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My Option Trading Records

  1. The following is my trading records for the past 4 years:

    2008 -93%(-630,000)

    2009 +215%(226,000)

    2010 +95%(367,000)

    2011 closed the book on 6/28/11, +23%(186,000)

    My approach is simple. Build a portfolio of 100 to 60 different companies or ETFS by selling puts. I use IB portfolio margin. I liquidated the account on Tuesday, the day before the Greece vote, because of the fear factor.

    I want to try less risky strategy, like spreads. But I am wondering what kind of returns I can expect. Please share your thoughts. Thanks.
     
  2. Spreads will certainly reduce the risk and volatility in your account. Yours has had wild moves. The first year must have been exceedingly painful. I see that you are profitable overall, so it's worked out for you OK.

    Reduced risk and volatility also usually mean reduced returns, as well. It really depends how you set up your structures.

    If you continue your current general strategy using spreads, however, you simply keep selling the current "flock" of puts on these companies and then buy ones that are further out for a bit or a lot of protection (which depends on how close the spreads are together or if you buy extra ones at the furthest OTM strikes).

    If you are using 60-100 companies, you can also simply buy SPX puts for generalized (but not matching) protection against the entire group. I'm not sure how close to the money you are going on your put selling, but one possible idea would be to have SPX protection at about the same level as the distance OTM on average. To make this thought clear-- if your average put is running 10% OTM, then buy SPX puts also 8-10% OTM. That way, if the market falls 10% or more on the whole, you will be able to close the SPX puts for a significant profit as a hedge against your put selling portfolio. If you sell 500 puts for the group as a whole, you would buy a similar amount of SPX puts as a hedge. SPX puts will be generally cheaper on a per unit basis than regular stock options leaving you with a net credit overall.

    Of course, any time the market moves higher, (like this week), your SPX put portfolio would get hammered, dramatically reducing your profits from put selling. That is what spread protection will do.

    As you know, options give you a world of choices, and there is no free lunch.
     
  3. Thank you, John. I like the advice of buying SPX put as a hedge against the portfolio. It is a cheaper insurance. Yes, the first year is very painful. I just didn't believe the financial stocks would collapse to such magnitude. But I am glad that I didn't give up. I hope that what didn't kill me will make me stronger in the future.
     
  4. No one can answer that accurately but if you're willing to put in the effort, you can.

    (A) Pick an UL. Determine the IV of the option sold (or use an arbitrary average for the UL). Extrapolate the cost of the protective/long leg strike. Determine the closing price of the UL. If held to exp, max loss is strike diff less premium receive if outside the long strike. If inside, ITM amt less premium received which may be a gain or loss. If closed before exp, you'll have to extrapolate the price of the long leg. Wash, rinse, repeat for all of your positons.

    (B) Use a historical data base and instead of (A), look up closing prices :)

    It's a bit of work but your own trading records will tell you approximately how spreads would have performed instead of being nekkid.

    The simple answer is that gains and losses would have been muted but loosely speaking. with spreads, the largest loss years would have been reduced far more than the smaller gain years.
     
  5. Look at this thread, starting on second page with Atticus' posts.

    http://www.elitetrader.com/vb/showthread.php?s=&threadid=206482

    Also, there is a book called Put Options by Jeffrey Cohen that shows how to protect your put portfolio against market crashes.

    You seems to be doing very well with the puts in "normal" markets, with a little downside protection you can outperform vertical spreads in my opinion.

    Care to share more about your strategy?
     
  6. This doesn't add up. If you lost 93% == $630k in 2008, then by arithmetic you ended the year with $47k. So a gain of 215% the next year would be only $102k, not $226k -- unless you're adding cash to the account?
     
  7. Looking at the percentages sfwind is still 47% down.
     
  8. Must be adding. To get the 2011 results the starting balance would be over 800,000.
     
  9. Yes, that seems right. Here's a quick table, in $k, assuming his 2008 info as the starting point,

    Year Start End Ret Ret$
    2008 677 47 -0.93 -630
    2009 47 148 2.15 101
    2010 148 289 0.95 141
    2011 289 355 0.23 66
    -322 Tot
     
  10. You guys need to request an ROI audit by atticus

    :D
     
  11. I did add cash at the end of 2008. Forgot how much. I belived it was 100k. My starting balance this year is 756k. On October 31, 2008, my balance was 1.2M. There was less than 100k in early 2009. My whole networth was in this account. What saved me is that I can tolerate the pain. I never lost sleep since I have another good paying job. Luckily the IRS approved my trading business and I was able to use Mark to Market accounting. So I was able to offset my wages against loss in 2008, 2009. I did not believe that I can recover so quickly. My approach is rather simple. Build a diversified portfolio by selling puts. Now I don't want to push my luck any further. I want to do this in a much smaller scale. That is why I liquidated the account on Tuesday. Talking about timing. I left at least 150k on the table...I usually don't close the positions until I was assigned the puts.
     
  12. Dig out old files and realized that I actually put in 140k in 2008. During the following three years I withdrew some and deposit some with net total deposit of 110k from 08 till now. If I add 110k to the beginning of 2008 NAV 603k. My 3 year return till now is 20.7% vs s&p 8.8%. If I go back to 2006 when I first started trading, my record is even better. I am up 50.9% in this 5-year period while s&p is up 2.75%.

    I have never done any of this calculation before until now. I think I may cancel my plan of investing in rental property and get back into the market. What do you think?

    P.S. In the previous post, there is a typo. 1.2M is in October 07 or 08.