I think that your analysis of your choices is pretty well on track. I don't blame you for getting out of the situation at an 8% loss. I also wouldn't recommend right now getting into any calls because of the obvious resistence that we will see on HXL at the $20 mark. If it blows through that resistence then it would probably find new support there and might not make a bad bullish play. On another note, instead of getting in originally on a long put play, if you'd have gotten in on a bear call spread, I would've ancouraged you to hold on to your position until it breaks through the $20 resistence. At that point you could buy back the short leg and ride what will likely be a nice bullish wave. Besides that, we might see some short covering if it does break through the $20 mark. I don't know that I would say that I play mostly credit spreads, because there are certain times when other strategies make sense. As a single strategy though, I do think that there are many advantages that credit verticals have. You mantioned many of them. The thing that I mostly love is what you caught on to, about them being very mobile. That's what I hate about most options books (not that I will ever write a better one), they recommend poor strategies to beginners assuming that people are too dumb to untilize multiple leg strategies. By the way, you might be interested to keep an eye on PAAS. Might make a good bullish play for you if it can get over that resistance.
Meant to say resistance instead of support. It was actually a 55% position loss. (lost $60 on a $110 OTM put). When I quoted 10%, that was the theoretical maximum I'd invest in one position. In reality, most of the calls I've been looking at have been around $3.5, and the most I've spent on one position was $5.5 on an HYSL call today. And that was without even realising it! I thought I was buying a $3.7 call, only to be told by IB customer support that I'd bought a contract for 150 shares. It hadn't even occured to me that 33.375 was an unusual strike price! I've decided to stay away from option books until I really get the mechanics. I imagine they'll be full of academic abstraction and financial models. Had a look at PAS. I really like the chart. That's just what I look for; recent 52 week high, nice strong uptrend, pullback, then a role reversal with bullish candlesticks. It's forming some kind of morning star, right? Only problem is it's already $1 above support, so that's an estimated risk of about $1.20, which falls outside my limits. I was interested in ten stocks before the market opened today and had to exclude seven because the estimated risk was over a dollar. Which brings me to another question - How many open positions do you have? And how much of your equity is on the line at any one time? I bought five calls yesterday, and three today, bringing my overall tally up to ten, which amounts to 50% of my equity. Decided to wait and see what the results are like before I go on another spending spree. Is it true that beginners open the market and the professionals close it?
Neoxx I think you should practice on one liquid issue, QQQQ comes to mind. It seems to me that you are little overwhelmed. It is very difficult to find good entries on stocks you really do not know that well.
Hi Walther, I think you may be under the impression that I'm daytrading. Far from it, my mean hold period so far has been 8.5 days. And I'd prefer to use the word challenged.
Certain options books are easy to understand, but those ones aren't any better than looking up any article titled "Options 101" on the internet. Beware of any book written by someone with a late night infomercial. I thought you might like PAAS given your style. I agree that support is to far below right now. My recommendation was to watch it to see if it breaks the resistence at $20. If it does, then $20 will likely become a new and very strong support. Right now I'm in only 4 positions because I took a large vacation last month and didn't want to have to trade during that time at all. Getting back in is slow because I am very picky about my setups. I have 4 main setups that I like to stick to and everything has to be just right. Anyway, about 20% of my equity is tied up in them. Usually I like to have 10-15% of my account in cash at all times. If I do put it all on the line, it is never more than a day later that a position will close out to free up some of it. Your last statement hints at the idea that one might be able to get a better read off the markets by the afternoon direction. Well, that might be true, but many times it is merely a reaction to an event, like the FOMC minutes coming out the other day. I do follow certain guidelines as far as trading throughout the day. -I never enter a position during the first half hour of trading. (9:30-10:00 eastern) Too many amateurs and automatic orders causing eratic moves. -I also never enter or exit a position from 11:00am-1:30pm. Lunch time. Moves are generally made on low volume and intraday trend isn't set until after 1:30. Reversal has very high probability. -At the end of the day I am looking for confirmation of trends. e.g. and stock closes at the high for the day on high volume. Last ten minutes of the day might provide enough volatility to get a better than expected fill on a limit order.
Not a bad recommendation for beginners. In fact, I am in DJX right now. VERY LIQUID. I like them for the tax treatment. Just be careful of one thing. S/R is easier to determine on individual stocks because they aren't as susceptible to getting dragged through S/R by the earnings announcment (or something) of a different company that happens to be lumped into the same index.
Scratch that. I just took profits on PAAS. Decided that I was just chasing pennies. 3-week 50% profit. In two more weeks I could've made another 20%, but I can utilize the money better in new plays. Still in on the worthless long leg so if by some miracle precious metals fell through the floor I would make a bunch of money with no risk. Yeah right, and I'm gonna win the lottery that I never play.
Are there any really outstanding trading/options books? What do you think of 'Option market making', Baird, 'Options as a strategic investment', MacMillan and 'Dynamic hedging', Taleb. Considering reading these. I see what you mean about PAAS. It's been added to my 52-week highs watchlist. When you mention you like to have 15% in cash, you're just referring to your trading account, right? Do you have a buy&hold portfolio in a separate account? All we need is a public health announcement, "Startling new evidence links gold to bird flu...
Challenged it is. What I meant is that by concentrating on one or max three liquid issues you will learn how to combine different length strategies and you might also learn how that pesky premium behaves compared to underlying.
Pesky premium? What about outrageous b/a spread??!! I bought a GOLD call today. 0.40 b/spread! That's 12% of the premium! I understand what you're saying. I think that will be the next step. For now, I've decided to stick to ITM calls while I get to grips with the mechanics of it all, (e.g. entry signals, order execution, conditional orders, stops, money management etc.) Once I've started capturing some consistent profits I'll expand my horizons.