After losses I suffered a few weeks ago due to mistakes and greed overtrading my account it looks like I was able to stop the madness and turn the tables around once again. Sometimes it happens to traders that they wipe out their accounts. Of course, this wouldn’t happen to a dividend investor as that is a strategy which avoids risk of trading. That’s why I apply this strategy even in my trading account and it has saved my account from a total disaster.
But if you trade, you must be ready for potential losses. In the past three years I was able to make 45% gains in average. For this great income you have to take a greater risk. This time I mishandled the risk and was forced to give back all my gains.
Last week my newsletter subscribers received my trade alert for a call spread against S&P 500 (SPX) and we also had a put spread trade out there against Twitter (TWTR) which was placed in September. Both trades ended for a profit.
We had the following spreads last week:
1 SPX 1930/1935 bear call spread – collected $35 premium (since Tuesday, October 14th) – trade expired worthless for the full profit 7.53%
A Twitter trade was a different baby. The stock performed very well during the sell off of the market. While the entire market was panicking TWTR was actually growing. I couldn’t believe this persistence and stock’s resistance to fall.
Unfortunately, this luck didn’t endure to the end. A few days before expiration Twitter investors gave up and started selling. Twitter fell and breached the strike price $49. Although on Friday the stock rallied along with the entire market, it wasn’t enough to stay above the strike to expire worthless.
1 TWTR 49/44 bull put spread – collected $60 premium (since Thursday, September 25th) – the trade had to be closed before expiration for a partial profit of 6.83%
Although the trade was already in the money, or better say at the money, it lost value and we were able to buy it back for $32 a contract (newsletter subscribers could get a better execution price). We received $60 premium and bought the spread back for $32 a contract and that left us with a 6.83% profit.
New trades next week
A few weeks ago I decided to play my options trading a bit safer than before and shift from naked puts and calls to safer spreads. It is not because I no longer like naked puts. I do love them. But my account is small to trade them. They are expensive to trade in order of margin requirements and potential risk.
So I laid down a new plan to trade weekly spreads against S&P 500 (SPX) and stocks which show strength. For example, at this point those stocks are Google, Twitter, Netflix, Wynn, AAPL, Facebook, and some others. I will trade against those stocks as long as they show strength, good premiums and sort of a predictability in their moves.
I will trade weekly options (or strive to trade weekly options) to collect minimum of $30 premium per trade every week. Select options beyond the 1st standard deviation and compound results every week.
As of this writing, I am able to generate 1.5% gain in average. Imagine how well this would compound in 5 years! Well, of course, the key here will be not to make mistakes and defend the trades.
There was one step to this goal I just learned a week ago – take partial gains wherever the trade is turning against me.
In my September results post I laid out a new plan:
- Trade weekly options against SPX – spreads and condors (later maybe touch butterflies).
- Risk no more than $500 per trade (I would rather take two different trades than multiple contracts of one trade) – 3% per account.
- Increase risk per trade (number of contracts) once the account starts growing again – keep it at 3% however.
- Collect minimum $30 per trade. This would equal to 6% gain weekly per trade.
- Reach 2% weekly gain of the account (as of this report I have 1.6% weekly gains.
- All trades shall be set up to be out of 1 standard deviation as close as possible to the 2 SD.
Today, I am adding:
- Use mental stop for each trade. If it turns against me, buy the spread back for max. 50% of the received premium, keeping min. 50% gain.
Let’s see how this new plan would work next week against new trades I will be opening tomorrow against (GOOGL), (SPX), and (TSLA).
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Have a successful next week in your pursue to your financial freedom.
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