tech/a said:
Ahh nice to hear from the rest of the Monkeys in the jungle!
Think its great that there is a diversity in the way people trade and what works for them.
Examples are always great for those of us who want to see working examples.
Win,Lose or Draw there is something to be learnt in every example (Well I think there is).
Smurf.
So you specialise in trading only energy stocks?? How do you apply your specialty to your trading?
Some examples?
Wayne
Im interested in seeing a spread trade taken in a live trade to get an Idea what you look for and your application of the trade.
How you quantify it and the trade itself.
DTM
Im also interested in you Straight option trading method --what you look for and how you trade it---from selection to position sizing through to application and resultant action wether it goes for or against you.
Thanks.
With straight options trading, I am only aiming to try and understand the dynamics of the underlying share ie the price movement of the share. I am basically using the same principals as any other share trader. I evaluate the share like any other trader and am looking for only two things, 1) it has the potential to go up or 2) or it will go down.
1) Selection criteria
i) Look for trending stocks that are strong/weak and are above their 70 dma or below their 70 dma (but not a prerequisite).
ii) work out support and resistance for entry and exit points
iii)Look for divergence on indicators. Mainly OBV, MACD, Volume, (haven't used stochastics yet but will look at incorporating it) and moving averages.
iv)I the check the index it is included in eg XXJ for banks to make sure that it looks like it will go up/down, and conversely look at the XJO for overall market guidance.
Once I've found options that I want to trade then I see how expensive they are eg If NAB $32 May call options were .50 (cents) and the NAB share price was $32.50, it shows me that I'm paying only for its intrinsic value ie I'm not paying for time or volatility value. ie The more time you have before expiry, the more expensive it gets. Same goes for volatility. The more volatile the share, the more expensive it will be.
In the first two weeks of the month, I will stay away from the volatile blue chip stocks because they command the most in prices. Something like RIO can be ridiculous because it can charge you up to 200 or 300% plus of the intrinsic value in the first couple of weeks. In the last two weeks, I will start looking at volatile stocks. In the last week before expiry, I will look at the most volatile stocks because it gets a lot cheaper making your returns greater (it you pick it right).
On entry and exit, I use a short term oscillator to time my day of entry.
My main trading is based on recognizing intra-day patterns which gives me my signals for entry and exit. I use my support and resistance lines as an indicator of where to be wary, but again, it will depend on the intraday pattern.
I normally buy options in lots of 10 contracts, so either 10, 20 or 30. Once I've entered my trade and it starts moving my way, I can either average in by buying cheaper options (with lower or higher strike prices) or I leave it and wait it out. Sometimes I have to wait two weeks because shares may take that long to bottom out whilst other times it may happen in one day. Sometimes I will take my riskier options out ie sell the cheaper options (less profitable) before selling the deep in the money options (most profitable). Other times I will sell all at once, and again, it depends on the intra-day patterns.
I don't have a set amount of profit or loss before I sell. It comes down to intraday movements. This month I was trying a new risk approach but was too trigger happy causing me to lose money from selling too early, although am still happy with my new approach. This month has been very trying because some of the shares have been very choppy. In saying that, I still did make a profit. This month I only used 10k as my base capital and returned 180% profit so am happy with the results. I still have more things to add in my trading so will use next few months to add more refinement.
Buying straight out options is very risky becuse you are basicall buying and selling promises. If you get it wrong, your whole outlay could disappear. I use position sizes of up to 10k per trade unless I can really see a bargain, I will use more. My biggest loss has been about 15k on one trade in my early day. This month with my new system, its only been in the hundreds. My biggest (happiest) profit has been 22k from a 4k investment.
Hope this helps.