All right, the time has come to admit defeat. Yesterday was November expiration, my worst month ever. With my current trading style, I can make an adjustment to one of my spreads and still pull off a positive month. I can generally make two adjustments in the cycle and still pull off a break even month. I start losing money if I'm forced to make a third adjustment in the cycle. Well, in November I had to close 4 positions for a loss. With the added sin that I didn't make the last adjustment. I just closed my fourth loser without entering that last revenge trade, which would have been a winner. So, this exaggerated the losses a little bit in the end. I did enter my fifth order, it just never got filled for the price I wanted.
November resulted in a -10.81% return for the portfolio, trading costs included. With this result it will be very hard to outperform the market this year via the Options trading strategy (I did out perform via Dividend growth investments). The options portfolio is now up +4.07% year to date, whereas the SPX index is up 12%. Unbelievable. Just two months ago I was up 17.88% while the SPX was up only 9% and it looked like I would easily beat the index by year end. I was also pretty confident that I would end up above the 20% mark in 2014.
But then September + October happened. In just 45 days the market went down 10% and back up 10%. A very challenging and infrequent environment. A pretty tough one for any options seller. Once again, the weapon of mass destruction was the same: Credit Call spreads. Moving forward I will be much more conservative with them. I just have to, after three years of clear evidence. Up moves are consistently underestimated by probability models. While down moves are consistently over estimated. These are lessons I have learned the hard way. Equipped with them I will do my best to outperform in 2015. If I have a crappy performance in 2015 and can't beat the SPX index, I will have to re-consider my stance regarding options selling. Meaning I will probably stop doing it and be more focused on automated Forex trading and Dividend growth oriented Investments. Of course, I now know that in years where the market has double digits growth, it is be very hard to outperform via premium selling strategies. So, I won't be too hard on myself in that case. But if we have single digit growth for the market in 2015, or a flat market or a negative one, there will be absolutely no excuse. Absolutely none. Notice how I haven't lost my ass selling options at all. In fact after three years publicly disclosing all my trades, I haven't experienced a negative year. Not even in the very challenging 2013, not in 2014 either, and I have grown my capital quite substantially since 2012.
But, this is not about quitting when you lose your ass, but rather focusing your energies on things that work better. I don't want to be dramatic, and frankly I think I will do much better in 2015. I'm just saying, if you have been under-perfoming for a while, and do no question your methods, there's gotta be something wrong with you. I know I will sell Calls much more conservatively. I know I won't be afraid to buy lotto tickets via out of the money Calls during market bearish extremes. I know I will play Calendar Put spreads more frequently during overbought extremes rather than just Credit Call spreads etc.
Market conditions
(Click on image to enlarge)
Stochastics: 80 (overbought)
McClellan: +72 (neutral)
57% of stocks trading above their 20 Day Moving Average (neutral)
With two neutral readings I consider the market to be in no man's land and therefore ready for strong moves in either direction. That's my typical approach. Last week however, it was in no man's land and I mentioned that I thought it should go down first, due to a bearish divergence between price and the McClellan Oscillator. Well, this week the market closed higher than last week, and yet the number of stocks trading above their 20 DMA decreased. Suggesting that the index went up aided by a smaller number of stocks with a greater weight in the index, but that, overall, more stocks went down than up. That's another bearish divergence. But what good could come out of it? So many of us have been burned on the call side so many times in the last two years......And why would you follow the opinion of a premium seller who is under-performing anyways?
I wouldn't sell Calls at this point. Just as I didn't do last week, regardless of all the divergences and technical signs of weakness. I will only sell Calls if all three indicators I follow are aligned signalling and extreme. On the Put side, unfortunately, I don't find it attractive either at the moment. So, time for me to stay Put and just defend existing positions if need be.
December positions
SPX 1750/1760/2110/2115 Iron Condor
$340 credit. 74% probability of success. 26 days to expiration. May need an adjustment if SPX hits 2085 or so this week.
SPX 2110/2120 Credit Call Spread
$100 credit. 74% probability of success. 26 days to expiration. May need an adjustment as well.
Action plan for the week
For the December expiration cycle I will just focus on defending existing positions.
It is time to start thinking about the January 2015 cycle now that we are less than 8 weeks away from expiration. The 1860/1870/2150/2160 looks like an attractive Iron Condor to me. I may sell it unbalanced. That is, fewer contracts on the Call side. We'll see.
Economic Calendar
Tuesday: German GDP. US GDP. US CB Consumer Confidence.
Wednesday: US Core Durable Goods Orders. New Home Sales. Pending Home Sales. Chicago PMI.
Thursday: German Unemployment and CPI.
Friday: European CPI
Good luck this week folks!
Check out 2014 Track Record
November resulted in a -10.81% return for the portfolio, trading costs included. With this result it will be very hard to outperform the market this year via the Options trading strategy (I did out perform via Dividend growth investments). The options portfolio is now up +4.07% year to date, whereas the SPX index is up 12%. Unbelievable. Just two months ago I was up 17.88% while the SPX was up only 9% and it looked like I would easily beat the index by year end. I was also pretty confident that I would end up above the 20% mark in 2014.
But then September + October happened. In just 45 days the market went down 10% and back up 10%. A very challenging and infrequent environment. A pretty tough one for any options seller. Once again, the weapon of mass destruction was the same: Credit Call spreads. Moving forward I will be much more conservative with them. I just have to, after three years of clear evidence. Up moves are consistently underestimated by probability models. While down moves are consistently over estimated. These are lessons I have learned the hard way. Equipped with them I will do my best to outperform in 2015. If I have a crappy performance in 2015 and can't beat the SPX index, I will have to re-consider my stance regarding options selling. Meaning I will probably stop doing it and be more focused on automated Forex trading and Dividend growth oriented Investments. Of course, I now know that in years where the market has double digits growth, it is be very hard to outperform via premium selling strategies. So, I won't be too hard on myself in that case. But if we have single digit growth for the market in 2015, or a flat market or a negative one, there will be absolutely no excuse. Absolutely none. Notice how I haven't lost my ass selling options at all. In fact after three years publicly disclosing all my trades, I haven't experienced a negative year. Not even in the very challenging 2013, not in 2014 either, and I have grown my capital quite substantially since 2012.
But, this is not about quitting when you lose your ass, but rather focusing your energies on things that work better. I don't want to be dramatic, and frankly I think I will do much better in 2015. I'm just saying, if you have been under-perfoming for a while, and do no question your methods, there's gotta be something wrong with you. I know I will sell Calls much more conservatively. I know I won't be afraid to buy lotto tickets via out of the money Calls during market bearish extremes. I know I will play Calendar Put spreads more frequently during overbought extremes rather than just Credit Call spreads etc.
Market conditions
(Click on image to enlarge)
McClellan: +72 (neutral)
57% of stocks trading above their 20 Day Moving Average (neutral)
With two neutral readings I consider the market to be in no man's land and therefore ready for strong moves in either direction. That's my typical approach. Last week however, it was in no man's land and I mentioned that I thought it should go down first, due to a bearish divergence between price and the McClellan Oscillator. Well, this week the market closed higher than last week, and yet the number of stocks trading above their 20 DMA decreased. Suggesting that the index went up aided by a smaller number of stocks with a greater weight in the index, but that, overall, more stocks went down than up. That's another bearish divergence. But what good could come out of it? So many of us have been burned on the call side so many times in the last two years......And why would you follow the opinion of a premium seller who is under-performing anyways?
I wouldn't sell Calls at this point. Just as I didn't do last week, regardless of all the divergences and technical signs of weakness. I will only sell Calls if all three indicators I follow are aligned signalling and extreme. On the Put side, unfortunately, I don't find it attractive either at the moment. So, time for me to stay Put and just defend existing positions if need be.
December positions
SPX 1750/1760/2110/2115 Iron Condor
$340 credit. 74% probability of success. 26 days to expiration. May need an adjustment if SPX hits 2085 or so this week.
SPX 2110/2120 Credit Call Spread
$100 credit. 74% probability of success. 26 days to expiration. May need an adjustment as well.
Action plan for the week
For the December expiration cycle I will just focus on defending existing positions.
It is time to start thinking about the January 2015 cycle now that we are less than 8 weeks away from expiration. The 1860/1870/2150/2160 looks like an attractive Iron Condor to me. I may sell it unbalanced. That is, fewer contracts on the Call side. We'll see.
Economic Calendar
Tuesday: German GDP. US GDP. US CB Consumer Confidence.
Wednesday: US Core Durable Goods Orders. New Home Sales. Pending Home Sales. Chicago PMI.
Thursday: German Unemployment and CPI.
Friday: European CPI
Good luck this week folks!
Check out 2014 Track Record
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