Options - Swing Plans

[txjeff]

This thread is for discussing medium term trades that are high probability using options only.

[txjeff]

This is an example of Doc's OptionsMD trades and results for 2012. Keep in mind Doc's interest is simply generating "some" income (1%) per month. So obviously, this is not a sole source. The teaching offers a "job" income. But that doesn't mean a trader can't choose to increase his/her profits buy making multiple trades in multiple or the same account.

2012 IncomeRx Trades & Results

January 2012 (monthly income = $1380) SPY 138/140 Bear Call spread
SPY 104/106 Bull Put spread
SPY 135/137/139 Call Butterfly
SPY 104 Vega Hedge puts
SPY 110 Put Calendar Spread
SPY 122/131 JAN/FEB Double Calendar
SPY 126 JAN/FEB Put Calendar
SDS 22 Covered Calls
SSO 48 Covered Calls
SSO Underlying Call-out
SPY Weekly Options positions (2)

February 2012 (monthly income = $1155) SPY 137/139 Bear Call spread
SPY 107/109 Bull Put spread
SPY 134/136/138 Call Butterfly
SPY 107 Vega Hedge puts
SPY 115 Put Calendar Spread
SSO Underlying Delta Hedge
SPXPM 1225/1230*1325/1330 Iron Condor
SPXPM 1320/1325 Bull Call Spread Hedge
SPY FEB/MAR 127*133 Double Calendar
SPY MAR/APR 131 Put Calendar
SPY Weekly Options positions (2)

March 2012 (monthly income = $1249) SPY 141/143 Bear Call spread
SPY 121/123 Bull Put spread
SPY 139/141 Bull Call Spread hedge
SPY 121 Vega Hedge puts
SPY 129 Put Calendar Spread
SPX 1310/1315/1230*1385/1390 Iron Condor
SSO 44 Naked Puts
SDS 19 Covered Calls
SPY Weekly Options positions (1)

[madcowdisease]

I'm curious, is it safe to say that "swing plans" will be directional trades?

[txjeff]

I'm curious, is it safe to say that "swing plans" will be directional trades?

No. Not necessarily, although they can be. The type of trade isn't what makes up the swing. It's more about the duration of the trade. I would define it simply as a duration of holding the trade for longer than a week, and more likely a month or two. OptionsMD defines weekly trades as "low probability" with higher risk. The 2 month trades are "high probability" with more defensive measures imposed.

[txjeff]

As part of OptionsMD, a student provided a nice spreadsheet that helps to calculate how much cash to risk in various trades, dependent on your balance and other factors.

http://www.jvcranston.com/invest/Chapter 17-3 - Position Sizing.xls (http://www.jvcranston.com/invest/Chapter%2017-3%20-%20Position%20Sizing.xls)

[txjeff]

Iron Condor Simulation;

Here's how a high probability, 45 day Iron Condor can work. And this is without and defensive trades.

The first image shows the day the condor was opened. Noticed the Red curve is the potential profit of the trade. And the White curve is where the curve is at open. The P/L Open column (profit/loss) shows initially was around $20 since SPY was a bit over $139.

http://www.jvcranston.com/files/invest/ironcondorday1.jpg

Then, on the day before expiration, May 18, you can see how the white line is just about to meet the red line, assuming the stock price is between $130 and $149. The profit will then be $195 (less fees). The initial cost for this 10 position iron condor was around $640. Almost a 30% profit.

http://www.jvcranston.com/files/invest/ironcondordayexpire.jpg

[txjeff]

Oops. I made an error in the profit numbers. It should be:


Then, on the day before expiration, May 18, you can see how the white line is just about to meet the red line, assuming the stock price is between $130 and $149. The profit will then be $290 (less fees). The initial cost for this 10 position iron condor was around $640. Almost a 50% profit.

[madcowdisease]

How is a condor different than a butterfly spread?

[txjeff]

How is a condor different than a butterfly spread?

The butterfly spread is a 3 way defensive play used on the Call side of the Condor. And a Calendar is used as a defensive spread on the Put side of the Condor. (Along with defensive stops for catastrophic protection.) But, they are only used for sizable Condors with say 20 or more positions. The smaller number of positions are simply a straight Condor. Sometimes adding extra long puts are part of the trade to increase the effectiveness.

The shape of a Butterfly is a triangle, so in and of itself, it is effective for short term positions (maybe). The shape of a Condor is a rectangle (well, more of a trapezoid). When you use strikes that are far enough away from the mark, then this allows for plenty of room for allot of sideways movement and directional movement, unless there is unusual Bullish or Bearish activity. Sideways movement accounts for about 80% of movement of most stocks. The condor takes advantage of stocks that don't move directionally to any great amount. But volatility of the Option can affect profitability.

Part of the education, however, is understanding the SPY and SPX and SSO charts to intelligently react to market changes. But by focusing only on one hand's worth of charts, there is a far better odds of mastering their movement.

[txjeff]

Here is a Powerpoint Show that I created that show's the movement of the Iron Condor trade. Note this trade does not include any defensive strategies.

http://www.jvcranston.com/files/invest/Think or Swim Simulation of how an Iron.pps (http://www.jvcranston.com/files/invest/Think%20or%20Swim%20Simulation%20of%20how%20an%20I ron.pps)

[madcowdisease]

How the options working out with the recent volatility?

[txjeff]

I'm still only trading in simulation. My paper trade made the expected profit as the iron condor stayed in the alley throughout the 6 week process without any protective plays. I'm not sure exactly when I'll be ready to trade real money. I'll probably practice more simulations for awhile.

[txjeff]

An update; Started working a new job 5 weeks ago so all my time is going in on that these days (at least most of it). Yesterday I got a call from OptionsMD as they were soliciting a third party group that does "one on one" coaching, for a tuition. But when I realized that the price was so high, 5-6k, I decided they are asking far too much. I decided to reject it as I plan soon to start up my focus on my own once again and will soon shift my margin account to Optionshouse, to get better commissio

[VielGeld]

Yo! -- Been a while since I've been here.

So, it seems like Doc was legit (one of a kind in the vendor world, I tell you!), and you might just have got your money's worth.

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Now, this stood out to me: "I'm not sure exactly when I'll be ready to trade real money."

All I can say is: good shit, Jeff! You're sticking to properly learning to trade a method rather than gamble. :top: You'll know when you're ready. It'll just feel right to transition to real money because you'll have practiced for the real thing. Keep up the paper trades until then and slowly transition into it. Take your time.

And yes, do minimize the commissions as much as you can. Options trading can very easily eat up any meagre profits generated from successful trading.

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Finally, for divining the S&P's activity, you might want to look into Market Profile and reading order flow stuff if you're interested. You'll get to see who's buying/selling and at what volume. It's a very, very useful tool if you can read it.

Here's a primer to get you started: http://www.cmegroup.com/education/interactive/marketprofile/handbook.pdf

Especially look into the concept of Mean Reversion. It is, imo, the most predictable part of the market.

[txjeff]

Thanks for the feedback. The transfer is in process. I also met a friend several weeks ago that took the course years ago and is up and running for more than 6 months. We are pooling our resources to find the most efficient trades and fine tuning our plan. And, again, it is a slow process.

I can only say that I don't miss the craziness of the market with directional trading. In fact, during my work day, the market is not even on my mind, except for maybe once per day.

The TIC group may be coming down since I've been the only one participating for quite awhile.

[txjeff]

Howdy folks. I'm still alive. I am live trading the Options MD method now and so far, it is going well and I am profiting with the high probability iron condor method. Simultaneously I have some stocks in a diversified, hedged IRA, using only small quantities, and that seems to be going pretty well to. My work is extremely demanding these days, so I sort of do this in between things. I have a bud who is doing the same thing and we share info via Skype and keep each other up to speed. That's a nice touch.