Tonight's Trading:
Current Positions:
Well, I have to say I'm not exactly pleased with how my day went today, and I don't like what I have to report. I've been stalling and playing trying to put off writing. But, let's dive in.
Overall stats for this week as a whole so far:
3 trades on, 2 closed.
0/2 favorable on the closed trades.
1/3 favorable on the total trades entered.
Ouch. At least this is paper money, and I'm not losing real money at this point. And, I think I've got at least two specific learning moments in the last day, so it's not completely all bad.
The Good:
IWM (Sold 1 contract of the Aug14 117/118 Call Vertical spread) -- overall for the day I'm up $11 on this contract! That's pretty good. Here's how the chart looks right now:
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| IWM chart as of about 9:45pm CST tonight from the TOS platform, after I put in my OCO stop order. |
Definite strong down trend -- though it might be hard to see in this screenshot.
There's nothing news-wise that indicates that this will change direction in the short term. Actually, a few headlines today seem to indicate concern and caution throughout the markets. Here's one related to the Malaysian aircraft crash which may or may not have been shot down by terrorists -- a tragedy that shouldn't have happened. (I'm taking an extra minute to send out thoughts, prayers, and positive energy to all the victims and their loved ones. Here's hoping there's a way to track those responsible and bring them to justice.)
There's nothing news-wise that indicates that this will change direction in the short term. Actually, a few headlines today seem to indicate concern and caution throughout the markets. Here's one related to the Malaysian aircraft crash which may or may not have been shot down by terrorists -- a tragedy that shouldn't have happened. (I'm taking an extra minute to send out thoughts, prayers, and positive energy to all the victims and their loved ones. Here's hoping there's a way to track those responsible and bring them to justice.)
I put my automatic stops on as an OCO order (one-cancels-other). Stop one is our profit goal. Nick and I have a pretty aggressive profit goal. We figure we're young and can take the risk -- so when we actually close out a trade at this point, it's usually really good. However, that doesn't really always happen. It might be time to rethink this setup a bit and see what happens if we adjust. I'll talk more about this over the weekend when I post our goals and rules.
Stop 2 is our stop loss side. We've decided that we're okay taking up to a 25% loss on any one trade. I've got a spreadsheet set up that does the calculations for us, and then we enter it as either a plain old stop, or a trail stop.
For this IWM trade, and actually any one we have enough "room" in, we try to do a trail stop. Our though process is that we've already got some profit, let's not lose that while the trade goes on. In this case, the mark of the closing order set up is $0.19, well below the $0.37 "acceptable" loss we calculate. Since there's more than a $0.10 difference, we go with the trail stop.
But, I played with my spreadsheet a bit more and calculated what our net profit/loss would be based on different close prices. For example, we need the price of the option contract to stay at or below $0.28 in order to break-even (I do calculate commissions in our break-even calculations). If we close this out at $0.27, we'll make a net positive of $1 on this trade. $0.27 is $0.08 higher than the current mark, so I put the trail stop on with an $0.08 "window," for lack of a better term.
Barring any major changes between now and tomorrow's open, the trail stop will start at whatever price the order is submitted at and adjust in the favorable direction from there. If the underlying moves the "wrong" way, in our case if IWM goes up, the trail stop will remain at $0.08 above the mark at open. Hopefully that is enough to protect our profits so far.
(Note on the above section: I haven't had any training on trail stops at this point. I only know what Nick and I have figured out together, so hopefully I'm not saying anything completely incorrectly or flat our wrong. However, if I do have something about this wrong, please feel free to comment and correct me. I DEFINITELY want to earn more and become better at this!)
AAPL (Sold 1 contract of the Aug14 98.57/99.29 Call vertical spread) -- It looked good yesterday when it got in, but today it closed out at my max acceptable loss point. The worst part is, I cannot figure out why!
The chart looks good for the call vertical. I want the price to stay below $98.57, and it certainly did that. It actually had a lower open and a lower close. So color me confused. I honestly don't have a clue what happened, but the overall result is that we lost $6 on this trade, net.
I wish I knew what was going on! I would like to have made money off this particular trade.
Here's the current chart:
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| AAPL chart, zoomed in, as of about 10:30 on 7/17/14. |
Learnings from this trade:
- Don't forget about earnings. See yesterday's post for more discussion. So I'm kind of glad this trade closed out, even though I don't understand why. Now I don't have to think about what's going on with earnings.
- Need to do some more work and figure out what happened.
The Ugly
MU (Sold 1 contract of the Aug14 32/31 Put Vertical spread) -- this was looking real good yesterday, and I was debating leaving the stop as is or changing it to protect our profits. Well, I changed the stop to a trail stop with a 10-cent trail.
Bad idea.
Should have followed the rules and stuck to it.
Of course, the new high this stock hit yesterday turned into a very strong resistance level. And there was actually a big gap down, which according to one analyst at the Motley Fool, was in sympathy with the disappointing SanDisk earnings announcement. Sigh. That gap down really hurt.
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| MU at about 10:50pm tonight. Zoomed in to show the gap down that happened before opening today. |
I had originally put the stop in according to our rules. The max loss on any trade that we're willing to accept is 25%. That worked out be buying back the contract at a mark of $0.30. But, because I put the trail stop on, we actually got called out at $0.31 meaning a bigger loss than we should have accepted.
Sigh.
It turns out that I didn't take into consideration what a change in the underlying would do to the option before opening when my new trail stop was added. Because it goes in at +$0.10 above the price of the option at the moment of entry, it seems as though the option price at entry was at $0.21 instead of the $0.19 or whatever it was when I was figuring out pricing last night, and I didn't see what that would do to me. Well, another couple learning points on this one for me.
So, learnings from this trade:
- Stick with and follow the rules.
- Remember after hours trading can change things between when I'm looking at them and at market open tomorrow. Try to account for that in plans and strategies.
- Check out major competitors and know when their earnings reports are going to be.
- Pay attention to where the trail stop is at and remember to adjust if needed.
Final recap complete: 2 trades closed, net loss $15. Yuck.
New Positions for tomorrow:
Unfortunately, it's getting really late, and I'm getting really tired. So this was a short one for me tonight. I only added one thing. I sold an Iron Condor on QQQs. Details to follow when I'm not so tired.
It looked like a good trade, and it fit our rules. We'll see what happens.
Total number of working trades at end of night: 2
Today's Take-aways:
- Follow the rules.
- Stick with the rules
- Remember to keep in mind after hours trading can impact what I'm doing.
- Check out major competitors for earnings reports (if any)
- Pay attention to trail stop and adjust as needed.
- Don't forget about earnings!
- Do my research and figure out trailing stop and how to properly calculate this along with the the impact of delta and gamma on the price of an option when the price of the underlying moves.
Until next time! Thanks in advance for sharing any thoughts and ideas.
Good night!
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