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Friday expiration tomorrow may bring nice profits

ProfitsAm I getting it right already? I do not know. For almost three years I was profitable trading options and suddenly a backlash of last three months erased all my previous gains. I tried hard to stop bleeding but all trades were turning against me, one after another.

That’s frustrating and I was desperate to stop losses. When I thought I finally found a way how to limit my losses I got hit with another unsuccessful trade which ruined my P/L again.

What to do when you get hit with a strake of losses? What worked for me was to stop trading.

Yes, stop trading and go away.

So I sold all unprofitable positions and waited. I only opened one trade – Iron Condor against SPX, which was very conservative and setting a trade in such manner paid off so far. But market was calm so it worked. What if it was violent and the price breached one or the other way and again breached my spreads?

I do not want to think the consequences of such outcome. It would be another losses piling up.

I know of one mistake I still keep doing – hoping for a trade to reverse, so I favor rolling it hoping for next week better outcome. Many times such trade finished even worse.

It looks like this is a dead end route and killing losing trades faster is a lot better way of trading. But many times cutting losing trades is worse than rolling. When I roll a spread or option away in time and strikes, many times I get credit. On the other hand I increase my risk.

When closing such trade, it is more expensive than the credit received. Let’s say I have an Iron Condor for which I received a credit of $40, but if the trade goes against me I have to close for $100 loss. True, it is better than let the Condor end with a full loss of $470-ish loss, but still, I hate taking a loss.

There is a strategy for this case – close the trade when all your credit is lost – 100% of received credit, for example, you receive $40 credit and when you close the trade because it goes against you, you pay 40 dollars to close it, not more.

I tried this but it never worked well for me. If I closed as described above, it was always too early.

For example, I had a bull call spread against SPX and when the markets started showing weakness a few days ago and the trade started showing a loss of approx. 200 dollars (a half of the entire loss) I decided to close the trade. If I held however, the trade recovered and I could close for a partial profit instead of a partial loss.

I have heard that it is a good strategy anyway. It is better to take a small loss no matter what happen later than hope for a recovery which may not come. In my example it did come, but it could have a totally opposite outcome and the position could get worse.

It is this balance between cutting losses or give a trade more time to work. Which is better?

Time will show. Hopefully in the meantime I will stay afloat.

Expiration Friday

Tomorrow is expiration Friday when all weekly options are set to expire. I have a few trades out there which are set to end tomorrow (I wouldn’t call them expire as they will not expire but get exercised).

I have an Iron Condor against SPX 2115/2120/2035/2030 which will expire worthless for a full profit of received credit tomorrow if the market stays between 2035 and 2115 price. This is very likely to happen. The market would have to drop more than $35 in a day in order to this to happen. The expected move for tomorrow is only around $13, so unless a disaster occurs I can claim that this trade ends up profitable. I collected 0.40 premium per contract which will be an 8.70% profit in a week.

The next trade I have is a bear put spread against CVX. I opened this trade yesterday. It was a debit spread CVX 115/114 puts. I paid $270 debit to open this trade. If the stock ends up below $114 tomorrow by the end of the trading session, both legs of the spread will end in the money. Then they will be exercised against each other (the short option will offset the long option) and the trade will end up with a $230 profit (85.19% profit in three days). Today the stock continued falling and closed at $112.28 a share. If tomorrow it continues falling or stays where it is (must stay below $114), this trade will be profitable.

The last trade for this week is a bear put spread against CLF. I also opened this trade yesterday and it is a debit spread too. I opened 8.5/8 put spread and paid $280 debit. Now the stock must close below $8.00 a share tomorrow in order to collect a full profit. Today the stock dropped down but it wasn’t as smooth sell off as I could see with the CVX. Thus I am expecting some resilience in selling tomorrow. Should the stock grow tomorrow, I will close the spread for a partial profit. A full profit was $220 (78.57%) for the entire trade. As of now the trade shows $125 (44.64%) profit in three dyas. Tomorrow, we will see how this trade ends up.

These are all the trades I will deal with tomorrow. I have a few more trades open against CMCSA and AAPL, but these have expiration next week. That would determine my trading for that week. To keep my trades small, I will only open a new trade against SPX (possibly an Iron Condor) and one more debit spreads next week (in lieu of three spreads). It will all be determined by the outcome of tomorrow’s trading.

If you want to be informed about those trades I am about to open tomorrow and next week, you need to sign up to my newsletter as I announce those trades via newsletter only. It is free and it will stay free until the end of 2017. Then I will start charging a fee.

Good luck next week and happy trading!


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