Largest Single Option Winner

Yes I know the title is misleading, you were probably expecting a $5,000 trade.  Hope you’re not disappointed but that’s not how I trade.  I’m in it for the long haul and I am trading for income, so I normally trade single contract options.  Occasionally I will go up to 5 contracts but that’s rare.

On Monday I finally made an $80 profit on a single option trade.  Most of my trades have been below $60 (I follow the Tasty Trade Network’s motto “trade small trade often”) but it was great to finally make a nice chunk of change on a single option trade.  It took about 3 weeks to materialize and I legged into it but it finally worked. 

I can pinpoint what I did differently in two simple words…manage winners.  Previously I would close the trade if it was a loss or a winner but I realized after studying some higher level traders (some on Tasty Trade, Option Alpha, and others in various groups I’m in) they manage their winners and losers to maximize their income.

The other take away from this win is to be patient and let the trade come to you.  Do not constantly check the charts and your account.  You will make fool-hearted decisions that way.  Make a plan and execute it.  You can have plan B and plan C, but when you get to plan D, E & F you have a problem and you are overthinking it. 

Looking forward to continuing this process and hope you all are having some success in this new year.  

Volatility is Great For Profits

I've been paper trading over the past few days just to keep active (I was stacking my investing funds into the preferred stock PFF for safe keeping while I figured out a plan).

Here are my results:

Granted if I was using real money I would have used spreads instead of naked transactions and made about half, but over the past few days I've made over $5,000 in paper money trading the volatility in the market.

I stuck to trading the SPY exchange traded fund because it's what the market is beta-weighted to anyway.  If the S&P goes up most stocks with solid balance sheets and good earnings will go up and vice versa.  

My approach was to wait for a pullback to around 204 or a jump in price to around 206. When the price went up I would sell call options and if I was in my position too early (meaning the stock continued to rise) I would buy put options to increase my bias to the downside (negative Deltas).

When the price would go down I would liquidate my positions when I made 50% profit or more and begin selling put options.  Again, if I was too early I would buy call options to increase my bias to the upside (positive Deltas).

Current Trading Plan 5-21-16

There's a fight going on right now between the bulls and the bears.  No one is going to win in the short term because there is not enough market data or any world events to say the market is going to go down.  On the other side, there is not enough data to say that it will go up. 

The middle and lower class are not making enough money to sustain retail earnings and the banks aren't lending like before allowing them to buy things on credit.  The engine of the economy has stalled and the only thing to restart it is to increase wages for all workers and to open lending opportunities for lower income earners.

As for the short-term market direction, after the big drop we had this week we have recovered already and it will probably make it to 206 on the S&P. However because of the tension in the market and the trigger happy bulls and bears when we reach around 206 the market will be smacked back down to around 203. 

As most people know the market climbs slowly but falls down fast.  Generally, I'm bearish because we are overbought at these levels. If there is a big swing to the upside I'll sell calls and buy puts.  Conversely, after a big swing to the downside I'll sell puts and buy calls. 

Making A Successful Trading Plan

When you make a plan you need to stick to it as best as possible.  You can refine it along the way but the point of having a plan is to learn what variables are out there so you can account for them in future revisions of your plan.  That’s what the Constitution is: a plan for governing this country. We add amendments to it to help refine what it is because of events that have happened over the years.  These variables have helped to clarify what our nation’s purpose is.  

When you trade you should clarify your trading with your intent.  Are you just trying to make monthly income or are you looking to build a nest egg for retirement.  This should be factored into what type of trades you will make and which securities you will trade.  Stick to your plan for a few tries and if it’s successful review what made it successful and stick to it.  If there are problems try to find out what went wrong and refine what you are doing to address those problems.  

Making a trading plan takes time and if you are consistent you will come up with a successful plan that works for you.