scratch-mark

May Report Card

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.

May_chart

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.

Richard Nikoley

I'm Richard Nikoley. Free The Animal began in 2003 and as of 2021, contains 5,000 posts. I blog what I wish...from health, diet, and food to travel and lifestyle; to politics, social antagonism, expat-living location and time independent—while you sleep—income. I celebrate the audacity and hubris to live by your own exclusive authority and take your own chances. Read More

4 Comments

  1. Richard Nikoley on May 23, 2006 at 20:05

    You roll the long stike (1260) to 1245, if that's what you mean. It's a credit, since you're selling the 1260 for a high price and buying the 1245 at a lower price. I believe the credit is about $6 per option right now, so a 10 contract roll would get you about $6,000.

    Of course, your exposure increases from $10 per option to $25 per option, should the SPX close below 1245 in on June expiration. However, you should be able to roll the who position to July for an additional credit.

    The one problem you might have is that it requires quite a bit of maintenance reserve to do this. If so, then you're going to have to take the loss, wait until nearer June expiration, or keep it with the $10 spread and try to roll that out close to June expiration.

  2. tim hirt on May 23, 2006 at 19:53

    richard
    thanks for this posting. i, too am in the 1270/1260puts for june. i have only been traing since feb. and im not sure how to roll out to 1245? could you help me with this. i am a craig severdog taught guy (olinebacker graduate) i like your style and im in a bit of a pickle.

    thanks

    tim hirt

    my email is tim@hirt.org and i am currently in utah for the 4 day live class. i will be back home on thursday pm…but i think i should rectify this b4 then.

  3. Mojo on May 24, 2006 at 06:32

    Richard,

    This is my first time reading your blog. Its great! Definately keep up the good work and don't worry about bragging. Your writing doesn't come across that way at all.

    Good trading,

    Mojo

  4. gail frances on May 24, 2006 at 06:38

    richard
    you have been more than helpful and generous with all your comments and posts..thank you so much
    i have a bcs june 1285/1280..i did this before all the posts re wider spreads..so i am getting ready to do a 25 spread and a 50 spread on paper to see how it develops..i see you are buying woth..
    am watching this like a hawk
    thanks again
    gail

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