Saturday, November 7, 2015

The Beginnings

I started trading options about 8 months ago. This site is more a diary of my progress than anything else, for me to introspect and to document my mistakes, thoughts and ideas going forward.

Here's some background, I was a regular investor who got tired of playing the waiting game for stocks to go up, watching eroding value day in and day out. I also tried my hand at penny stocks , I still hold them waiting for that elusive run.

That's when I discovered options, the fluidity and the risk/expectation ratios really attracted me to them. That's not to say I didn't make mistakes, I made tons of them , namely playing long options OTM , or buying long options with poor liquidity, not completely understanding the effect of Theta, worse of all not knowing when to exit appropriately.
Long story short a 41k account made of long stock and cash for options soon halved due to the mistakes.

That's about the time I was finally able to steady the ship, within 4 weeks of disciplined trading ,I was able to make back around 5k in profits.
This is when I decided one last time to play naked GOOGL on earnings to see if I could really make some coin.

I bought 75 contracts at 5% 10% 11% 15% and 20% OTM Calls and 1  600P just in case. It was a disaster, soon I was down almost 3k but this time luckily I salvaged what I could and booked a net ~2k loss rather than ~4k had i held till expiration.
A few things I'd learned, time value, especially on earnings plays that report on Fridays. The time value decay dramatically erodes after noon. 

So lets talk numbers then, prior to the GOOGL play I had around 7700, this shrunk to ~2800 after all the long calls and long puts.

Had I closed first thing in the morning I could have posted a profit, but all I was able to manage was bring it back to around 4.5k.

The Decision

This is when I came to an important juncture of my trading career, I noticed that all in all I had 88% winning trades 12% losing trades, but the 12% losing trades were costing me a fortune.
A few actually crushed the living out of me, namely CSIQ and AMBA. 
CSIQ was a short strangle that went wrong, but I could have exited with a wash, the profit from the short call would have wiped out my short Put loser, but I held and it continued to fall.
AMBA was a poorly executed short strangle trade, firstly I got the earnings date wrong, placing my trade when AMBA was going down, thereby eroding any downside protection. Meanwhile IV started rising pressuring my short P side of the strangle.
At earnings time the stock fell and there was no hiding, again I held a tad bit longer and losses were catastrophic.

This is when I also realized that I was able to bring my cash reserves back through strategic selling rather than buying.
Buying though more lucrative , if you bet on the right horse i.e., is just too random and too costly.

Oct  30

Nov 7

At the time of writing:
Cash 6825$

This is where the story starts ...