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Option Trading (2014)


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Updated August 25th 2014 by Bermudan Option
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Option Trading (2014)

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  #1 (permalink)
Chicago, Illinois
 
Experience: Intermediate
Platform: e*trade
Broker: Tradingview
Trading: Options
 
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Posts: 484 since May 2011
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Option Trading (2014)

New year, new journal. Looking to put in the effort to have a successful 2014 and of course make it rain.


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  #3 (permalink)
Chicago, Illinois
 
Experience: Intermediate
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2013 in review
Q1 I learned the hard way that time-decay is a killer. I traded solely out-of-the-money options and save for a few trades, I was not very consistent at all. Sucky, stressful time for me. I got to a point where I rooted for a rally every morning, because I would lose money if the markets went sideways/lower. Lots of stop outs due to time decay or trading illiquid spreads.

Q2 I took a month or two off, and read the majority of Options As A Strategic Investment also reread Trading in The Zone and refocused my attention. Using my new found knowledge of options, I did a lot of spreads... Mostly all diagonals and calendars. Was a much more disciplined trader than in Q1 although I didn't have much to show for it other than a hefty commission balance.

Q3 Here I felt like I was turning a corner. Although I did try some earnings trades and more spreads, I also started shifting to trading deep-in-the-money options... basically trading leveraged stock positions. Started to see more results.

Q4 Was doing good for most of the quarter and then had 1-2 bad days that gave back most of the profit from Q3 & Q4. It was not thanks to trading on tilt or being on the wrong side of a really bad trade, it was moreso about being overly bullish and multiple positions being stopped out on a 1-2 day pullback in the market. It is frustrating to stair step higher in terms of P&L and then give it back one day when I was over-leveraged. I took another breather from trading around this time again.

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  #4 (permalink)
Chicago, Illinois
 
Experience: Intermediate
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Present Day
After the bad 1-2 days of trading towards the middle of Q4 2014, I stopped trading for a few weeks. Towards the end of December, I started up again. I have gotten back into that groove where I make a little time after work to look at charts, and I have some scans set up that makes DD a lot less time consuming than it used to be. Because I still work full time, I don't have a lot of time so separating the signal from the noise is. It is harder to pick the wrong stock when it is automatically filtered out by scans. For example, stocks that are in a downtrend or that have an illiquid option spread cease to exist in my trading world because my scans filter them out automatically. I set my criteria in the beginning and it is automatically followed now... no second guessing on my end because the scan is automated.

The lack of extra time I have has benefited me in another way as well. Since I don't have a lot of time, I really can't afford to pay attention to the media, or everyone sentiment online. When I first started trading (and even more recently), I used to inadvertently seek out others opinions to confirm what I already knew. "Does anyone else see the head and shoulders forming?" "Is it just me or did the Russell 2000 pull back on light volume just now?" "Does anyone else think now would be a good time to take some profit off of the table?" etc. Those types of interactions appear helpful at first in the quiet solitude that the trading world offers, but after a while, it becomes addictive and counter-productive. It is harder to act on a signal you see in the market if no one else seems to notice it, and on the flipside, it is easier to rush headlong into a false signal if others see it as well.

Ok so I have established that I don't have as much time as I would like, but yesterday, while eating some leftover pizza, I realized I need to make enough time to do what I need to get done and be a better trader. I watched a few trading videos but more importantly, reflected on the progress that I had made in the past year. When I look at myself in Q1 2013, and compare it to present-day Q1 2014, it is night and day. I am much more patient and calculating with my trading. I want to put in the effort for the next 12 months so that I can look back in Q1 2015 and be even more impressed by my progress. I know that this is attainable for me, and I am ready to do what it takes to make it happen.

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  #5 (permalink)
Chicago, Illinois
 
Experience: Intermediate
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The market was super bullish last year. With that said, the market in my opinion is unlikely to maintain the same bullishness throughout the 2014 year. As a result, I want to have at least one long term short that I hold onto for an extended period of time.

Precious metals used to be the vehicle to put your $$$ when fear entered the market, but the precious metals play is dead in the water imo, so I think it is a prime candidate for a short position.

Looking at 99.9% of the charts for Gold/Silver related stocks, they are all in a long term downtrend. I am basically fading the pops on the weekly and looking to take advantage of relief rallies.

Here is a position I entered today… I bought Puts in Silver Wheaton (SLW) as I expect it to test and/or break below support on the Weekly in the next few months

I purchased the March $19 Puts as a result




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  #6 (permalink)
Chicago, Illinois
 
Experience: Intermediate
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Disappointing entry with SLW...

Still in the trade but it is currently going against me. Often, it is a bad sign when the trade goes against me as soon as I enter.

I traded SLW a week or two ago and I got stopped out so this is my second shot at the stock. I was stalking the 1min chart yesterday when it made its high of $22 yesterday and sold off on low volume. I felt like I missed my shot, and so when I saw the stock falter @ the $21.40 level, I was a bit too keen to enter a position.

My rules dictate that volume (and preferably a TA pattern) is required prior to my entry. I did not see any big volume so I should still be on the sideline stalking. It doesn't happen as nearly as it used to, but in this instance, I can confirm being afraid of missing the move, and entering my position prematurely. I may get stopped out as a result, but that is the price I pay for breaking my rule. I will be ready to make up for this by working on my patience and picking my price instead of letting the market pick it for me.


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  #7 (permalink)
Edmonton, Alberta
 
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If you want a long term short, why are you using a 1 min chart for entry? 1 minute is noise for a long term position.

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  #8 (permalink)
Chicago, Illinois
 
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Trading: Options
 
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gfmatt View Post
If you want a long term short, why are you using a 1 min chart for entry? 1 minute is noise for a long term position.

1 min is noise in terms of the overall long term trend, but it is not noise when it comes to determining what large volume traders are doing. Since I am trending trading off of TA patterns and volume, this is the purest representation of volume I can get outside of a tick chart/ Level 2 Screen. However, if I do not pay attention to volume (and I did not for this entry), I am definitely entering based on noise. I feel like I flipped a coin to determine whether I am profitable. Will just have to regroup and see what happens

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  #9 (permalink)
Chicago, Illinois
 
Experience: Intermediate
Platform: e*trade
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Trading: Options
 
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Posts: 484 since May 2011
Thanks: 418 given, 259 received

Not liking the entry I took in SLW in hindsight. It didn't meet my entry criteria, but since I am so long term bullish on precious metals, I was afraid of missing the big move. However, if it is indeed in a long term downtrend, then there will be plenty of opportunity to ride the stock lower. As a result, I should be more patient in my entry. This applies to all the stocks I trade... they are all in pronounced trends, so I really should finesse the entries, and only enter when I see what I perceive to be value.

As for today, I am sitting on my hands. I feel pretty restless, perhaps because I didn't get a lot of sleep last night. One other factor is because my IRA is doing very well and I seem to be spinning my wheels in my regular accounts. However, when I think about it, it is better to be moving sideways in value than lower. The old me might have forced a trade but I am content with waiting for the weekend to come for me to really sit down and evaluate what are some worthwhile trades to put on. More importantly though, I need to stop focusing on my P/L and just trade the charts. I got mesmerized by my Roth IRA value earlier this morning, but that is not going to help me manage my positions at all.

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  #10 (permalink)
Chicago, Illinois
 
Experience: Intermediate
Platform: e*trade
Broker: Tradingview
Trading: Options
 
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Posts: 484 since May 2011
Thanks: 418 given, 259 received


Stopped out of SLW. I learned two lessons in the trade:
  1. Do not enter positions until you get the confirmations that your setup requires
  2. If a trade is entered without adhering to my set-up, then there is no theory that is being tested by me in the market. If I do not have any logical reason to be in a position, I should exact immediately

Overall, can't complain though, the markets are chopping sideways but my main account is treading water for the most part. Looking to do some more in depth review over the weekend. The fact that I am out of SLW gives me the strength to look at the chart objectively again and try to figure out where I want to potentially go short again. Might play GLD though since it is more liquid and the potential pay off is much larger if my options end up ITM.

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August 25, 2014


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