I closed my last position of the year today. (at a mitigated loss) Although I applied your strategies, I still got mauled in the post-election rally. Total year's loss is a rather steep drawdown. I'm not saying that any of this is due to your strategy. I just think that 2016 was a terrible year for a newbie to begin trading options; a call spread trader had little chance this year, with several furious rallies taking place. I'm going to have to cease option trading indefinitely, because I can't risk further losses. If anything, I will wait until the present rally is over, and then buy some deep ITM puts in SPY that expire Dec 2018. That would be a low-maintenance, high-probability trade that would give me 2 years to eek out some gains. Even that seems to be risky with the present optimistic sentiment though; the market seems to be unbreakable, even by the things that "should" break it. (e.g. Brexit) I have a feeling that the market is in a bubble, but we will see with time.
- Mr. Deen
It's been frustrating and I hear you.
I think if one lesson must be learned from all I talk about. If you need to extract just one single lesson and nothing else. Then, that would be to always be less aggressive with Calls. To always play fewer of them and not because we have been in a Bull market, but simply because adjustments are always less than ideal: You only get access to unattractive premiums; can't get far enough with the new strikes, etc. In times like this, one would think that it is better to just passively hold something and forget about the markets. While that is a valid approach (I myself hold several dividend growth companies and they have obviously done well this year), at the same time, one must remember the lost decade. From December 1999 to September 2011 the Dow went nowhere. Same start and end point. So, even passive buy and hold can be frustrating. Imagine 12 years wasting your time. And by the way it has happened several times throughout history (Read The Cons of Index Funds).
It is easy to be frustrated this year and forget that last year, when the markets returned nothing, we handily beat it by 11%. It was a good year for Options sellers in general.
There is no single strategy in the markets that's totally and indefinitely free of frustration. All of them suffer in certain periods. I remember the 2010-2012 being excellent for income trading strategies. Tons of newsletters appeared posting 40 - 60% annual returns. It almost seemed too easy. Most of them disappeared after 2013. Forced to deal with the worst environment for an Options seller, which is not the bear markets, but the low volatility resilient bull.
But as for your particular standing. There is nothing wrong with getting away from the markets for a while. Nothing wrong with it as frustrating as it initially feels. I've been through it. We've all been there, to one degree or the other.
As for my trading, I will change a couple of things here and there in 2017 which I will explain in future articles. So, if you are interested, you can have a look, even if you are not trading. I think it is always good to be a prepared/informed individual.
Cheer up. We still live in the first world, with beautiful first world problems.
Do not get married to one single approach. If you want to hold an index passively with a portion of your capital. By all means! If you want to sell covered calls on that index, cool. If you want to add some dividend growth companies to the mix, or trade automated trend following strategies, then much better! As long as each approach has a historical edge and matches your personality so that you know for sure you will be disciplined to follow it, all is good. Just be aware that in that mix of strategies, some will inevitably have sub-par periods. Some will do better. The year after that, things can take a different turn, just when you were about to ditch the under-performing strategy.
Do it Yourself