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BookingAlpha Option Trading Advisory

Friday, November 11, 2016

Options Trading Monthly Digest (October 2016)

Well, the time has come once again to go over the Options Trading performance for the most recent month: October 2016. A little late this time, but better late than never.

The goal of these articles is to recap and determine what went wrong, what went well, mistakes that were made, things that could have been done better.

Although the main focus is the long term viability of our strategies and not the month to month seesaws, hopefully these monthly updates will provide readers with confidence and serve as an authentic guide of what can be achieved with a realistic and sustainable approach to the business of Selling Options.

It's important to realize that we don't need to double our accounts every year, which entails unsustainable risks. With a simple 2% monthly return, money grows at a rate of +26.82% per year. Start trading with $10,000 and obtain those returns annually while investing 5,000 additional dollars out of your own pocket every year and you get close to the 1-million-dollar mark in 15 years. And you don't even need to get that far to make it worth it. Relatively small portfolios can consistently generate $400, $500, $600 a month, a meaningful help in the budget of the average family. Whether you want to trade for a living or only as a side activity for supplemental income, you are only truly limited by your own will. How much are you willing to dedicate to studying and training hard? That's all there is to it.

And while there is absolutely no guarantee that anyone will achieve any arbitrary numerical return in the future, the fact is: the power of compounding is truly remarkable and can do wonders even with small amounts of money.

Market Environment
October, the pre-election month. Because of the elections I was focused on reducing inventory prior to the ultimate binary event. Even though I am pretty mechanical with my entries and exits, with clear rules and all that, I felt I had to be really careful with the elections and not just throw caution to the wind. Perhaps influenced by the fact that I am not trading a small account anymore, where I would have for sure cared less. In terms of market price action, it was pretty much a sideways month: from a 2168 SPX close the last day of September to a 2126 SPX close the last day of October. As usual, in months like this one, we have good chances of making easy money.

The Trades

SPX October Insurance play
Made up of the combination of two 1825/1800 Debit Put Spreads and the sale of four 1625/1600 Credit Put spreads to finance them. The risk profile looks like that of an unbalanced Iron Condor, but because it is so out of the money it has very small risk and a huge potential reward. Well, this position expired for max loss. Not a big deal as it was just played for peace of mind. Small $170 loss (potential max reward was $4830). 

SPX November 1970/1980/2250/2260 Lazy Elephant
The position was initiated on October 4. Only 9 days later, the market had declined and it was possible to book decent gains from the Call side (details here). After that, it was a waiting game. Letting that Put side recover via market sideways action and time decay. On October 24, it was possible to book solid gains on the Put side (details here). We were in this position for 20 days (Oct 4 - Oct 24) and made +10.1% return on Risk (Initial Max risk was $8,720). We made $880 out of a maximum potential profit of $1,280 with 25 days to expiration. Could I have made more money here? Sure. But one of my proverbial rules is to reduce exposure and try not to carry 4 positions at the same time. Plus with the elections added, I just wanted to go through them with very light inventory. No regrets.

RUT November 1110/1120/1340/1350 Unbalanced Iron Condor
Initiated on September 23 and closed on October 27. This is one that, had I played with a small account, I would have left this position open, being totally mechanical and not caring about the elections. It would be a full winner next week. But, I decided to close early when the market started to get weaker, especially in RUT which was much weaker than the S&P all this time. All the rationale behind why I closed this one early can be read here. As a result, it was closed for a small $388 gain, giving away more than $2000 dollars of credit that I would have been booking in the next few days, but in exchange for peace of mind.

Gross profits of $1,098 for the month. $874 after commissions. Definitely not a stellar month as I was very conservative, avoiding any setbacks so late in the year, but, hey, definitely better than piling up frustrating losses.

In percentage terms: a +1.03% performance for the whole account. Subtracting commissions: +0.82%

YTD Results for 2016 

Up +7.38% at the end of October, whereas the SPX closed the month up +4.02% for the year.
The December FED meeting, with potential rate hike included, now takes the center of the stage. That uncertainty should provide a whole lot of "nothingness" price-action wise, and hopefully a decent VIX level that will provide us with good premium selling opportunities.

Thanks for reading.

If you are interested in a responsible and sustainable way of trading options for consistent income and a smooth equity curve, consider acquiring LTOptions, my options trading system to the last detail.

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