Jimbo's Option Spread Journal

Discussion in 'Journals' started by jllm03, Aug 8, 2006.

  1. jllm03

    jllm03

    Well, after a couple months of trading option spreads, I thought I would start posting the trades I have entered into.
    For the past few months I have set a goal to earn near $1000 per month on a $12,000 account. So far it has been working for me.

    The stocks I will do spreads on will be stocks that have recently hit their 3 month lows or 3 month highs.
    I will be entering the spreads when there is approximately < 3 week until expiration, as long as it is confirmed by the CCI (14).

    One deviation that I may do from time to time, would be to place a covered call, if the underlying stock has recently hit major support, and looks like it will rebound.
    This will be done with ITM LEAPS instead of the actual stock.
    Here is the AUG play:

    8/7/06
    GOOG 360/340 put Credit Spread. (exp 8/18/06)
    Buy 6 GGDTH Aug 340P @.60
    Sell 6 GGDTL Aug 360P @ 2.3
    Potential profit @ exp. $1,020 - $32 commission.
     
  2. nicely diversified...
     
  3. Hello Mr. Sarcasm :p

    Seriously though "Jimbo", do you always intend on placing all your eggs in one basket?

    With that GOOG trade you've tied up $11K of your $12K account. You've also left yourself without any dry powder in the event that the underlying moves against you quickly. I give you credit that you've picked a good level of support and you might get away with this for a bit, but you're just asking to blow up your account. If this market decides to head south in a hurry, you are only 2 days from that OTM credit spread going ITM. You'd be lucky to escape with less than a 50% drawdown.

    Have you thought about diversifying a little bit?
     
  4. jllm03

    jllm03

    Well, I may have all my eggs in one basket, for now, but I have set a pre-detirmined point to bail out of the short side. I have done this in the past. Normally I would have went with the 350/340 spread x10, (would give a little more cushion on the downside). I have a standing order to close the short side "IF" GOOG's stock touches 360. I do monitor the stock quite frequently thru out the day, looking for any related news, checking on the probability of it touching my short strike each day.
    My goal for now is to build as much equity as I can for a couple months then scale back (just a little). So far I have about $2000 in profits for the last 2 months to rely on as a buffer if it does not get out exactly at the breakeven point.
     
  5. Ok Dude...these are a few items to think about:

    "Well, I may have all my eggs in one basket, for now"

    This is never a good idea. Not now...not ever. You are better off paying a few more bucks in commish than concentrating your trades in 1 or 2 equities.

    "I have set a pre-detirmined point to bail out of the short side. I have done this in the past...I have a standing order to close the short side "IF" GOOG's stock touches 360."

    This is a good thing. You know your exit points and have a strategy. However, you may want to run the hypothetical pricing scenario in an options calculator, taking into account the changes in vega and theta. Unless this target is reached on expiration day, your risk reward ratio will be heavily skewed.

    "Normally I would have went with the 350/340 spread x10, (would give a little more cushion on the downside)."

    Just my 2 cents, but the only times I've lost money is when I deviate from my "routine".

    Not trying to give you a hard time. Just want you to consider adding some risk management and trade management to your strategy.
     
  6. Good luck with the journal Jimbo.

    GOOG likes to dance (jump) ipso facto the efficacy of probability of touching measurements is reduced IMO.

    MoMoney.
     
  7. jllm03

    jllm03

    Hit my breakeven point this afternoon on GOOG 360/340 put spread.
    Decided to "Bail Out" with only the commision loss on both sides.
    One week left on the AUG and it is still trending down toward the 360 support area.
    Going to sit back and watch it.
    Monday, I will be watching to see if the 360 support area holds...if it does, it may be a good time to purchace that Jan 08 340c LEAP I have been watching. I would hold on to that for Covered Calls above the 400 range.

    The CCI (14) had a perfect Zero Line Reject, along with the MACD HIST(5,34,9) on a 6 month chart. Looks like a carbon copy of the pattern it did back in May. I will be looking for a repeat.

    Other options I am tracking are...
    CAT... getting close to the last area it bounced ... 65.
    OIH...Looking for a bounce in the 132-135 range.
    ATI...Also looks like it is ready to hit support near ..55.
    ABT...Has been consolidating after a nice run up. peaking out at 48.. plus it has already had a Zero Line Reject on the CCI on the downside. Should break thru and come down soon.
     
  8. Don't forget about margin-requirements for a credit-spread. With 360-340=20x100x6, you need $1200 cash at all times. So you're pretty close already.

    Personally, I would go with a debit-spread. Buy 370-puts and sell 360-puts. Or buy 360/sell 350. There's your $1000/m in one transaction. :)

    Good luck! :)
     
  9. with your model equity you are better off doing debit spreads .
     
  10. frank99

    frank99

    Jimbo,

    Just out of curiousity, what did you do the last two months to gain $1K per month?

    Did you trade options on GOOG also?

    Are you bullish or bearish on GOOG?

    Thanks,

    Frank
     
    #10     Aug 13, 2006