Don't try and Catch a Falling Knife

I made my first post about trading options on Wednesday in my micro options account. You can read about the first trades I made here. The rest of this post will be about the rest of the positions I opened this week and so that we can track how they perform in the future. My goal is to summarize all of my trades until there are too many for us to track. In my first week of trading I made my first huge mistake and broke the rules. I made an out sized trade for my account and messed up. Man it sucked but it was a great learning experience.

So, yesterday I made my first huge mistake in my option account. TSLA opened down 5% and I thought I could sell a put spread with the 1 DTE weekly. The trade seemed like a slam dunk. I collected $94 for $250 risk selling a 260 Put and buying a $257.50 put. TSLA blew through the strikes and never came back. I ended up closing the trade this morning for $237 for a $143 loss. Luckily, I didn't blow up my account and will live to trade another day. The $250 of risk was way too large for my micro options account. There is a term in the options world don't try and pick up pennies in front of a steam roller, well I did, and I got crushed. See the charts and options chain below.

Today, I put on a March 17 Iron Condor in WalMart. My short call at $72.5 and my short put at $70 I went $1 wide with my wings. For that I brought in $51 which I think is a great risk reward trade off. The trade skews bearish on Deltas and that is partly by design the WalMart chart looks like it is setting up for a pull back. Since it is shorter duration I should see Theta come in and start working for me. Below is the chart and trade for the Walmart trade.

The last trade I got watching tastytrade this morning. A woman called in and had put in long put spreads on JNJ. The chart shows a bearish pattern but the stock has gapped up with no pullback. I got into the trade for a $34 debit. I went long the $115 April 21 put and short the $110 put. The stock is a $122 but we should see some consolidation from that level because the stock has moved straight up. If this trade goes in my favor it stands to really help my account with a max profit of $466. Below you can see the char and trade on JNJ.

 On my earlier trades they are all going fine. GM tested my short put this morning, but has moved back above it. The other trades are moving like they are supposed to. I still have $120 in option buying power, I am going to keep an eye on my trades for now hopefully collect some profits in the mean time. Hopefully, there will be some more compelling trades like the Walmart and JNJ come soon. My portfolio currently has a -6.08 Delta and 1.05 Theta.

Thank you for reading and as always I look forward to getting some feedback.

First Options Trades

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.

Want to watch me learn options trading?

I have what I believe will be an interesting new thing for you. I am going to start doing some options trading and posting my successes and failures here for you. I have opened a Tastyworks and have been watching and learning from Tastytrade. I highly recommend if you have an interest in trading options that you take a look at Tastytrade, you can binge watch for hours learning about options. So, to start this off I have deposited $560 (which is an extremely small account) in my account and will be placing my first trades today. I have more capital I am willing to commit if it works well. I will be placing my first trades today so you can check back I will post my trades and how my account performs.

Seed Or The Harvest

  
  Here is a story that my Dad came up with as a questionnaire. My dad worked in the financial services industry with as a financial planner, and he used this questionnaire/story to help illustrate wise financial planning.

• Would you rather be taxed on the seed or on the harvest?

• In the future do you see tax rates being ↑ or ↓?
• Does it make sense to pay higher taxes

• Have you ever heard of a 401k, IRA, SEP, or a Keogh?

• The Government gives incentives to use them right?

• Why?
• To make money in the future.

Let's assume that initially you invest $10,000 and it grows to $100,000. Under the circumstances you would have to pay $34,000 in taxes and you get to keep $66,000.
What if you could pay taxes to begin with and you still initially invest $10,000 but payed $4,000 in taxes today and got to keep $100,000 in the future?

• There are 76 million baby boomers
• They are the biggest tax paying base in America
• They will be the biggest tax draining base over the next decade in America.

With the government deferred income plans mentioned above there are two ages you need to keep in mind.

1. 59 1/2 is retirement age do you know what the penalty is for early withdrawals? 10% 
2.  701/2 you have to begin taking RMDs (required minimum distributions) do you know what the penalty is for not taking your RMD?

• 10%+ taxes due

That's right 50% plus taxes due


How do you like having your money in the Governments deferred income plan?

If I could show you how to  pay taxes on the seed and not the harvest I'd have a pretty good idea wouldn't I?

Come back for how to pay taxes on the seed and not the harvest.

Top 10 Savings Tips

1. Start Today

Time is the scarcest resource we have. We all know that the better we manage our time the more productive we become. This time management principle holds true in savings because time is the largest variable in growing your savings. In fact a person that starts saving a much smaller sum of money at twenty would still end up with more than someone who begins saving twice as much at thirty five. Garth Brooks says it best when he says, “Why put off till tomorrow what can be done today.”

2. Pay Yourself First

Pay yourself first is the key to saving money. Pay yourself first creates an environment where you live below your means. Every time you pay yourself first you create more security for you and your loved ones. If you haven’t been using pay yourself first as a payment strategy, try it the results you will see will astound you.

3. Pay down all your high interest debt

Carrying debt balances that charge a high interest rate make can be the largest obstacle to wealth creation. Examine all the debts you have especially focus on credit cards and automotive debt here, and if you pay more in interest than you earn in your savings earns then pay it off. Start by focusing on the smaller balances and paying the minimum payments on the other loans. After paying off the first balance you will have a sense of accomplishment. After the first balance begin to focus what you were paying on the previous debt towards the next biggest debt. This continues on making each debt easier to pay off than the last. Dave Ramsey coined the term, “Snowball Effect” to explain how this debt payment strategy works. Really the only debt that you should carry at the end of this is a home mortgage, and maybe student loans. I’m not saying don’t save before you are debt free, in fact I want you to start saving before you are debt free. So that when you are debt free you already have a savings system in place for yourself. Also keep in mind that not all debt is bad debt. Not all debt is bad debt, the mortgage helped you buy a home, and maybe fund your education.

4. Build An Emergency Fund

An emergency fund is your first line of defense against unexpected expenses. Often times unexpected expenses are the beginning of the debt cycle. Unfortunately most of us don’t have adequate savings for a rainy day. Forrest Gump may have said it best when he said, “It happens.”, and when it does you need to be prepared for it. To set up your emergency fund, first go to your budget and estimate what six to twelve months of expenses. This is what you should hold in your emergency fund.  A savings account works best here. If you need to use the fund replenish it with your pay yourself first money. Once you have six to twelve months expenses in your emergency fund you can leave it alone and focus on some different kinds of savings.

5. Get your Employee match for your 401k

This week at work go get information about your employer’s 401k plan, and do the paperwork. If you have your 401k set up be sure to contribute for the employer match, the same goes those of you just opening their 401k. The number one reason I am fond of the 401k is the employer match. The employer match great is because free money is given to you just for saving. In reality, it also boosts your returns by whatever the match is. For instance your employer offers to match 5%, well that gives you an automatic five percent return on your money, in fact is so easy it’s hard to give up. It doesn’t hurt either when your 401k contribution reduces your tax bill.
You can get the last five tips along with other savings and financial advice here.

Savings Advice for You

When most people think of savings they think of a savings account or a CD. This is a kind of savings, short term savings to be exact. This is not the only kind of savings available, there is medium term savings, long term savings, and retirement savings.

• In short term savings experts recommend that you have 6 to 12 months of savings. This is often called an emergency fund. As the name states it is there for emergencies like a unemployment sickness or disability. Emergency is is not a new pair of shoes to go with the rest of your collection.
•  Intermediate term savings can typically be placed in something more aggressive than with your short term savings. This allows you to look for better and interest rates and in turn better returns. Intermediate savings is a place to save for large purchase like a car for instance.
• Lastly, and probably the most important of all is retirement savings. Retirement savings plans that you may have heard of include 401Ks, IRAs, Roth IRAs, Pensions, SEPs, and Keoghs. Some of these plans like the 401k are tax deductible. If a plan is tax deductible that means that everything you contribute is deducted from your other sources of taxable income. There is a possible downside to these tax deductible plans.First there are rules about when withdrawals can be made or you will be penalized. Second, if tax rates go up in the future it will hurt you because withdrawals are considered ordinary income. The alternative is a non deductible plan like a Roth IRA. With a Roth you dont get to deduct your contributions. However in the future you get the money tax free at retirement. Typically its Ok to take on more market risk in long term savings accounts. The extra kick from higher returns associated with equities will give a boost to the future value of your money and retirement.

Keep this savings advice in mind when saving money its not best to have all your money in a savings accounts. There need to be different savings accounts with different goals and strategies. This coupled with the pay yourself first strategy will propel your savings and financial freedom to new heights.

Give Away!!

We are going to give away a $30 gift card. This is how much I believe in these financial success principles. We are going to reward you for participating in with the Blog. We will announce the winner after the beginning of June. We also want to show gratitude to our patrons.

There will be a random drawing to decide the winner.

1. To qualify you must follow the blog and your name and profile must show up in the "Followers" area on the right side of the blog.
2. You must comment on one of the existing blog posts.