Profits of $21,369; a 24.2% return on cash.
I reported on April here. Click on the Market Trading category for the whole series, in reverse chronological order (start at the bottom, work your way up).
Well, any concerns expressed in April as to the low volatility numbers (resulting in lower credit premiums) have been cured. If you follow the markets at all, you may be aware that last week offered a moderate correction on all indices. It was due. Unfortunately, I didn’t listen to my prudent and conservative side and got myself into trouble. It’s not manifest in this month, which for options-expiration purposes, closes out on the third Friday. But for June I’ve been scrambling rather significantly. More on that later.
I realized that my method of reporting results was flawed. To date, I’ve been reporting results based on the expiration month of the option, regardless of when it was opened or closed. This really gives a skewed view of returns month-by-month, when in reality, my account has pretty much been increasing continually. Since I’ll now be mixing options months, then return on risk, as I’ve done in the past, will no longer calculate correctly. I’ll just use a return on cash (in trading credit spreads exclusively, your entire account is always in cash (youre opening is a net sale; a credit); you’re not holding any net long positions)
So, if I count the close of the month as options expiration day, the third Friday of each month, here’s my returns since January:
- Jan $4,539 profit; 20.5% return on cash
- Feb $9,533 profit; 35.7% return on cash
- Mar $3,737 "profit"; 5.2% return on cash
- Apr $20,630 profit; 30.5% return on cash
- May $21,369 profit; 24.2% return on cash
Those are monthly figures, folks… I am on the verge of doubling my account since mid February. Needless to say, I’m very pleased — moreso because I spend so little time at this. It does require some knowledge, of course. Far more than that, it requires substantial nerve, which I believe is what my business background uniquely prepared me for. Just today (due to last week’s tumble), I was staring at potential losses of $40,000. While those potential losses are still ever present, I managed, through a series of trades, to greatly increase my chances of getting out with no loss — either through worthless expiration or more attractive rollouts to July positions. The cool part is that the cost of mitigating my risk was minus $3,000. That’s right, I made $3k turning serious mistakes into lesser mistakes. It almost violates the laws of nature. And that’s not all. Tomorrow morning I will get filled on a trade that will complete, for now, my scrambling. That trade will generate another $10,000. So, $13,000 for screwing up? Why? It’s the reward for being willing to shoulder huge risk in order to turn it around.
Alright, here are the May trades, up through last Friday, the 19th, when May’s options expired.
June could be tough. Gains are only about $3,000 so far, and should be up to $13,000 by tomorrow morning. Whether I keep them or not will remain to be seen. This market is new territory for me. I started doing this last December, and if you’ll look at the charts since, there has been but one predominant direction for the market (up). Of course, my bet (mistaken) was that it would continue, or if not, just churn and consolidate for a while. Now the bears are in control and we’ll have to see how that works out. If 1255 on the SPX breaks through, then there’s no telling how strong the correction will be.
Of course, this is all short term. Long term, anyone is foolish not to be a bull.
But this is what’s great about the non-directional trading I do. I can be wrong all the time and still make 20-30% per month. If I’m way, way wrong, as I am now, I can still make money, but it’s a lot harder, takes a lot of attention and time, and, frankly, takes some big titanium ones, if you know what I mean.
I might not be reporting like this much longer, though I’ll be sure to at least summarize how June finished out. My original plan was threefold: to hold myself to account, to create a journal of sorts to document my experience, and to pass along some good will, should it all work out. I believe I’ve accomplished all three in spades. I’m now fully confident in my trading ability and it’s really not my intention to make of this a bragging session.