All right, two weeks of spread trading concluded, and it looks good so far. I understand it is only ten trades, and it is not enough data to devise a complete trading system, but I am confident in testing an increase in the trade size. Attached is the report for trading debit spreads expiration 3/14 and 3/21. Performance Summary Total trades taken: 10 Number of winners: 6 Number of losers: 4 Avg Risk (total debit) per trade: $227 Avg Max Profit per trade: $302 Total Risk (cost including commissions) all positions $2,270 Total Profit: $1,053 Avg Win: $240.26 Avg Loss ($97.12) Return on total risk: 46.39% Hypothetical P&L @ Expiration $664.89 (If all positions held to expiration without cutting losers or winners early). Trading efficiency (difference between actual profit and hypothetical profit) $388.18 Trading efficiency ratio (trading efficiency divided by total profit) 36.86% Trade management accounted for 36.86% of the profit. Average profitable trades as a percentage of average maximum profit per profitable trade: 77.7% On a side note, the performance on the monthly options was much better than the performance on weekly options with 5 winners and 1 loser on the monthly versus 3 losers and 1 winner on the weekly (net profit of $320 on the weekly with 25% winners). The next two weeks: There are two weekly expiration 3/28 and 4/04. This limits the number of available stocks to trade, but hopefully I can find at least ten set ups that I like. Strategy: Increase average risk per trade by 164% to $600 for the next ten trades and re-evaluate. Expectations: With the understanding that an expectancy of 60% winners with winners 2.47 times larger than the losers is not sustainable in the long term, the goal for the next two weeks is to double the net profit of $1053 to $2100. To get to the goal, the net return on risk shall be: $2100/$6000 = 35% At 70/30 W/L - Avg size win $500 / Avg size Loss $466 At 60/40 W/L - Avg size win $600 / Avg size Loss $363 At 50/50 W/L - Avg size win $625 / Avg size loss $205 At 40/60 W/L - Avg size win $625 / Avg size loss $66 At 30/70 W/L - Avg size win $816 / Avg size loss $49.71 With the avg ratio at 1.36, the maximum average profit is $816. While in the previous two weeks, profitable trades captured 77.77% of the maximum profit they could capture, which translates into $634.60 per trade (with $600 risk and 1.36 ratio), it is unrealistic to expect this ratio to continue over the long term. Long term goal the portfolio growth goal of 5% monthly return equals approximately $7500 per month for $150,000 capital or $3,750 for two weeks. When the $2100 goal is met, the risk will need to go up by 78% in the following period to approximately $1070 per trade.
Interesting selloff day of the "over-valued" (on a PE multiple basis, I guess) high flyers which represented a challenge worthy of predicting a bounce by Friday expiration, at least once the S&P seem to find a bottom today. I took four positions looking for a rally into Friday. I have increased the size to $600 avg per position as discussed in the previous post, but I only got one out of three contracts filled on Visa (net debit of $183.55 versus $550 for the entire order) so the average for the four positions is at $498 right now. See attached spread sheet.
Wow, I am posting during the trading day. I need a little break before analyzing new trades, so I decided to gather my thoughts while writing this post since I closed all the options spreads early and traded the underlying instead. All in all it wasn't too bad. I made a profit on the spreads of $394 plus $525 in the underlying. I closed the 6 FB spreads and bought 600 shares. I closed the 1 NFLX spread and bought 100 shares. I closed the 2 AMZN spread and I bought 100 shares. I closed the 1 V spread and did not buy any shares in it. I think I am going to go on a walk and return 30 min before the close.