated sideways or retrace lower to $168.40 demand area highlighted on the chart below. I don't think that it will break below that level really, but I don't anticipate opening any new positions today.


A part of me thought that after the American darling AAPL impressed on its earnings, it would drive the SPY higher, but it looks like a fakeout so far this morning.

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 Bermudan Option 
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Sitting on my hands for now. Support level from yesterday didn't hold, but it wasn't crushed either so it didn't really adjust the way I am viewing the market at the moment.

Currently, there are no new trades on the chopping block, but I anticipate that I will get some alerts on pullbacks for stocks I have been waiting to get into if the SPY drifts down to the $167.75 level and weak hands dump stock.


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 Bermudan Option 
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Earlier today I sold two MTG for a total of $261 in profit

About 10 minutes ago, I grabbed 12 more MTG 08/17/13 Call - 5.00 Strike @ $2.46. I figure support will hopefully hold. I will sell @ least 1/2 of the position at a test of resistance unless it looks super bullish.

I still have 3 contracts from my original MTG purchase earlier this week as well, for a total of 15ct of MTG August $5

I think SPY has put in its low for the day.
Edit: Let me nip 'predictions' like that in the bud now. What I mean to say is: I have established a position in MTG under the impression that the market will not go lower. I can be wrong and I accept the idea that this has a probability that I feel is higher than 50% to work, but that does not mean that this trade will work for me.

Attempting to publicly predict price action is not a goal in this journal.

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 Bermudan Option 
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Sold 4 contracts of MTG @ $2.62. Still 11 contracts in play.

Opened a diagonal bear put spread on AAPL today. I will go into more detail over the weekend but for a reference point,I sold 4 AugWk1 $455 Calls and I bought 4 August $460 Calls. Tied up like 2 grand of capital in my account. This means I am neutral/slightly bearish short term and don't think AAPL will break out next week, but overall bullish and think AAPL will be above $460 by the end of the 3rd week of August.

Edit: Here is the trend right now. Hoping for a breakout although if the market isn't gaining when MTG pushes higher, I am going to take profits quicker

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 Bermudan Option 
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Weekly Review

Trades Opened
ENVI
VVUS
SWHC
FCEL
FSC
STP
AAPL
BP
NOV
MTG

Trades Closed
VVUS
SWHC
NOV
GTAT
SQNM

Profits Taken but still an open position
MTG
COP
FBP
BP (realized profit on short option)
GRPN (realized profit on short option)
JCP (realized profit on short option)
VALE (realized profit on short option)


Changes going into AugWK1
  1. I adjusted many of my scans so that they search only for Options with penny-wide spreads. Experienced $40 slippage on two trades I was in which is approximately 20% more capital lost than I anticipated. Need to minimize that as much as possible
  2. With the MTG trade, I liked that I added to the position when the market gave me the opportunity, and sold (some) options when resistance was tested. I will look to take advantage of this with other stocks that I am involved in that show me high % set ups.
  3. I took some time earlier today and wrote down the traits I want to work on as a trader. They involve being more unemotional, and being a continual skeptic. The latter trait of being a skeptic saved me money last week already because I had planned to load the boat on Energy stock but I forced myself to just choose one underlying and call it a day.

To Do List
  1. Break down the trades that I am no longer involved in
  2. Work on triggers that lead to me being side-tracked by P&L instead of the charts.
  3. Explain my reasoning for trades I anticipate entering in the upcoming week.

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 Bermudan Option 
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AAPL
Strategy: Diagonal Bear Put Spread
Options Bought: 4 Aug $455 Calls @ 2.33
Options Sold: 4 AugWK1 $450 Calls @ $1.06
Implied Volatility: 23rd Percentile
Initial Debit/Margin Requirements: $2000
Stop-loss stock price: $432.24
Target stock price: $455 by August monthly expiration
Reasoning: Old resistance from my last trade is now support since the gap higher. Here is the updated chart from before:

Also, note the white line to highlight my stop loss basically. AAPL would have to retrace back to it's pre-earnings trading range for this to happen which I think is low probability in the next week. SPY retraced/consolidated sideways last week, so I think the market in general has a shot at going higher this week.

Special Notes: I might start trading AAPL more if this plays out like I'd like. So far, I've been able to find high probability trades on the setups, and the risk outweighs the reward as long as there are no violent gaps.

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 Bermudan Option 
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Stopped myself out of Aapl for a loss. Very bullish action this week for Apple

Sent from my Nexus 7 using Tapatalk 4 Beta

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 Bermudan Option 
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Current Portfolio

Long term holds: (+ 2 months to exp.)
HSP
FBP
ENVI
PRMW
ISS
FSC
FCEL
FMD
BRCD

Current positions
STP


Earnings Trades
JCP
VALE
GRPN
BP - earnings went against me
AXAS (this has always only been a naked long because the stock is like 1% from being ITM so a strong E.R. will give me some quick big profits)



Right now, I am really liking HSP and I've had it for over two weeks, but the current price action doesn't look sustainable. ENVI looks like it might break out soon/today hopefully

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 Bermudan Option 
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Scooped up some GTAT. Bought a lot which will tie up a lot of capital but I have been overtrading anyways so meh:

GTAT - 09/21/13 Call - 2.50 Strike
Bought to open 18 contracts @ $2.70


Hoping that the price level of $5.10 holds, or the trendline on the chart:

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 Bermudan Option 
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Here is what the $5.10 level looks like on the Daily Chart:


If it can hold, I will be pleased and looking for upside. Right now, since the option trades on a nickel spread, each tick is worth $60

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 Bermudan Option 
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^^^Was stopped out of GTAT but might try and jump back into GTAT tomorrow for a flip. Potentially a hold if it hovers around it's closing price at all tomorrow.

Anyways, just a short update. I have been trading larger size with less overall positions. Taking advantage of a higher delta and taking (some) profits quicker at key resistance levels. I am not as scattered watching tons of charts so I can read the charts more purposefully this way. I am slowly getting better.

Currently trading NBR mainly. Established a position in EMC to start the day as well.

I put on a diagonal bear call spread on QCOM but don't expect to trade around it for the rest of the week. I bet earlier that it wouldn't break above $67.5 for the week and sold some calls. Bold move considering the price action on Friday but some key resistance overhead that should slow the buyers down. I bought $70 calls that expires in September so I have time to wait for the big move to hopefully come later.

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 AnyM 
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why don't you try and capture theta decay instead, then manage your deltas while in the trade. A home run while the market is consolidating is going to be hard to find, and expensive.
Overtrading options is going to kill you on the slippage.

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AnyM View Post
why don't you try and capture theta decay instead, then manage your deltas while in the trade. A home run while the market is consolidating is going to be hard to find, and expensive.
Overtrading options is going to kill you on the slippage.

I have actually been thinking about this too. The QCOM diagonal bear call spread I mentioned is a play on theta decay trade as I got paid for the weekly to expire and I bought the September calls. I am likely gonna sell the August $67.5 that expire this week as well.

I definitely agree on overtrading hurting thanks to slippage. I have almost completely stopped trading $0.05/spread option chains. I still feel like I need to take my set-up based on the underlying chart and be proven wrong, instead of waiting for the overall market to confirm bullishness and potentially miss the trade while waiting for said confirmation. Perhaps I can make my set up criteria more rigid though...

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Don't update as much on this website, but just a quick update to show things are coming along:

Q2 2013 Stats



Q3 2013 Stats (so far)

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 Big Mike 
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Don't update as much on this website

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 Bermudan Option 
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I feel like I am maturing as a trader slowly but surely. I don't view my end of day P/L as "Man I made/lost $XYZ today" like I used to. It feels much more like an ebb and flow that the volatile price swings that I used to have. I never get too happy about my profits because I know that it is a coin-toss that I might give a chunk back the next day. I am slowly getting there with my losses as well, but they still feel a little more existential and I get a little "woe is me" at times still haha.

Anyways, a recommended blog read for yall is
Embrace The Trend

I was reading it on the train ride to work today on my Nexus Tablet. It reminds me of a concise blog version of Market Wizards with a splash of Brett Steenbarger

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 Bermudan Option 
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I have been trading a lot less spreads recently which isn't surprising given the market climate but it is noteworthy. The market has been moving higher without much hesitation, so I don't see the benefit of selling calls, even if it is something like a diagonal bull call spread. I am playing stocks that are setting up for a break out anyways so I don't want to put any cap on profits with short calls.

There is some slight psychological stress added to outright calls though With the spreads I trade (different types of diagonals mostly), as long as the underlying stays in a range, I am ok... up/down/sideways are irrelevant. However, with naked long calls I am directionally biased so I am always rooting for rallies. Whenever I see red I get a little angst in my stomach.

One thing I have fully embraced is DITM options. I am trading 1 month (or greater) options with a delta of 0.80 or greater most times. Ties up a lot of capital, but I really don't need those parabolic moves like I used to with OTM options. I don't have to worry about time decay at all really either. The only issue is the occasional gap lower really stings.

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 Bermudan Option 
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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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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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 Bermudan Option 
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Grabbed 9 WFT contracts just now:


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 Bermudan Option 
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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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 Bermudan Option 
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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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 Bermudan Option 
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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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 Bermudan Option 
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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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 Bermudan Option 
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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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 indextrader7 
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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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 Bermudan Option 
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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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 Bermudan Option 
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Jumped into some Nov $2 DRYS calls



Edit: Jumped out of the trade. I want things to be closer to that trendline before I put some money on the line w/ DRYS. The stock is too volatile for a tight stop unless I have strong support/trendline nearby

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 Bermudan Option 
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Trying my hand with some BRCD calls again:


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 Bermudan Option 
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Ok.... Gold is getting pretty close to my short option. Hopefully it doesn't gap lower tomorrow... If it does, then I am going to start losing money I believe. Hoping for a gap higher and then a drift lower/sideways to give me some breathing and more importantly so I can pocket the value left on the short options.







Also, I grabbed some longer term options (Feb 2014) on National Bank of Greece in an alternative trading account. The spread widened dramatically as soon as I entered. Damn the man. Gonna look to dump my options if the stock falls below $4.80


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 Bermudan Option 
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2 minutes after the market closed, I realized I played my Gold calendar spread wrong. Gold sold off going into the close, and it is extremely gap-happy, so there is a good chance the market opens even lower, around $122-123. This extended selling will not be good for my calendar spread.

Prior to the market closing, I sat at my work desk trying to will GLD to put in a bottom... but if I had remained objective and in the moment, I would have bought back my short calls for a loss and rolled down to the Oct $120s that expires next week Friday.

I realized this lesson the bus ride home while stealing a glance at Steenbarger's The Daily Trading Coach. The chapter/lesson about fear. He wrote to ask myself about the trade to determine whether there is logic behind my anxiety or if it is all in my mind. The questions I asked myself where:

Questions
- Is volume confirming my theory
- Is price action confirming my theory
- Does the reward outweigh the risk

Answers
- Volume is ambiguous but moreso to the downside
- Price action is bearish for sure,
- With the position I have, I stop gaining profit and start eating into profits below $124.

As it stands right now, the overnight risk (short puts ending up ITM thanks to a gap lower) outweighs the reward (short puts expire worthless thanks to sideways action/gap higher). This was subconsciously eating me up, but the Steenbarger lesson (#18 for those interested) talked about not getting stressed over one occurence if you know it won't affect you negatively in the long run and you can learn from it. So I have another lesson learned and I will be managing risk more effectively in the future. Tonight I will visualize what can go wrong tomorrow so I am prepared for a potential gap lower mentally. I plan on buying back my short puts, but I need to determine exactly what strike I will be rolling down towards.

Also, random fact of the day, my bus ride home was extra long because my bus had to go by Soldier Field. Go Bears!

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 Bermudan Option 
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2 minutes after the market closed, I realized I played my Gold calendar spread wrong. Gold sold off going into the close, and it is extremely gap-happy, so there is a good chance the market opens even lower, around $122-123. This extended selling will not be good for my calendar spread.

Gap lower and opened @ $122.38. Lost about $78 in profit, not as bad as I would thought it would be, but I left a few hundred dollars on the table by not rolling down prior to the close yesterday... since the calendar spread used the same strike price, the profits I made by my long puts going in-the-money were cancelled out by the losses in my short put going in-the-money.

Anyways, within 5 mins of the open, I rolled down & lower to the Oct $119 puts for $1.00/ct.

My $124 long puts have a much higher delta than the OTM calls I sold so I need to keep an eye on this because I really don't have a lot of downside protection at the moment until later next week. Decisions decisions....


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 Bermudan Option 
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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:

STP blew past the level I thought would hold. Here are my new expectations:

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 Bermudan Option 
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Grabbed some MCP calls. I had an offer @ the Bid, but the stock pulled back, and my offer was filled @ the new Ask.



The trendline I am watching was broken in late September but I hope am trading under the impression that it will hold after that failed move lower. Also, there is some demand in the $6.90 area as well that might act as support additionally.

Potentially, the market is retracing and so buying dips may not work. Things are looking more bullish after the gap higher although the markets may need to consolidate a bit before we get some action grinding higher.

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 Bermudan Option 
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Stopped out of National Bank of Greece stock (NBG)


The price action didn't go beyond my stop out point, but the spread was too wide and I couldn't hang on to support being tested/broken without having substantial slippage.

Current positions
BRCD
MCP
GLD

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 Bermudan Option 
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GLD gapped higher today. Because the delta for the $124 long puts is so much higher than the $119 short puts, my profits took a beating. $500 or so in profits evaporated just like that. There will be more trades in the future though so I cannot complain. Time decay will increase as the week progresses for the short puts as well so as long as GLD doesn't start rallying, I will slowly start bringing in profits again. Here is how I am managing the position now:

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 Bermudan Option 
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Jumped into some Nov $2 DRYS calls



Edit: Jumped out of the trade. I want things to be closer to that trendline before I put some money on the line w/ DRYS. The stock is too volatile for a tight stop unless I have strong support/trendline nearby

Glad I bailed on that trade as the stock has been heading lower ever since. Looking for the trendline to be tested soon. Hoping for a pullback to $3.30 so that I can set a $0.15 stop around $3.15

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