Options Trading Update

It's been a tough month trading stocks. I've had just 8 winners against 14 losers... and let me tell you, those winners weren't all that impressive. I've also run into some hard times selling options this month. I had an old ESV put spread expire in the money for a max loss. Plus I got smacked pretty good trying to sell naked puts in MO, KO and even FB. Yes, I showed up a week too soon in FB.

BUT... I have had some amazing success trading options directionally. In fact I've made more option trades this month than I have in nearly 3 years! Get this folks, I'm 12-1! That's right, 12 winners against 1 loser!!

Why you ask?

WallStJe$us. PERIOD!

Guys and gals, if you like making money then he is a MUST FOLLOW. Recently WSJ hooked up with Sang Lucci and together they trade in Lucci's private chat room along with many other folks. Monday I joined the room on a 14-day trial basis. When it's up, I'll gladly pay $120 monthly fee.

So check out my trades. Green highlighted boxes represent profitable trades, blue boxes VERY profitable trades (100% or more) white boxes = open trades, etc... you get the picture.

Bottom line is this... I'm a small-timer practicing and learning this craft. There WILL be a time when I trade bigger size. I also want to learn to spot these trades myself! You know the saying... teach a man to fish over giving him a fish! 

I think I've found the right place to learn!


XLU working :: 3/16 update

Today I took a third of my XLU position off the table booking a 59% gain in one trading day. My plan is to sell the other third at $1.26 (a double) and then let the remaining ride.

I also opened up a new option position in FRO, buying the May $2.50 calls. WallStJe$us detected some unusual option activity in that particular call, so I followed. 

As for my stock positions... I bought ELLI at $53.03, with a stop just under $52. I'm holding for a break-out above $54. I also bought some FEYE today... $41 seems to be a short-term bottom. My profit target is the $44-$45 range.


#stupid

I regret to inform you that this trader lost money today because he was STUPID! 

Last week I sold to open a FB $49.50 weekly put collecting a $69 credit. The position has been underwater all week long. Well... this morning FB popped up over $79 and for about 10 minutes the trade was actually green. Albeit not by much, but profitable nonetheless. Of course I thought FB was about to run. So my thinking was why only make $10 closing the trade early when it's possible FB could close OVER $79.50 and allow me to collect the full $69 premium.

FREAKING GREED... and over $69?!?!?!?! WTF!

So I passed on the chance to close out the trade... and guess what??? Yep, FB reversed and went down pretty much ALL DAY LONG!

Instead of making $5, $10 even $20... I lost $70! Now, I get that these totals are very very small, but it's about the execution. I failed terribly!

Moving on... I was stopped out of CSIQ for a small loss. Then I opened a new long in TXMD. I like this one for a move to $6.20. 

I put on two new directional option trades. I bought 3 XLU April $44 calls, following a WallStJe$us alert to wiseguy activity in the name. I also bought 2 SUNE April $25 calls.

Lovin' some AXP today

My only regret is that I didn't buy more!

Two days ago, thanks to an alert from WallStJe$us, I bought a March 27 (w) AXP $80 call. I played it very small, only buying one contract for $114. (Look I get that that's ridiculous, but I'm still gun-shy after nearly BLOWING up my account trying to trade options directionally.)

Anyway... last night AXP announced a dividend increase and a HUGE stock buyback. Today the stock took off as a result. Now, the disadvantage of only playing one contract is that you can't scale out of your position. I sold it today for a 110% gain! But... since I believe this is the beginning of a larger move up... I bought 2 April $85 calls for .74 a piece. Again, it's a small play, but with two contracts I can scale out. I'll probably sell one at a double and let the other run.

Wednesday :: 3/11 update

Today I took off 2 of my PM April $75 puts I bought yesterday. I'm letting the last one run. Then I closed out my March TWTR $49.50 put for a small gain. I opened a new directional option trade in STLD, buying five April $19 calls.

As for my stock plays... I bought in to CYCC and CSIQ this morning. I was also stopped out of my DDD, but I bought it back moments later. I believe a bounce is imminent, but it didn't happen today, so this afternoon I bought a March $28 put to hedge my position. 

Tuesday 3/10 update

Today's gap down stopped me out of my FEYE trade right after the opening bell. I took a small loss. About an hour later I went bottom-fishing and picked up 100 shares of DDD. I've had a lot of luck in this name playing bounces. However, not sure how this trade will work out as it closed at the LOD. My stop is just .15 away.

I put on a couple directional option trades, buying some April $75 PM puts and a March 27 (w) AXP $80 call.

Lastly, I set up some longer dated credit put spreads in SO and KRFT.


New week :: 3/9 update

TWTR - Right off the bat this morning I bought to close the $47 3/13 weekly naked put for a small profit. I opened this trade about 15 minutes before the close on Friday. Normally I would've kept it open, BUT since I got put 100 shares at $49.50 over the weekend I'm just not comfortable with that much exposure in one name. So with that line of thinking I also bought a March $49.50 put to hedge my position.

T and KO - I opened two new credit put spreads this morning... one in KO and the other in T. 

FEYE - I went long today at $42.99. My stop is just under the LOD, $42.10.

BRUTAL week

So I woke up this morning to news I got 900 shares of ESV put to me!

OUCH!

Back in November I set up a March 37/36 credit put spread in this name, playing 10 contracts. Since that time ESV and the rest of the offshore drillers have continued their precipitous drop. This thing has been a cancerous position for MONTHS! 

Interestingly enough, I've been talking with a guy in the comments section on my past two blogs about ITM options getting exercised and "put" to you. This ESV spread has been in the money for MONTHS... and I mean DEEP in the money. So it's ironic that today I get those shares put to me. However, this can happen with deep ITM options this close to expiration. My ESV play expires in 2 weeks. 

Either way, the putting of those shares at $37 forced me to exercise my $36 puts. All told, on 9 contracts, including my original $420 credit and commissions, I lost $489.55.

A devastating blow.

These are the kind of losses I'm working so hard to avoid. The problem is I set this trade up last year, before risk management meant anything to me.

Of course these days it's my top focus, and because of that my other losses this week were not near as destructive. And yes, I took A LOT of losses with very very few wins. 

Have a look at my trades for today... red highlighted box = positions stopped out of for a loss, blue box = positions stopped out for gains.

Alright lets move on to the rest of my option plays, specifically my naked puts. I closed out my TWTR $46.50 weekly put for a profit this morning. Obviously I could have let it expire worthless, but I didn't want to chance it with the market rolling over AND my other naked put position already in the money, the $49.50 strike.

And speaking of that position... I decided to let those shares get put to me. Why in the heck would I do that you ask? Well looking at the chart I believe we are close to support. It's very possible we move back toward the $49 to $50 range next week or the week after. If we get that kind of move I can sell my shares, or I can sell a call against my position, collecting even more credit while potentially exiting the trade by getting my shares called. Remember, I originally booked a $101 credit on the sale of that $49.50 put, so my cost basis is $48.49 and I'm OK with that for the time being.

The bottom line is this... I was going to lose $200 today closing out that $49.50 put. I think I can lose less or even make a small profit by taking the shares, being patient and getting out at the right time. That's the main reason I let it expire in the money.

And since I believe TWTR is heading back up, I sold to open a 3/13 weekly $47 put, collecting a $104 credit. However, I'm keeping this trade on a short leash. If we break the recent low after the earnings gap, $45.57, I'll close the trade.

I also sold to open a March MO $53.50 put and a March 3/13 weekly FB $79.50 put. As you can see I decided to sell to open a PM weekly put too, but I changed my mind and closed it for a $41 loss.


3/5 trade update :: the losses continue

It's been a rough start to the month. I've taken 5 losses, one push and only picked up one quality win. 

Yesterday I bought ABBV... last night ABBV decided to buy some company and today I got stopped out for a larger than expected loss. The stock gapped down causing me to sell at 57.39... well under my stop of 58.95.

I also opened 5 new trades today... ADT, AKRX, ADP, CRM and CUDA. As you can see, my AKRX trade never got off the ground. I was stopped out an hour later.

I did book my best win of the month by closing out my RDN trade. I really wanted to ride it closer to the 16.75-17 range, but honestly... I needed a win so I took it. I'm sure RDN will be up above $17 tomorrow!

Now to my option plays... I've got 2 TWTR naked puts that expire tomorrow, a $46.50 and a $49.50. I believe the $46.50 will be fine, but I'll more than likely have to roll-out, or take a loss in the $49.50 strike. I was just too aggressive when I set this play up last week. 

The art of stop placement

Before I get into my trades today... I want to talk about the art of stop placement. I know it's strange to talk about "art" in a world where NUMBERS rule, BUT it seems to me stop placement is just that... an art.

Some traders just have a natural feel for this... they're Picasso. Then people like me, well... we get stopped out all the time only to watch the stock reverse and take off without us. 

Sometimes I feel like a kindergarten finger painter in a world full of Monet's.

Take SNDK for example, last Friday I went long at $79.57. Per my trading plan, I set my stop at the low of the day which was $78.45. Now, here's where the "art" comes into play. Most of the time if a stock continues sideways I leave my stop in place. I want to give the trade a chance to work. However, once the stock begins to move up... I then follow my stop up to the next LOD. But there's a "feel" that comes with this decision. When do you leave the stop in place and when do you move it up? The answer to this question is what separates GREAT traders from average ones.

Alright so back to SNDK... I bought Friday, rode it up Monday and then after the bell moved my stop up to Mondays' low - $79.80. But that wasn't an easy decision. I thought on it for a minute... wondering if SNDK was really ready to run, or if it needed to consolidate some more. Monday's candle looked pretty weak, so I decided I'd move up my stop to the LOD and protect my position.

Yesterday I got stopped out.

Of course today the thing BLASTS off! Here's the frustrating part - had I left my stop loss at the LOD Friday - I'd still be in the trade today. In fact I would have sold for a nice gain, instead of breaking even! 

So moving on...

Today I opened new positions in AMAT, MPEL and ABBV. I was stopped out of my BBRY short and my IRM long for small gains.

I'm holding and moving up stops in RDN (15.97) and AER (43.50). I've got stops in AMAT at 23.90, ABBV at 58.95 and MPEL at 23.70.

Lets hope these stops don't betray me!  

A look inside my process

So as we transition from one month to the next, I thought it’d be a good time to give you guys a rundown of how I do things.

First and foremost the days of risking a large percentage of my capital per trade are OVER! There for a while I was getting lucky, but that all ended in the 4th quarter of 2014

These days I keep it small... never risking anymore than $100 per trade (1% of my current account value). In fact, the risk I have on the table today for each position ranges from $25 to $56. So as you can see I’m keeping my risk VERY low.

Now when I sell credit spreads I’ll ratchet that risk up a bit, but still no more than about $150 per play. 

Alright, so how do I even decide what trades to get in?

I’ve got two main sources... WallStJe$us and Mr. Breakout’s website SharpTraders.com.

This website is a GREAT tool! A few times a week I’ll check out several of his links, like cups with handles, all-time highs, 50 day bouncers, and high tight flags! He’s constantly updating these scans... and it’s all FREE! You REALLY need to check out Mr. Breakout’s website if you haven’t.   

Here are some real-life winners found on his website - AGEN, CLDX, RDWR, and KING. I’ve had the most success using the “cups with handles” scans.

Now to WallStJe$us... this guy is THE MAN! He tweets out BIG option bets on stocks. He calls 'em “sweeps”. If you get multiple sweeps you get #STEAM and that’s #WG (Wise Guy) activity! For an explanation of these terms check out his website

The bottom line is this, he’s looking for a specific type of option activity... the kind that tells you the “smart money” is making a big bet. I don’t know about you guys, but I want to follow the smart money. I’ve had A LOT of success trading his tweets. I know many of the traders who follow him play options off his alerts. I just play common though... it’s what I’m comfortable doing for now.

When I see an alert come through on WSJ’s feed - I usually jump on it right away. Now, that may sound crazy or irresponsible, but I already know how much capital I’m going to put in play and how much I’ll risk. So when I see his alert all I have to do is simply adjust the numbers.

Take for example WBA... WallStJe$us alerted us to some big March 6 call buys on February 23rd. I went to the chart, took a look at the daily candle - it’s important it hasn’t taken off yet, I try not to chase. Anyway, if I like the chart I check for the low of the day. WBA was trading around 78.40 with a LOD at 77.28. So I knew I was looking for a stop around 77.25. And since I’m only putting about $2,000 in play I knew I’d buy around 25 shares, which is what I did. I bought 25 shares at 78.40 with a stop at 77.25, meaning my total risk was $28.75 plus $8 for round-trip commissions. So I’m risking roughly $37 to see if this thing takes off... and it did. Five days later I sold at $82.92 and $83.29.

I do the same thing with Mr. Breakout’s information. The day I buy I set my stop at that day’s low. Sometimes I place the stop at a recent low that was made a few days before, but it's usually very close to the current LOD. 

Stop placement is KEY people! If the stock continues sideways, or drifts a bit, I’ll keep the stop in place. However, once it gets moving I’ll then take my stop up to each day’s low. So as long as the stock makes HIGHER lows each day I’m in the trade! 

I’ll stay in until I reach my price target, or get stopped out. This is the tough part though... knowing where to take profit and when to let it ride for a bigger move. It’s managing THIS part of the trade that separates the best from the rest! 

So far in 2 months I’ve put on 41 trades... 22 winners, 16 losers and 3 pushes. That’s a 58% win rate. I’ve made $572.56 in that time. I’ve also been back-testing my risk/reward ratio and how it works with my win rate. I tell you, it’s been very interesting to see the results. Maybe I’ll break that down for you in a future post.

For now, if y’all have any questions or suggestions - hit me up sometime at theoptionrider@gmail.com

A fantastic february

I’m very happy to report February was my best month in more than HALF A YEAR! I made $737.52... that represents more than a 7% return on my $10,371 account!

Here’s the breakdown of my gains for the month

Stocks - $371.52

Option Spreads/selling covered calls or naked puts - $696

Directional Option Trades - ($330)

Alright, so lets take a closer look at my stock trades. I’ve made risk management my top priority this year. Basically what I’m doing is buying somewhere around $2,000 worth of stock and then risking no more than about $85 per trade. In fact, most trades I’m only risking $35 to $50 bucks. Playing it small time keeps my emotions at bay which allows me to find an ease... a rhythm in my strategy.

So what’s my strategy you ask? Great question! And in the next few days I’ll post more details about that, but for now lets just focus on the results.

In February I had 14 winners, 10 losers and 3 washes - that’s a 52% win rate! Now lets take my TWTR trade off the table because I bought it back in November before I implemented the $2,000 per trade, $85 max risk criteria. This also means I’m going to deduct the $195 profit from that trade.

So when I take TWTR out I’m left with a 13-10-3 record, which represents a 50% win rate! My adjusted stock trading gains for the month are $176.52. This means even with a 50/50 winning percentage I’m still profitable! This is a good sign! It means I’m keeping my losses small while letting my winners run. 

Here’s a look at all my stock trades for the month.

 

Now moving on to my option spreads and covered call/naked put plays. I had a very good month selling options! I booked $696 of profits. 

 

Finally to my directional option trades. These are options bought with the intention of playing a move and then selling the option for a gain. As you can see I had a tough month, but I was successful in cutting my losses! I I didn’t let any run too far against me - something I have struggled with in the past.

A fabulous finish

Wow! 

A great month comes to an end today. Later this weekend I'll bring you all the details of my highly profitable February (more than a 7% return)!

But for now... let me tell you about my day.

WBA paid me well this week! I got in Monday at $78.40 and sold half this morning at $82.92 and the rest this afternoon at $83.29. That's a 6% return in 5 days!

In addition, I opened two new trades today... one in SNDK and the other in NKTR.

And finally, I got stopped out of LOGI and KING - both pretty much at break-even.

Here's a look at my stop placements::

RDN - $15.65

NKTR - $12.70

SNDK - $78.45

KN - $19

FNSR - $20.50

IRM - $35.80

Thursday (2/26) Update

Today I closed out my TWTR $47 weekly put play. As you can see in the table below I sold to open this position last week for a $63 credit. I bought it in today for $6, booking a $52 profit!

Moments later I turned around and sold to open the March weekly $49.50 put for a $101 credit.

Now someone asked me yesterday on Stocktwits if this strategy was really worth it considering the limited upside. It's a fair question, but I'd say take a look at my performance over the last three weeks. I've made $245 selling naked puts - which is about 2.5% of my total account value! (I started the year with a $10,000 portfolio.) Imagine if I can do that each month for a year... we're talking about more than a 25% return! 

Lets move on to my stock trades...

I got stopped out of EOG, BK and GPRO today. The losses were minimal as you can see in the table below.

I also opened a new trade in IRM.

As for my current positions... I moved up stops in RDN (15.60), LOGI (14.80), KN (19), FNSR (20.50), and WBA (79.60).

I'm holding KING the same at 15.70.

Closed out a great winner

Today I closed out the second half of my AGEN position for a 13% gain! I got in this stock back on 2/6 and sold the 1st half last week for an 11% gain. Take a look for yourself below.

Moving on to the other trades I set up today (highlighted in BLUE) - GPRO and EOG. I bought 25 shares of EOG this morning... my stop is 91.25. I'm looking for a move to the $96 range. Then this afternoon I bought some GPRO just before the end of day pop! My stop is $43.50 and my first target is around $47.50.

Next up FB - Today I bought to close my $77.50 naked put booking a $41 profit!

Now here's a look at the stop placement for my open stock trades. The number in parenthesis represents total amount at risk... including commissions.

WBA - $78.20 ($13)

BK - $39.40 ($17)

KING - $15.70 ($47)

KN - $18.95 ($62)

FNSR - $20.45 ($46)

RDN - $15.50 ($43)

LOGI - $14.55 ($36)

Stopped out Tuesday

I started the day by getting stopped out of three trades, AAL, HOT and JRJC.

AAL was especially frustrating because I was THIS close to selling yesterday above $52. BUT... I'm working on staying in trades and not taking profits too soon. Hey, sometimes they run, sometimes they don't... and this one didn't. In fact, AAL got downgraded and gapped BELOW my stop of $50.90. I sold at $50.02 for a small loss.

I took a larger loss in JRJC and basically broke even in HOT.

I opened new positions in BK and RDN. I've got a stop in BK at $39 and RDN at $15.50. 

I moved up my stops in AGEN (5.40), KN (18.50) and WBA (78.20). 

I'm keeping my stops the same in KING (15.65), FNSR (19.97) and LOGI (14.55).

For a list of all my open positions, winners and current P&L stats... click HERE


Making moves Monday

Stopped out - RHT, 2nd half of position - out at $69.10 from $66.94. Sold 1st half at $70.05 on Friday.

New positions (stops in parenthesis) - KING (15.65), LOGI (14.55), WBA (77.25) and JRJC (5.65)

Moving UP stops - AGEN (5.20) Sold 1st half at $5.30, AAL (50.90) and HOT (79.25)

Holding stops - KN (18.40) and FNSR (19.97)

Positions highlighted in blue are the ones referred to in this post


Position review

So far I'm having a good 2015 and great February! I've booked $620 of gains this month and $992 for the year - that's nearly a 10% return already for 2015!

However, I've learned that doesn't mean a whole lot. All it takes is a ONE bad risk management decision to BLOW-UP a full year of gains. 

Been there and done that!

That's why this year my TOP priority is risk management and position sizing - PERIOD! That's it! I'm trying not to worry about making a bunch of money. I simply want to focus on managing my risk. I know if I do that well, the money will follow.

Alright lets move on to my open positions... starting with my option trades. (You can check out all my open positions HERE!)

ESV - Boy this stock right here has singled-handedly DESTROYED my account! Well not the stock, but my stupid decision to try and play a bounce. It started last August when I put on an October put spread. I just knew a bounce was coming, so I put on a bigger position than normal. Well we know what's happened with oil... I got crushed! But instead of cutting and running - I DOUBLED down on a December put spread - another STUPID decision! Again, I got crushed... and that leads me to this March 37/36 put spread. I'm playing 10 contracts - and baring a miracle, I'm gonna get SMOKED again. Luckily, this is the last cancer position I'm carrying from 2014. 

KO - I've got two plays in this name... a 44/43 May put spread, and a 42/41 April put spread. The May play is 10 contracts - which is too many, but I set this play up last November before I cared about position-sizing. The April play is only 2 contracts, which is the proper position size and risk for my account. 

T - This is my last outsized position. I'm playing 10 contracts on a 34/33 June put spread. I set this trade up in December when the stock was trading around $32.50. I love when stocks like this get WAY oversold. It's the perfect time to set up a longer-dated ITM put spread. This allows me to collect a BIG premium, which I did. I got .52 per contracts, so on 10 contracts minus commissions - I got a $500 credit

PM - I'm holding 2 contracts on a June 82.50/80 put spread. Same thought here as the T play. I set this up January 2nd when PM was trading just above $80. 

TWTR and FB - Now to my weekly put selling strategy. I like to find, trending momentum stocks and sell naked puts with the goal of these puts expiring worthless. The thing I like about stocks like TWTR and FB is they pay good premiums because of the volatility. TWTR just had a good ER and the momentum is back. FB has had a TON of bullish call option activity so it looks like this stock is heading back to all-time highs. Both puts were sold slightly OTM of the money, so the probability of them expiring worthless is a bit higher. BUT I still get to collect a decent premium. If the stock were to move against me, then on expiration day I'd simply roll out the position. This is a bit of a risk, but one I am comfortable with.

Moving to my stocks...

AGEN - I've already booked an 11% gain on the first half of this position. Now I'm holding the rest with a stop just under Friday's low at $5.13. My "take profit target" is around $5.50-$5.75

TWTR - I'm holding 50 shares in at $47.35 which I'm looking to unload around $52.

RHT - I got in this trade at $66.94. On Friday, I sold half at $70.05. I'm trailing a stop on the other half just under Friday's low, $69.10. No target here... just letting it ride.

HOT - I opened this position Friday. I'm in at $79.01 and I've got a stop at $78.50, Friday's low. My target is $82.

AAL & KN - Both positions were opened on Friday, and I've stops in - guess where? Just under Friday's low. I like AAL back to $55-$56 range and KN to $21-$21.50 area. 

FNSR - I'm in at $20.87 with a stop at $20.45. My target here is a gap fill to $25.

Booking gains, taking losses and tripping stops

Oh yeah... and I also opened 3 new positions! It's been one helluva busy Friday, so lets dive right in!

Starting with my option plays...

SMH - I closed out my two puts in this trade for a $106 loss. She just hasn't danced for me, and I can't let it run against me anymore.

Sticking with options... My MU credit put spread expired worthless today. I put this trade on back in Mid-January when MU was trading below $29. By setting it up in the money I was able to collect a NICE premium. Two contracts paid me $102 AFTER commissions.

I also closed out my March T credit put spread. I originally got in the trade in December when T was trading in the mid-32's. I played 10 contracts... 5 of which I closed out back on the 3rd of this month. Today I closed the remaining 5. Overall I booked a $235 gain!

Now to my stocks trades... today I got stopped out of BRKR at break-even, CLDX for a nice 8% gain and SO for a small loss. 

I also put on three new trades - HOT, AAL and KN.

I took half my RHT position off the table at $70.05. I'm letting the rest run with a stop at today's low, $69.10. I also moved up my stops in AGEN (5.13) and FNSR (20.45).