Saturday, November 28, 2015

Week Ending Nov 27

Another week another loss, max loss this time.

CSW (coulda shoulda woulda ) rules definitely apply here.

Yes I am dejected because my base capital is rapidly shrinking, therefore my marginable funds are shrinking, ergo my ability to place lucrative credit yielding trades are also restricted.
Which also means my ability to make back losses is  also now officially deeply under severe threat of collapse.

I am at a cross roads in this whole endeavor, do I continue or not, if so how?

The answer to "do I continue" is a big fat YES, ill tell you why in a later post.
Is there a silver lining, yes , read on for that , but now lets analyse what happened last week when I lost 1250$.

GME was a loss because of margin requirement.
As you remember I placed the PANW iron condor last week on Friday to take advantage of Theta, well it didn't work, time value wasn't that much on Monday, PANW beat earnings, and issued strong guidance.
Now as expected the stock pushed upwards from 171 to 178 by close Monday, Tuesday it continued to 184 , 185 and even touched 186 for a wee bit.

By Wednesday (last day before the Thanksgiving break) I was hoping for some sort of meaningful pullback, but no respite. It continued to hold steady, but remarkably closed at 182.31.

Thursday was a holiday and upon opening Friday the 182.5C was 70c, this is when CSW comes into the picture, you wont believe this , but even in this scenario I could have actually profited.
Had I closed the 182.5C for 70c then sold the 185c long call later in the day I would be up almost 30c per contract!!

Well that didnt happen, I kinda have a strange rule about closing at 3:45pm on Fridays when day-traders are done and market makers are matching any orders to fill and go home.
Problem was, this Friday the markets were to close at 13:00 , therefore leaving me with 15mins starting 12:45.
So I closed the shorts first then long leaving me with a loss of 2.5 per contract, which is also the max loss on this spread.

Now all this happened in Hot Springs AR, on vacation with the family, listening to constant complaints about me looking at the phone all the time, etc etc.

So all in all I'm not sure what I did wrong this week, I was waiting for pullback , which didn't happen, the strike was reasonably accurate.
Aah yes I got it, NEVER PLACE AN EARNINGS TRADE A) OVER THE WEEKEND FOR MONDAY RELEASE AND B) WITH MORE THAN 1 DAY TO GO BEFORE THE ANNOUNCEMENT.
A mouthful wasn't it?!

Yes that's it, when I placed the Condor, PANW was trading at 168 at which point 182.5 seemed more distant than 171 on Monday when it appeared more reachable.
The ugly truth is I have done this before and got burned then as well, (AMBA loss was catastrophic!)
Looks like I haven't learned my lesson, which peeked out in a different way, same excuse, similar end result sadly.

Moral of this story is this , you have to be razor accurate to profit but just the slightest bit of inaccuracy can be costly.

Ok enough of that.

Now onto the silver lining, as I've said before, I am at the mercy of this irrational market, goes up when a ticker doesn't beat or issues poor guidance yet sometimes goes down when they do!
Till date luckily (if there is such a thing, it's relative in my case I know!) I have never been assigned early, though probably didn't give the MM a chance but still.
Early assignment is a danger and can happen, in fact GME that I just played , issued a dividend, so that increases the likelihood of early assignment.
In fact I think the deeper you are in the money the more likely you get assigned early.Maybe maybe not. I have no statistics to back that assertion, just a hunch.

So whats my point?!

My point is the silver lining I alluded to before is the cash settled index option that I played also last Friday SPX.
With my meager capital , my resources also stretched I am now in survival mode.
My plan of attack is this, I have 3k in cash meaning around 3500 in funds including margin.
The lowest interval for wing spread is 5$ for SPX , meaning 500$ of margin hold.
Therefore there you have it a max of 7 spreads possible, but to add some measure of safety its probably 6.
Now I can play 1 sided trades with the same margin as 2 sided Iron Condors, with the added benefit of sure shot profit on one side with the Iron Condors ( the market cant go both ways at the same time).

Additionally my goal for this month and next month is to survive and grow the 3k as much as possible.Hopefully to 10k but thats a stretch.

Also as a measure of additional protection I will open wk +1 trades every Monday and close short positions on the Condor on Monday before expiry.

e.g.:
Opening trade an Iron Condor on Monday of Wk1 for Wk2 expiry
1985/1990 P   2115/2120C
Wk2 Monday close the short positions , for a small profit, release the margin and start a fresh Iron Condor expiring Wk 3.

Collect at least 1.5$ credit, find a trade that offers this as wide as possible.

No surprises, and if so the extra week cushion should allow markets to recover a bit.
Also the wonderful thing is since its European , no early exercise worries.
Furthermore, since it's cash settled I don't have to worry about underlying movements either.

So my friends, I'm in the dumps, I have beaten to almost a pulp, I am surviving by a thread, see another post on why I have to absolutely , desperately make this work.
I will need to scrape and struggle to make even 10$ profit from now on.

There are 2 options, I can deposit more funds , get more margin , play more aggressively and strategically, yet there's no guarantee of success.
Or I can scrape and scratch for longer build slower and learn valuable lessons on the irrationality of the market and survive or die in such conditions along the way.

I choose the latter.
If this has to work, it has to under any market condition, under any circumstance, I have reasonably accurate gut feelings, I will need to learn to cut losses and run.
So if I'm arguing that its a viable solution, it has to stand on its own feet and not require pumping money from elsewhere.

Phase 1 of survival mode - survive till the new year with at least 3k but best case 7k.
Trade only Iron Condors on cash settled indexes, reason; best value for margin under tremendous odds and capital constraints.
1.6$ per contract translates to 160/500, i.e. 32% ROM without early exercise worries.

Cash position an edge of the cliff 3k.