Late night update with a new long strangle play

Markets haven't been moving much in any one direction much the last week. That combined with no new good trade candidates has made for some slow trading. But that's fine by me as I have been busy getting a contract finalized on our new house :-), and helping start a new non-profit organization (not related to stock trading). Waiting to get a signed copy back in my hands, but it looks like we have a brand-new 3br/3ba house :-)!! Huge answer to prayer with the baby on the way, and our apartment lease coming due. More details to follow as things progress ...

Potential Trades

RIMM Jun 45P/60C ~12.00/contract
- Typically I put in separate orders for the put and call legs of a long strangle. The problem I see with that on this stock is that it gaps a lot. That is the one downside to separate legs with triggers based on stock price ... you can get burned if the stock gaps significantly. So, I'm going to try something new by submitting an order for the full strangle to execute at the market 15 minutes after market open. The 15 minute delay is to try and avoid the crazy first 15 minutes of trading that can throw off option premiums.

Updates

MS Apr 15P/20C - Seems to be bumping up against resistance at $19.58. It broke through yesterday, but then pulled back to close below. Today it closed above that line, but only marginally on lower volume. I'm putting in a trigger to dump the Apr 20 calls if the stock falls below $19.05, which is below today's low and the 100-day moving average that it broke above today. It showed a little strength after-market tonight, but we'll see.


OXY and FWLT - Both of these stocks have yet to make a decisive move. They are both May expiration, so there's still plenty of time.

Almost 90% trade accuracy!

There was a lot of chatter all over today about the big event, and how change is coming, blah, blah, blah. I'm not going to say much because this is a financial blog, not a political one (though they are very much tied together). I'll just say that the markets were about as, or more, excited for our new president as I was. Change is coming alright, but I'm afraid it's not for the better.

GS was somewhat frustrating to me today. Ended up giving up about $312 in profits if I hadn't sold it first thing this morning :-/. I did still make my target profit of 10% so I should be happy, it's just hard to see easy profits like that slip away. On the other hand that's expected with the way I play strangles. My idea is to make consistent, steady profits and not go for the big ones. Take a little piece on every play, and be more consistent at it.

Speaking of consistency, I currently have a profitable trade ratio of almost 89% :-)! Since I started tracking my trades the end of May I have had 39 profitable trades, out of 44 total trades. Not bad considering the crazy markets we've been in during that time. My trading account also crossed the $7,000 mark for the first time today, which puts me at 62.2% growth since May 27th. Every single trade I've closed can be seen here. (Note: In the interest of full disclosure, I did have another small account for a while where I was trying to see how small of an account I could start trading with. I am not counting those trades as that account was a bit of a flop. Also, my Iron Condor trade is not yet on my trade record spreadsheet since I haven't figured out yet how I want to track individual strategies in the same account.)

Recent Activity

1/16

Opened OXY May 50P/55C long strangle - 1 contract for $14.80
- Entered limit GTC sell order for $16.40 (~10% net profit)

1/20
Sold GS Apr 55 put - 1 contract for $6.95
- This closed out my long strangle for a net profit of $2.132 (10.02%)

Potential Trades

Not seeing anything that looks good right now. Trying to be patient and save my cash for a good trade when it comes along.

I will be opening a new long strangle tomorrow

Wow, crazy markets today huh?! I was busy most of the morning dealing ironically with putting in an offer on a house, and the 5% layoffs at my job. Guess I must be fairly confident in my position! I'm not too worried because I have made it a point to always put out quality work, and give 110% when the crunch is on. I have probably close to a month of uncompensated overtime (I'm and expempt employee) I put in last year, so I'm hoping that buys me some job security if nothing else.

I recently found Brian over at AlphaTrends who posts daily video technical analysis of the markets. Worth a look!

Potential Trades

OXY May 50P/55C ~14.00/contract
- Putting in my order triggers for a $0.30 move either direction on the stock. (Stock moves up I buy the call and/or stock moves down I buy the put)
Follow me on Twitter if you want to see live updates on how the trade goes.

Updates

GS - Dropped a lot in morning trading today, but recovered most of it by close to create a nice big hammer candlestick. I'm going to leave my trigger for the call buy-back where it's at ($81.30) and not chase it. If it would have stayed lower today I might have adjusted.

SLB - I still have my Jan 65 call from the strangle I stopped out on in December, that will expire worthless tomorrow. Normally when I stop out of a strangle I dump both options, but it was already worthless then, so I held it just in case. Never hurts to try right :-)?

SPX - I was extremely tempted to bail on my SPX iron condor this morning as my bottom spread was is at 815/810. I held on though to see if support around 820 would hold, and thankfully it did. The fact that this was more of a hedging play helped me resist temptation. As I was losing on my iron condor, my GS position was just about compensating the entire loss. Plus I have two other strangles catching the volatility as well. So long as the S&P 500 doesn't gap down more than 28 points I will clear just over 60% net profit ... in only 8 trading days!! Not to shabby for an "insurance policy" :-).

First iron condor trade is fully opened

I've spent most of my evening tonight analyzing a house my wife and I are thinking about buying. I know the real estate market is looking pretty gloomy, but we're looking at some distressed properties that have some great sweat equity potential. I'm very familiar with home remodel so I feel comfortable doing the work myself which helps a lot. It's just a lot of work making a checklist of repairs and then putting together estimates to figure out whether a property really has potential or not.

Yesterday was a pretty profitable day for me. I didn't close any trades, but had some decent unrealized gains on just about all my open trades. Today was a wash overall, but I didn't lose any ground, so I can't complain.

Recent Activity

1/12

Opened SPX Jan 815/810 bull put spread - 1 contract for a credit of $0.65
-Already opened Jan 975/980 bear call spread on 1/6, so now I have a full iron condor with a total credit of $1.95 and total risk of $3.05. So far so good with my first iron condor trade.

1/13
Opened FWLT May 20P/30C long strangle - 2 contracts for $5.70 each
- Entered limit GTC order for $6.40 (~10% net profit)

Updates

GS - I'm tempted to lower my trigger for buying back the call, but I'm not going to give in just yet. The temptation is that I'm allowing for a lot of upward movement (and thus increase in call price) before buying back the call. There is a resistance level right about $80.75 that would be a good spot. The problem is that when a stock breaks out like it did yesterday it can often rise back up and kiss the previous support goodbye. I don't want to get caught picking up the call, just to have the stock drop right back down. Right now by trigger is set right about the resistance line of the wedge it broke out of. The other spot I could use is the last peak around $88.75. I'm going to leave it where it is for tonight and analyze it again in the morning. Be sure and follow my Twitter feed since I'll tweet any order changes/executions right away.

Don't micro-manage strangle trades

Over the last few months I've learned a bit of a lesson on managing long strangles that don't turn a profit quickly. The one risk with strangles is that the stock stagnates, and the options decay too much before the stock makes a significant move. I took 3 big hits (AMZN, FDX and SLB) in December from stocks that lost their volatility right after opening the trades.

As explained in my (Long) Strangle Details post, I have learned a method of "legging out" of a strangle to help turn a profit even on a stagnating stock. The problem I have had is becoming too involved in the process. The whole purpose of this blog, and the strangle strategy, is to have something that can be traded only in the evenings with no or little intra-day monitoring. What I was doing was watching for a support or resistance point on the daily charts where I could leg out of the put or call. But then I would manage that using the intra-day charts. Basically I was trying to play a daily game on an intra-day schedule. My concern was that the location of the entry/exit points on the daily charts allowed too much stock movement, and therefore was risking too much in the option prices. But what I was really doing was not giving the stock room to move around, and wasting a lot of time and effort selling and buying back options with every little stock move.

So what I've gained from this is to continue finding my exit/entry points from the daily charts in the evening, and then stick to those. None of this intra-day, micro-management where I lose the big picture, and get caught up in every $0.10 move of the stock. That's why I pay money for good charting software ... so I can find those reversal points, and pick good entry and exit triggers. Because of the limitations of complex order types I still often need to enter an order or alert intra-day, but I'm not glued to the intra-day charts. And even those are triggers that I've pre-defined the night before, so there's no last-minutes decision making involved. Stock and option trading is about managing risk, not trying to eliminate it altogether. So this is a big message to myself "put in your trade criteria and stick with it!" :-)

So am I the only one that struggles with becoming a micro-manager of my trades? What tendencies do you struggle with in your trading? Leave a comment below and let me know.

Quick 19.84% profit on OXY

Started the year off with a nice week :-). My account ended the week up 9.4% overall (realized and unrealized gain). My quick 2-day play on OXY was a nice little profit that helped out. That was a good example of why I "leg in" when opening a long strangle. See my (Long) Strangle Details post for how this is done. Sometimes you can catch a trade like this one that ends up just being a single long option play and make some quick cash. The better you can pick and time your strangle entries, the better your chances are of picking up a 1-sided trade.

Recent Activity

1/7

Opened OXY May 55P long strangle - 1 contract for $6.70
Legged out of GS long strangle May 80C - 1 contract for $16.45
1/9
Closed OXY long strangle (single side) - 1 contract for $8.10, a net profit of $134.10 (19.84%)

To see my trades as they happen be sure and follow me on Twitter!

Updates

GS - The trigger that I discussed in my last post was hit and I legged out of the call. I now have an OCO order to either sell the put when the whole trade reaches 10% net profit ($6.95) or re-buy the call if the stock moves above 88.75.



SPX - So far so good on my first Iron Condor :-). I still only have the top half (bear call spread - Jan 975/980) of the trade opened. I am waiting to see what happens at the 850 area before locking in a bottom end. There seems to be a reasonable support there, but if that's broken we have a little support around 800. Beyond that we only have the November low (bear market lows) to look at.

Venturing into Iron Condors

So I decided to branch out and try another strategy today ... Iron Condors (IC). I've been thinking about doing one for a while now and decided I needed to just do it :-). The markets seem to be running out of steam, so I figured now would be a good time to open up the upper 1/2 of the trade (Bear Call Spread). I will open the lower 1/2 of the trade (Bull Put Spread) once it looks like the markets have bottomed out, or at least moved lower. This is something pretty new for me, so I am by no means an expert. I did take a 2hr online course on "Siamese" ICs about a year ago, but they are a bit different than the normal IC.

The basic idea behind an IC is that you make money when the underlying stock/index stays within a certain range. A good hedging strategy for long strangles, since they need the underlying to move outside a specific range to make a profit. I'm going to experiment with a few ICs and see how they work for me. If any of you out there are trading them please let me know what you're doing and how it's working for you!

Recent Activity

1/6

Opened SPX Jan 975C/980C Bear Call Spread - 1 contract for a credit of $1.30

Potential Trades
OXY May 55P/70C ~$12.00/contract
- I'm going to enter an order on this one for $0.30 move in either direction on the stock (OXY moves down I buy put, OXY moves up I buy call)

Updates

GS seems like it's peaking out, so I'm putting in an order to dump the call if it breaks the low of today. It did move a ways into profitable territory today though, so I'm going to do an OCO with the current 10% profit exit on the whole trade in case it does move up tomorrow.

MS had a nice run up yet. Still not profitable on the calls yet though.

Trades closed in December

Finally getting back to blogging :-). I had a great holiday break, and 12 days off work (8 of them paid)!

December was a pretty bad month for my accounts though. I've realized that my smaller account was just too small of an account to start with, so I will no longer be trading with it. It seems to me like ~$5,000 is the minimum amount you want to start trading long strangles with. My larger account (starting with $4,325.75 the end of May) has done much better overall. I finished the year with a 41.5% return ... in just over 7 months of actual trading :-).

Account 1
12/19 - SLB Jan 55P/65C - Net loss $875.40 (-22.59%)

Total loss realized in December $875.40 (-11.70%)

Account 2

12/18 - FDX Jan 60P/80C - Net loss $735.40 (-78.2%)
12/18 - AMZN Jan 40P/65C - Net loss $672.60 (-81.5%)

Total loss realized in December $1408.00 (-48.14%)

Ending account values
Account1 - $6,122.05 (Realized/unrealized gain of 4.61%)
Account2 - $925.47 (Realized/unrealized loss of 38.5%)