Optioncoach, Your point is well taken regarding paper trading. I know I personally don't take it as seriosly as my real account. I would have never entered that MYOG position without doing some more research. I need to take a closer look at portfolio allocation/money & risk management, that is obviously very weak right now. And as your about to read, it only gets worse: I've taken another highly speculative position in MO. Buy 35 MO Jan. 85 Calls for $700 Very speculative, basically a gamble, but I like my odds Since I also own (2) MO Jan '70 Calls I was thinking of entering a bull spread, selling (2) MO Mar '06 Calls (price action on Thurs will determine the strike). Gotta check with Ameritrade regarding account mins-$10K min to sell naked puts. Regarding the money management aspect, it just seems very difficult to do with such a small account size. One can't really afford to spread out the risk, otherwise position sizes are extremely small. Maybe someone has some input on smaller account sizes??
You may notbe able to diversify over a broad number of positions with a smaller account but you can certainly work at reducing the risk. If selling naked puts is something you are truly interested in or selling naked strangles, then look at their lower risk alternatives such as bull put spreads and Condors/Butterflies. I think the smaller limited margin requirement will allow you to still take positions and not suffer a knockout from an adverse move. Since you are papertrading, why don't you put on a the Condor at the same time you put on the naked strangle in your virtual portfolio and compare the results in both good and bad. Of course the Condor limits your profits but also limits your risk so it is a tradeoff. i think you will get a clearer picture of the two positions if you trade them side by side and a virtual trading account is the best place to do this. You can do the same with naked puts and bull put spreads. THis is the true benefit of paper trading, to compare and contrast different strategies and see how they operate.
Optioncoach, Thats a good idea. I think with any naked writing strategy its best in the long run to hedge positions. Especially when selling lots of volatility and on much larger accounts. And also I'll take another look at spreads. I admit I quickly glanced over them originally but now I'm beginning to see an advantage when you have a strong view on the underlying. Another update, its been awhile but I had entered some short positions on the EUR/USD & USD/JPY. Both are profitable. B 5000 EUR/USD @ 1.1925 CLOSED @ 1.2045 S 5000 USD/JPY @ 119 S 5000 USD/JPY @ 118.44; Still Open B 5000 USD/JPY @ 117.13 Got another S 5000 USD/JPY @ 116.75 On this one I admit there is no real exit strategy. I get real jittery with profits on currencies cause I've been burned in the past. Nothing special about the entry either, I realized the interest rate differential is about to change and was bearish on the dollar. Used a resistance point as entry on both Yen and Euro.
Great day in the markets! ELN up over a buck. MSFT, whats going on with that? I hope its got something to do with options expiration otherwise I should get rid of it soon! BTW, NKE and all the financials I mentioned earlier are all up big since I originally posted it. Too bad I didn't pull the trigger on any of them, most of money was locked up. OK, on to the big news: MO MO MO MO!!! Love that stock! So I bought 35 Jan 85 Calls for .20 which was a good fill. I sold 35 for .35! This is a lot less then I thought I could get. I spent the whole day wondering how this could be possible!!! I watched the stock go up almost $5 and ONLY a .15 move in the option. In fact, the option closed DOWN for the day???? BTW, the prev. close on the option WAS .35 The only thing I could figure is the volatility came down bringing the vega price down with it?
Great lesson in your MO trade. If IV skyrockets prior to a major announcement and you buy deep OTM calls, then you are paying a huge premium for that position. When the news comes out and the stock jumps higher, the uncertainty is gone and the IV crashes hard, sucking the premium out of your position. The large move does not matter unless your deep OTM become ATM because once it makes its initial move, that is pretty much as far as its gonna go on the news and the option do not need to budge that much really. So the IV crush with the fact that the stock only got to $77 as of today and might now hover for some time means the juice gets sucked out of the option. Great reason why you try and avoid buying deep OTM short-term options when IV is juiced up because the crush and lack of follow-up movement usually act as strong headwinds on the premiums.
What a lesson indeed! I actually could have sold all 35 calls for a $700 profit immediately before the announcement and only made about $500 after. The lesson here: When trading short term events, factor the implied volatility and vega. One thing I should point out though, on a percent return basis, I believe these calls still yielded the best results based on a fixed capital amount. The closer in the money also have a lot of vega priced into it, the gain per option may be greater but the total return may be less.
What are some opinions on a risk/reward profile for various option writing strategies? I've been plugging some numbers into optionsxpress trade calc for some different stocks; The best I've gotten is 1:2 i.e. Max loss = 2 * Max Gain Premium = $1000, Loss = $2000 I just did this with a few stocks, and got some much worse then 1:2. I was wondering what people thought of that profile. I assume its ok as long as the probability of max gain is 75% or better, as measured with deltas or fundamentals/technicals?
Just some updates to the real account: Close 2 MSFT Jan '07 25 C for even Sold 2 ELN Jan 15 C for .45 Sold 2 MO Jan 80 C for .55 Basically just creating a bull spread since I already own ELN & MO. Sold 3 GOOG Jan 420 P Bought 3 GOOG JAN 410 P Credit: 2.75 I thought the possible addition to S&P and if anything, at least short covering into earnings announcement, AOL deal, and upgrades would cause this to rise. It's been all over the place and pretty stressfull but still have a $7 cushion right now. Also I initiated when GOOG was around 440. There was about a $21 range the day I initiated these positions [From +$13 to -$8] I was definetly looking for a payday on this one and perhaps in the future I should sacrifice credit for safety. Only time will tell.
Thank god for New Years! If I had my mind on the markets instead of all the chicks I was going to make out with on NYE, I would've lost some money. GOOG closes down to 414 on the last day. Today it goes up, I got my cushion back. This was a bull put spread, so my MAX loss was determined but I didn't have an intermediate stop loss. I picked the underlying on news/fundamental reasons. Had GOOG stayed at around 414, would I have closed the position or continue to hold out?? Something I need to think about. Looking forward to the new years and good luck to all!
So you are 18 months into making money in the financial industry. What is most remarkable as a person coming out of JH is that you have zero connections so far. The second thing is quitting a job without a better prospect as judged by those who may be hiring you in the future. Will you be back in your old room at home soon? Check out the other thread running by a guy who is leaving RE (Washington market) because of the pending RE sea change in RE in that area. Journals are not places where many people report out their questions and difficulties learning a trade. You do spend a good amount commenting (judging mostly) on some of the advice others have taken the trouble to give you. Its time to put down the shot gun and pick up a rifle. To put it another way, none of the stuff you are throwing is sticking to any of the walls you have hit. Get an MA or MS in something; the MBA is not going to be your bag it turns out. I am speaking from the 97th percentile.