Well, I love weekends. Two days of time decay where I do not have to watch the market.

One of my trades Corning ( GLW ) , just went wiggy on me. I have a calendar spread on, and the IV of the long option just jumped. Don’t know why, but it has a large skew. “The larger the skew, the larger the move”. I don’t want to be around for the move.

The skew developed while I was sleeping, so I didn’t see it. I did not expect a skew to develop that large that quickly. Now, skew is in my favor, which is why I made money, since I entered the position when the skew was much flatter. If the skew had gone against me, my rules would have me close the trade.

I will run a spreadsheet over the weekend to get a better idea of the pricing. That is the second reason I love the weekend. I have time to upgrade my software.

Trading Theta is hard. The part I hate is overcoming the vig, spread, juice (spread between the bid/ask, plus commissions) whatever you call it.

And we have to pay the vig on both sides, getting in and getting out. The best part about my trading system, is that a lot of expirations expire worthless. So when I put on a position, I am immediately down. IB prices you position as the midpoint between the bid/ask. And remember that you should not pay a ticket charge.

So when I enter a trade, I have to make sure that I can capture enough theta to make the vig. I don’t even know if you can say ‘capture theta’, but I think everyone knows what I mean. I actually calc how much to make the vig on each trade. I don’t use this calculation for my trades, but it makes me feel better. I like to know, how long before a trade ( given stable IV and the price not going against me ) will start giving me returns.

Well, a new options cycle has opened up, for Aug ‘07. There are always four months trading in equity options, 2 near-term and 2 far-term expiration months.

Originally , there were three option cycles for option expiration, which traded out 9 months.

JAJO - January, April, July, and October
MJSD - March, June, September, and December
FMAN - February, May, August, and November


But people found that boring and wanted more chances to trade. So the CBOE, a ‘friend’ of traders decided to also have the near two months trading.

Take AAPL (Apple Computer ) for example, it has option expiration for Jul 07 , Aug 07 , Oct 07 and Jan 08. Jul 07 and Aug 07 are the nearest two months, while Oct 07 and Jan 08 are from the JAJO expiration cycle. I always use AAPL for my examples, but hey , I love the stock.

Now on to Equity LEAPS, or Long-term Equity Anticipation Securities. All equity LEAPS contracts expire in the month of January. The expiration date is the Saturday following the third Friday of the expiration month.

So AAPL LEAPS run Jan 2008, Jan 2009, and Jan 2010.

Disclaimer : I do not own AAPL shares at this time.
The glider in the picture is a two seat T31 glider once used by the RAF and Air Training Corps.

I was trying different trading rules for the last few trades. The infamous NAL trade came from the Optionetics rules.

These are then are the characteristics we are looking for in a long ATM calendar spread.

1. High near month implied volatility and lower far month implied volatility. (Low cost to buy the spread).
2. Near term low statistical volatility (also called historical volatility) but with higher longer term statistical volatility. (Characteristics of a volatile stock that may have settled down recently)
3. A stock with a recent trading range around the chosen ATM strike. (We want to avoid a trending stock)
4. A stock with a lower price that may be consolidating. (Avoid assignment on the short side).

They obviously make more money from selling trading systems at $2,995 a pop ( plus a few grand for their software ) than they ever could have made trading.

I looked up their rules when I saw that they were having a seminar in my town. I didn’t go.

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.