On 10/22, I bought 1 IPI Dec $15 put @-$100.67 net. Today, I closed the position @+$104.32 net, for a modest gain of 3.65%. But as I've asked before, is that gain really so "modest", given that the holding-period was just 11 market days? A gain of roughly 33 bps/market day is serious money.Why close the trade now that it seemed to be working? I have no idea why IPI dropped today, nor do I care. I just knew --belatedly-- there wasn't sufficient options volume to be hanging around and hoping. So when I saw an opportunity to exit a poorly set up trade, I took it. My score card so far is 5-0, with an avg gain per position of about 20%, which I'd still say is 95% beginner's luck and only 5% proper trade management. But I'm hanging in there, doing my learning on the other guy's nickel. Of my stack of options books, I'm finding that Guy Cohen's approach makes the most sense. The library had a copy of his book on trading volatility that I liked so much from just the opening pages that I bought a used copy off of Amazon, so I can mark it up. I've tried to explain to friends my interest in using options to sell short. Either their eyes glaze over, or short-selling is too counter-intuitive to them to ever attempt themselves, which I think is a shame. The money is fabulous compared to any of the currently favored alternatives. It's going to be a long apprenticeship before I attempt to trade size. But I think I see a path toward journeyman returns, which would be 13%-21% per year on capital risked and --given the work this stuff involves-- keep it limited to no more than 10% of AUM. (I just want a hobby, not a real job.) Arindam
Opps. I should written "IPI $4 put". I mistakenly wrote $15, because I got distracted by something. But my entry/exit numbers are correct.
Congratulations again! It's a great thing that so many brokerages killed their trading fees in the past couple months, otherwise it appears your profit would have been eaten up.So how have you started thinking about judging the quality (and soon to come, quantity) of your success? Do you consider these high-probability bets? (I guess not if you say it's 95% beginner's luck) Position sizing is a very big stumbling block for me. Over-betting is deadly but this year my options bets have mostly been very successful (bullish bets in a bullish market!) so I've clearly underplayed my hand.... many times selling puts for 20% IRR when buying calls would have many magnitudes of return, etc. Still a great year. Wishing you continued success!
Ilan, Actually, fees on options trades haven't been killed, merely reduced. What is killing me is spreads, which are wide for the illiquid stuff I was trying to trade and the reason I got out of them when I could. I haven't started thinking about "quality", because there is none. I stumbled through some trades and made money. That's as statistically meaningful as winning two coin flips in a row. You shouldn't berate yourself for not having bet bigger on your winners. That kind of retrospective woulda/coulda/shouda will get you killed, because any of those trades could have gone south. Linda Raschke --one of the world's top traders-- makes that exact point. "I size all positions equally, because I never know what's going to work and what's going to blow up." She can do that, because she's generally trading SP futures. With options, it's going to be harder to size positions equally. So two things need to be distinguished: 'exposure' and 'risk'. 'Exposure' is the gross money in the trade. 'Risk' is a conservative estimate of worst-case loss. In order to avoid the risk of ruin, the rule of thumb is 'risk' can't exceed 2% per trade. A lot of the pros work with a much smaller cap. Aridam
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