Saturday, November 28, 2015

On Why This Has To Work

"The game of speculation is the most uniformly fascinating game in the world. But it is not a game for the stupid, the mentally lazy, the person of inferior emotional balance, or the get-rich-quick adventurer. They will die poor."
Jesse Livermore 1877-1940

What does it feel to be 39, in declining health, declining career prospects, a declining ability to learn new things or start a new career.
I am at the acme of my professional life, I am an expert in my line of work, which I see disappearing in 3 years.Luckily for me I am at that peak and I see the end , just have to prepare prior to reaching it.
Therefore in 3 years I have to find something else, that will provide me meaningful income for the rest of my life, retirement just wont cut it though I'm saving for it.
Long story short, I dont really have a choice, my back is to the wall, I need to live and to survive, yet I am silly enough to want to do the aforementioned tasks with some luxury. :)

What can I do?
Learn another skill? Sure I could do that, but what are the chances that that wont have a finite lifespan as well?
Continue doing what I'm doing until all the wheels come off? Sure I intend to.
This is probably the best time for me to learn and find alternative means of income, since I'm gainfully employed and have some time on my hands to analyze and learn.

End Goals:
Ideally I'd like to be in a situation where I get to my private work-space at around 8:15 am and close work at 16:00 get back home and relax.
Of all the options (no pun intended) I have looked at, trading options seems to be the one with the most viable chance of earning a fixed income, reduced or controlled risk, with a well defined loss limit.

How much do I realistically want to earn?
This income should be persistent, consistent and predictable, mimicking a real life job as closely as possible,and not to mention all year long.
Let's see now, if and when the account has reasonable liquidity then around 10 contracts per trade, 3-4 equities traded at one time during peak seasons like earnings and 1-2 premium rich trades per week otherwise (year long if possible), 4 days of trading and assuming VIX at around 15. 1$ premium is the target when IV is around 150%.

C = # of contracts
E = # of equities traded
P 100=Premium per contract x 100
N =Number of trading days

C*E*P100*N = Weekly income
10x3x1x100x4 = $12000 per week
624000$ per year

Take off 15% for failed trades.
530400$

Now take off 20% of potential profit lost during closing and risk removal.
424320$

So that's the number , think it's possible? Am I dreaming ? Am I contradicting #9 below?

Yes,I think its possible, but very very hard to do, not impossible though.
Now arguing that say you did it and somehow did earn 400k for 1 year, imagine your level of knowledge and confidence in placing more solid trades moving forward.
So this technique just compounds itself to more profitability in my opinion.

Now the disadvantages are plenty, but all said and done one needs to:
  1. Be very astute
  2. Invest time in monitoring 
  3. Time entry, execution and exits with utmost precision.
  4. Manage losses
  5. Master order types and use them in the varied scenarios.
  6. Remain calm and unfazed in the face of catastrophe. 
  7. Recognize profit when presented, take it and exit.
  8. Control greed
  9. Stop dreaming, especially of potential future lifestyles, ensure the current 100$ trade is at least 80% successful.
  10. Stop talking constantly about how you're playing options, keep your thoughts to yourself. (people are quick to dismiss and criticize, it damages your mojo)
  11. Be realistic, set small yet achievable goals.
  12. Do not be resistant to learning new strategies, styles, tickers, concepts etc.
  13. Don't get scared by the number 13.
  14. Keep adding to this list as and when you see fit.