So I finally got my account funded and ready to trade today. I had $560 to work with in buying power. I am going to be a premium seller focusing on defined risk trades since I have a small account and want to maintain enough buying power to put on as many small trades as possible. If you want to learn about selling options I highly recommend tastytrade.com they have many resources available to learn about the process of selling defined risk options strategies. My goals here are to grow my account, but if I don't lose money in this learning process I would still consider that a win.
So I set some basic rules for myself for getting into trading. First I only picked out underlyings that seem to have enough volume to support getting in and out of these trades, with a tight bid/ask. Next the trade had to pay me 1/3 of what my max risk was on the trade. Third I will manage my trades at 50% max profit because statistically it gives you a higher win percentage, as soon as I had a trade filled I put a GTC (Good Till Cancel Order) on to get out of the trade at 50% profit. If the trades move against me then I will manage them by rolling up the untested part of the trade, rolling it out to a back month, or taking the loss if I don't feel I can manage the trade.
I put on 4 trades today that expire on April 21 so they have 58 days till expiration. I think these are enough trades to learn and not eat all my bandwidth so that I can watch them, also it leaves me some buying power to get out of the trades or make more future trades if opportunities present themselves. The 4 trades brought in a credit of $138.97.
My first trade was an Iron Condor on SPY. I chose SPY because it is extremely liquid and tracks the S&P 500. I know the market is hitting all time highs but the market should be range bound to some extent, I don't see the market ripping higher or selling off strongly at this point. I think the stock market is due for a pull back but didn't want to go against the market since it can stay irrational longer than I can stay solvent. My call side of my condor includes selling the 242 Call and buying the 243 call. On the put side I sold the 230 put and bought the 229 put. I collected $.41 credit or $41 before commissions. With my wings only being one strike apart my risk is $100 dollars. Below you can see the chart on the chart on SPY and the image below that is the set up to my trade.
The next trade I put on was on GDX it is an ETF consisting of Gold Mining stocks. I placed an Iron Condor on GDX at similar deltas to the SPY trade. I did this because it has a negative correlation to SPY and should offset some of the risk in case the SPY trade goes against me. I collected $.35 credit or $35 I put the Iron condor on around 30 Delta. Below is the setup of the trade and the chart for GDX. Due to the setup of the strikes I have a $50 max loss to the downside and $100 max loss to the upside.
As I was listening to Tom and Tony this morning they put a strangle on GM so I followed with a little bit wider on the deltas and put the wings on it to make it a condor so that I could define my risk. I put this on around the 40 Delta and brought in $.63 or $63. For being new this is a little to close to the money for me to be extremely comfortable with it and my strikes don't give me alot of room to defend it, but someone said you have to risk it to get the biscuit. As before the set up of the trade and the charts are listed below.
The last trade I put on was a short call spread on XLE. The chart shows this in a down trend right now and I think it should stay in the trend while I am in this trade. For the trade I collected $.16 $16 with $50 at risk. Here I put the trade on around 36 Delta. Below are the charts and and the set up of my vertical spread.
All in all as I mentioned I brought in 138.97 in premium and my account went from $560 to $698. My portfolio has -3.54 Delta and .81 Theta. So I am neutral and as we move to expiry the value should come down on these options so that I can hopefully get out of them with a profit. If you are a veteran I encourage critiques of my trades, I would love to hear why and how you would do it differently so that I can learn. If you are a rookie, I encourage you to head over to tastyworks.com to learn more about options and see if this is something you are interested in. I would love to hear some feedback. Stay tuned as I update how these trades went, any new trades I put on and how my portfolio performs as I continue trading.
did you backtest your strategy?
ReplyDeletesooo how are your trades performing so far ?
ReplyDeleteFlat so far I should have Theta decay start to kick in in the next 15 days or so. Everything is in range right now. None of my strikes have been tested yet.
DeleteYou have 3 Iron Condors in your portfolio out of 4 trades. I think ICs are sort of a trap when there are too many in your account. That is because if one side of the IC is tested, you end up rolling it or buying out that side. However, your buying power is not freed up because you are still in on the other side and you may not necessarily at that point want to exit it. I have faced this situation myself and felt really bad for being trapped. ICs lucrative because they give a big bang for the buck in terms of buying power but they really need to be used in a neutral outlook and not in the case of SPY which is in a rally right now. Atleast if one is a veteran, one will have a better idea of how to skew one's ICs to a particular bull or bear side
ReplyDeleteI agree with you but I don't see a whole lot of near term upside in the S&P it needs to do some consolidation before it can move up big again. I guess I am a little averse to picking a direction on a call spread though.I like the condors because the market should always be somewhat range bound with a skew higher. I don't want to sell call spreads on the market because I am afraid it will run me over. Also, I don't want to sell put spreads because I expect some sort of pull back. How do you combat this anxiety as a new investor?
DeleteAgree with you that there is a pullback on the SPY currently but in general it's a bull market and one would rather expect there to be more upside what with Trump and party on cards to come up with a fiscal plan and a year full of rate increases by the Fed. In my opinion, I would be more comfortable selling put spreads than putting a cap on the upside with an IC. Just difference of opinion.
DeleteHope you exited the SPY IC
ReplyDeleteNot yet, We are going to see if we have to defend it over the next couple days. It hasn't tested my short strike yet, but it is getting close with the move today.
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