January 2014 Update

Another month has flown by already, and so it's time to look back at how things are tracking.

The Good

  • 20 total trades
  • 18 successful trades (90%, down from 93%)
  • Average trade length of 4 days (down from 6 days)
  • Average gain of $583.86 (up from $86.97)
  • Total gain of $11,677.12 for January (up from $3,652.83 for previous quarter)

A very significant improvement over the previous months, mostly through being more selective about the trades I enter.

The Bad

It wasn't all sunshine and roses though, there were still 2 losing trades. One of those trades resulted in a net loss of over $4K. That trade was a Sears Holdings Corporation Jan 18 put at $35.42, at the time a strike price that was approximately 25% below the SHLD trading price. When the market didn't like the company update it was hit pretty had and quickly dropped from $46.40 down to $35.30. At that point the option was now in the money, and my trade was underwater, so I sold to try and stem any bleeding.

The Ugly

If you take a look at the price chart for SHLD you'll notice I sold at the absolute low, the price recovered and the option expired worthless as was the plan. I lost $4.1K on that trade because I didn't stick to the plan.

It did make me realize I'd not explicitly defined what my exit criteria were beyond letting the option expire. I've spent a lot of time tuning my entry criteria to help remove emotion from my decision making, I'd not come up with an objective way to determine go/no-go after I'd entered. The expectation was I'd ride every trade out until the end and it's obvious now that's not always going to be the most sensible option.

Looking back to look forward

So I looked back over my previous trades and noticed a few patterns I'd missed previously:

  • All of my losing trades have recovered shortly after I closed out, meaning they would have all been profitable if I'd held them for 1-3 days longer.
  • I'd missed out on a number of profitable trades by holding on to winners too long.

On the first point, I'm still not confident it's a good enough reason to hold on to what looks like a loser. The market in general has been on the up and with so few losing trades at the moment I've not got enough data to put thousands of dollars on the line every time.

I was caught off guard by the latter finding though. There has been many trades that have moved into positive territory very quickly that I've continued to hold until expiry. Continuing to hold means the option will ultimately expire worthless, I get to keep the premium, and I don't have to do anything until I pick my new trades next week. In my laziness I'd forgotten lessons from options 101, that time-decay was working against me. The underlying stock had moved further away from the strike price on my current trade so that buying my puts back would only cost me in the region of $70, meanwhile a more profitable trade was having it's value eroded rapidly as the option expiry date approached. In the case of the NFLX trade I placed on Jan 22nd the 2 trading day delay in me selling the puts meant the net gain was reduced by $1,500.

As a result I started closing out trades prior to the expiry if I'd already captured >90% of the possible gain, if there was a better use of my money somewhere, and if there was still a market to buy my options back on. You'll see the average trade length for the latter half of January is much shorter as a result.

Knowing that a single day difference in timing on two trades would have had a $5,600 impact on the results for the month is frustrating. But it's always been the costly mistakes that have been the most valuable ones, and this lesson has already been applied to improve what was already a really good month.

The Trades

Option Qty Opening Date Opening Price Closing Price Gain Trade Length
MU Jan 03 '14 $20 21 12/23/2013 0.17 0 339.18 12d
MU Jan 03 '14 $20 20 12/24/2013 0.07 0 122.7 11d
MU Jan 10 '14 $19 78 12/27/2013 0.26 0 1,980.78 15d
MU Jan 10 '14 $18.50 94 12/30/2013 0.2 0 1,824.54 12d
SHLD Jan 18 '14 $35.42 33 01/06/2014 0.23 1.46 -4,106.62 8d
NFLX Jan 24 '14 $265 3 01/13/2014 1.97 0.01 572.7 10d
NFLX Jan 24 '14 $265 1 01/13/2014 1.97 0 194.74 12d
FAST Jan 18 '14 $44.50 10 01/14/2014 0.15 0 137.91 4d
TSLA Jan 18 '14 $146 1 01/14/2014 0.69 0.02 64.58 2d
TSLA Jan 18 '14 $146 4 01/14/2014 0.69 0.03 249.67 2d
TSLA Jan 18 '14 $146 2 01/14/2014 0.68 0.03 125.63 2d
FFIV Jan 24 '14 $91 13 01/21/2014 1.3 0.04 1,610.74 2d
SNDK Jan 24 '14 $67 11 01/21/2014 0.81 0.02 843.8 3d
NFLX Jan 24 '14 $305 1 01/22/2014 7.9 0.02 784.64 1d
NFLX Jan 24 '14 $305 2 01/22/2014 7.9 0.03 1,560.28 1d
FB Jan 31 '14 $51 13 01/23/2014 1.05 0.01 1,326.69 7d
ISRG Jan 24 '14 $405 1 01/23/2014 3.24 0 316.49 2d
ISRG Jan 24 '14 $405 1 01/23/2014 3.3 0 329.48 2d
MSFT Jan 24 '14 $33 1 01/23/2014 0.09 0.01 6.74 1d
MSFT Jan 24 '14 $33 23 01/23/2014 0.08 0.01 132.02 1d
MSFT Jan 24 '14 $33 5 01/23/2014 0.08 0.01 21.71 1d
SBUX Jan 24 '14 $68 13 01/23/2014 0.25 0 311.38 2d
ALXN Jan 31 '14 $126 3 01/24/2014 1.9 0.09 530.61 6d
ALXN Jan 31 '14 $126 6 01/24/2014 2.05 0.09 1,165.2 6d
AMZN Jan 31 '14 $355 3 01/27/2014 2.69 0.13 750.95 4d
FB Jan 31 '14 $51 5 01/29/2014 1.3 0.01 630.96 1d
AMZN Jan 31 '14 $370 1 01/30/2014 5.35 10.51 -527.51 1d
AMZN Jan 31 '14 $370 1 01/30/2014 5.35 10.56 -525.52 1d
BRCM Jan 31 '14 $26.50 18 01/30/2014 0.15 0.01 219.67 1d
GOOG Jan 31 '14 $1060 1 01/30/2014 7.01 0.03 682.98 1d

Published on in Trades