Well, this option cycle is over for me. I will start putting on trades next week.

I am out of almost all of my trades. I made a profit on 4 out of 5 trades. 80% is not bad.

I tried different trades that were not part of my standard rules, and learned a lot. I will go back to my normal set of rules ( mainly calendars ). Probably doing 10 ~ trades.

I still hate NAL.

Well, I closed out of INTC today. The price was nearing the short strike. Even with expiration a few days away, I had set up my risk management to get me out when INTC hit the short strike price. I can’t complain, it was a 53.3% profit in a few weeks.

I placed a JUN 135/140 bear spread on AAPL two days ago for a credit of 0.15. As of today, I don’t think those options are even trading two days later, the price fell too far. It doesn’t even come up on my screen, and it didn’t trade yesterday.

If I could get a trade, it would not even be worth it to close it out. They expire of Friday, and it would take a 4? ( ? = standard deviation ) for them to make it into the black. Something like a 1 in 10,000 chance or something like that. I didn’t bother to calculate it. They are just going to expire worthless and save me the commission.

That is the whole point of the 68-95-99.7 Rule when making vertical spreads. If you place your spreads @ 1?, then you have a 84% chance of a profitable trade. Since ? calculates both appreciation and depreciation, we only need to be concerned about half, giving us a free ride on the other 50% probability. 1? / 2 + 0.50 = 84%. And yet another use for my Standard Deviation spreadsheet.

I love math.

The 68-95-99.7 rule states that for a normal distribution, almost all values lie within 3 standard deviations of the mean.

About 68% of the values lie within 1 standard deviation of the mean (or between the mean minus 1 times the standard deviation, and the mean plus 1 times the standard deviation). In statistical notation, this is represented as: ? ± ?.
About 95% of the values lie within 2 standard deviations of the mean (or between the mean minus 2 times the standard deviation, and the mean plus 2 times the standard deviation). The statistical notation for this is: ? ± 2?.
Almost all (actually, 99.7%) of the values lie within 3 standard deviations of the mean (or between the mean minus 3 times the standard deviation and the mean plus 3 times the standard deviation). Statisticians use the following notation to represent this: ? ± 3?.

http://en.wikipedia.org/wiki/68-95-99.7_rule

The market has been brutal. I got stopped out of NAL. I set my stops at the beginning of the trade, and now I am going to stick wit it.

Never change your trading plan mid-course. It is a slippery slope that will just cause more problems. Take your losses, learn from your mistakes and move on.

~squid

I have had a pretty good percentage of winners so far this month. You can not win them all. I am going to revisit mu rules on adding to a position during a favorable move. Some of the greatest traders add to positions when they are moving their way. Doing the same in options, probably requires some thought, since I am trading a lot of theta now. Not as simple as with a trend following equity system.

But a stop loss is a stop loss. This is why we have them.

I still have 6 calendar days until I close out the trade and who knows what will happen. My other trades are going to be in the black I think. APPL would have to make a helluva move for my AAPL bear call spreads not to finish in the money, and my INTC spreads are cranking out theta every day.

I didn’t get my ‘flys on AAPL, but I did get a few bear call spreads. So I am going to run thru my thought process on the way I looked at trades. So first is my general thought process on option trading. This is a speculative trade,so I don’t follow my normal rules on option trading. I also limit my speculative trades to a smaller part of my account.

[1] Look and analyze the situation,[2] Look at the market,[3] Find the best strategy to fit that trade,[4] Worry about how much pain you will be in if you get it wrong., [5] Make the trade.

Well, I looked at AAPL, and I had an opinion. When I looked at AAPL the morning of the conference, the options had not moved to a point that I would have been comfortable placing on a trade.

So here is how I made the trade.

[1] Look and analyze the situation
I thought that IV would spike on AAPL options and then an IV drop , same as what happened last year’s WWDC. ( It turned out I was wrong on both counts. But that would have been taken care of because my other rules stopped me from taking the trade )

[2] Look at the market
Monday morning, the IV’s didn’t move the way I needed them to move. I ended up not taking the trade because I could not get a wide enough profit band. I guess when Cramer is talking about it, it is hard to outguess everyone. But the JUN 135/140 calls had a really high IV, and they were cheap. So I looked for a way to trade those.

[3] Find the best strategy to fit that trade
When I looked at AAPL the morning of the conference, the options had not moved to a point that I would have been comfortable placing on a trade. By looking into the options ‘playbook’ showed that bear call spreads would work and I would feel comfortable with trading them. I normally do not trade bear call spreads ( or credit spreads for that matter ), but that was the best tool for the job. The options were expiring in the next four days, and no news, earnings or takeovers on the horizon for the next four days, so I was cool with that.

[4] Worry about how much pain you will be in if you get it wrong.
Using my std dev spreadsheet I calculated that it would take a move of two standard deviations to move me into the red. SO I took the trade. I didn’t get the trade until 1 pm, but I got a good price.

[5] Make the trade.
Execution, execution, execution. I got the price I wanted by watching the market. You don’t always get the price you are trying to get, and maybe those are not the trades you should be making.

Funny thing is AAPL got spanked after the WWDC. It seems like people are looking for a reason go go south on AAPL. Moving down after good news is usually a bear sign.

I will make money on my bear calls anyway. It would take a three standard deviation move to put me out of the money. And when I bought the spread, it was a bear credit spread, NOW it is a debit spread to get in.

Disclaimer: I am long AAPL in my non options account