March 2017 trading turned out to be successful again although at first not expected.
As I mentioned in my previous posts about options trading I dedicated this year to consolidate my trades from previous year. I opened a few trades which I no longer like and I got stuck in those trade by first over-trading and then rolling them far away. Now I sit on those trades and they are dead money.
So, I decided to sequentially get rid of those trades. In previous months I closed a few trades for a loss, but offset that loss by new trades. I was successful in January and Fenruary this year.
I did the same in March 2017. But I closed too many trades in March. At least I thought so. I closed trades for $2,600 dollars loss.
But I was able to trade this loss out and finished the month with gains.
My plan for March 2017 was to make $1,717.35 dollars of income.
Although I haven’t met our goal, given the circumstances that I was offsetting a loss, I am happy to say that we were able to make $1,619.74 dollars of option income.
· Options Trading Strategy
Over time since I learned trading options I went from trading spreads, single naked puts, later added naked calls and landed on trading strangles. Many people are afraid trading strangles. They do not know how to protect themselves when having naked calls trades. I was afraid too until I found out that it is not as dangerous as others say.
I am not saying that there is no risk, but if you know how to handle the risk, you will be able to navigate through strangles with no fear.
Over time I developed my own rules and strategy. You can review it in this section.
I trade primarily weekly strangles against dividend stocks. A strangle is a strategy where a trader sells OTM naked puts and OTM naked calls with the same expiration day. It is a neutral strategy, so you want the underlying stock to ideally stay between the two strikes.
It is though a manageable trade even when the stock is not staying in between the strikes. You can successfully trade strangles when the stock goes down in a decent decline or up in a decent upward move.
What hurts strangles a lot is a sudden strong (violent) move either direction. Managing strangles when the prices drops suddenly becomes a hard work. It is doable, but it can be frustrating.
Here are my rules for trading strangles:
- I trade aggressive strikes (one or two strikes near the money).
- I also trade strikes based on expected move for the given expiration day.
- I trade weeklys only (longer terms only when rolling and roll is not possible for the next week).
- A stock to trade must be a dividend stock (I want to get paid if I get assigned and have to hold the stock).
- A stock to trade must have weekly options (I do not want to give Mr. Market too much time to go against me).
- A margin requirement for a weekly strangle trade must be less than $1,000 dollars (I want the most bang for as little money as possible).
- A premium for a new weekly strangle trade must be 0.40 or $40 or more.
If you want to learn more about how I trade strangles, read my previous post about it.
With the rules set above I trade every week. Every Thursday, Friday, or Monday I open near the money strangle and as the stock moves one direction, I close the untouched side for 0.05 debit and roll the touched side down (if puts) or up (if calls).
Therefore, I am closing winners for profit and roll losers to avoid a loss.
By rolling, I try to improve the losing trade and make it a winner again.
Over the years I worked on my strategy to make it mechanical as much as possible to eliminate any emotions or second guessing.
I know what I want to trade, how I want to trade it, and when to trade it. And I do it every week. And I do always the same thing every week, same trade methodology, and same execution process.
This allows me to ignore any noise in the market and not tremble in fear “what if I open a trade and it goes against me”.
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· Options Trading Results
As stated above our trading in January was really great and we made $1,619.74 dollars.
Below you can see all data and progress in our trading account:
Month-to-moth trading results
(The red dots on the chart indicate income estimate, blue bars actual earnings.)
|In March 2017 we made:||49 trades|
|Total trades in 2017:||136 trades|
|March 2017 options trading income:||$1,619.74 (47.27%)|
|2017 portfolio Net-Liq (net)*:||$2,708.97 (-32.62%)|
|2017 portfolio Net-Liq (gross)*:||$23,208.97 (-5.35%)|
|2017 portfolio Cash Value (net)*:||$28,141.97 (20.10%)|
|2017 portfolio Cash Value (gross)*:||$48,641.97 (10.72%)|
|2017 portfolio Equity (net)*:||$33,328.97 (4.20%)|
|2017 portfolio Equity (gross)*:||$53,828.97 (2.56%)|
|2017 Liability/Debt:||$20,500.00 (0.00%)|
|2017 overall trading account result:||-28.25%|
* The numbers marked as “net” and “gross” are results with loan (liability) included (gross) or excluded (net).
We are presenting you our month-to-month business performance review:
In March 2017, we made money to offset closing bad trades and yet ending up with gains.
However, these gains were immediately blocked by other existing trades and a few new trades.
The biggest problem was a $LULU trade. The company missed by very little when reporting earnings but provided weak guidance which sank the stock more than 20%. This trade had negative impact on our net-liq and overall account results.
However, I consider it a temporary decline since we haven’t closed any trades in our portfolio. There fore, once those trades get better again (by rolling , closing, offsetting etc.) our net-liq will go up again.
· Options Trading April 2017 outlook
Last month, my March outlook was quite optimistic.
Until the market presented itself in a reversal and decline.
In my last Trading Diary #4 post I wrote that the market retreated from the recent highs. I expressed a hope that the market could pushed up and break the downtrend.
As you can see in the chart above, the market is stuck with fighting between bears and bulls. But it cannot break the downtrend line. Anytime the price breached the downtrend line it was immediately sold off.
This was also happening on the downside and the market fell to the support or even below, it was immediately bought by buyers.
However, my overall bias is bearish. Nothing disastrous, but I expect the stocks sliding lower until the market breaks up.
What do you think about options trading?